NATURE OF OPERATIONS AND GOING CONCERN

The Company is a defense technology corporation specializing in the development of innovative next generation less-than-lethal security solutions that do not require the use of deadly force. SDI has implemented manufacturing partnerships to assist in the deployment of their patent pending family of products. These products consist of; the Blunt Impact Projectile 40mm (BIP40), and the Wireless Electric Projectile 40mm (WEP40).

These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. At February 29, 2012, the Company has no source of operating cash flows, has not achieved profitable operations, and has accumulated losses of $17,528,639 since inception and expects to incur further losses in the development of its business. These factors cast substantial doubt about the Company’s ability to continue as a going concern. The Company has a need for additional working capital to launch its blunt impact and electric 40mm round products, meet its ongoing levels of corporate overhead, and discharge its liabilities as they come due.

In order to finance the continued development, the Company is working towards raising of appropriate capital in the near future. During the year ended November 30, 2009, the Company raised $197,000 through issue of common shares and warrants. The Company further raised an additional $1,673,300 net through the issue of 8,143,000 common shares and also received $30,000 subscription for 150,000 shares pending allotment during the year ended November 30, 2010. The Company further raised an additional $160,000 through the issuance 800,000 common shares during the year ended November 30, 2011 and also allotted 150,000 shares relating to subscriptions received in 2010.The company raised an additional $878,328 by issue of Convertible Debentures during the year ended November 30, 2011 and in addition raised $825,000 by issue of Convertible Debentures during the three month period ended February 29, 2012.

While the Company has been successful in securing financings in the past, there is no assurance that it will be able to do so in the future. Accordingly, these financial statements do not give effect to adjustments, if any, that would be necessary should the Company be unable to continue as a going concern

At February 29, 2012, the Company had an accumulated deficit during the development stage of $17,528,639 which includes a non- cash stock based compensation expense of $5,769,846 for issue of options and warrants.