SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 30, 2006
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. None
SECURITY DEVICES INTERNATIONAL INC.
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(Name of Small Business Issuer in its charter)
Delaware Applied For
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(State of incorporation) (IRS Employer
Identification No.)
120 Adelaide Street West
Suite 2500
Toronto, Ontario Canada M5H 1T1
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(Address of Principal Executive Office) Zip Code
Registrant's telephone number, including Area Code: (416) 787-1871 Securities
registered pursuant to Section 12(b) of the Act: None Securities registered
pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act. [ ]
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
Yes No __X__
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The Company's revenues during the year ended November 30, 2006 were $ -0- .
--------
The aggregate market value of the voting stock held by non-affiliates of the
Company (9,046,550 shares) on February 15, 2007 was approximately $28,044,000.
Documents incorporated by reference: None
As of September 10, 2007, the Company had 14,330,050 issued and outstanding
shares of common stock.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes "forward-looking statements". All statements other
than statements of historical facts included in this report, regarding the
Company's financial position, business strategy, plans and objectives, are
forward-looking statements. Although the Company believes that the expectations
reflected in the forward-looking statements and the assumptions upon which such
forward-looking statements are based are reasonable, it can give no assurance
that such expectations and assumptions will prove to have been correct.
REASONS FOR AMENDED REPORT
This report has been amended so that certain parts of Item 6 and the
Company's financial statements correspond with the Company's registration
statement on Form SB-2 (File No. 333-143301) to reflect certain enhanced
disclosures in the notes to the financial statements. There were no changes in
the amounts reported in the Company's audited financial statements included in
the 10KSB report previously filed on February 28, 2007 (File No. 333-132456).
2
ITEM 1. BUSINESS
Security Devices International Inc. was incorporated in Delaware on March
1, 2005.
SDI is currently in the advanced stages of developing LEKTROX, a unique
line of wireless electric ammunition for use in military, homeland security, law
enforcement, and professional and home security applications.
SDI's LEKTROX system was developed by Elad Engineering, Israel, assisted
by:
o Dr. Nathan Blaunstein, Professor of Electrical and Computer
Engineering at Ben-Gurion University, specializing in Wireless
Cellular Communication, radio physics, and electronics;
o Dr. Yoav Paz, a heart and chest surgery specialist at the Hadassah
Medical Center, Jerusalem, member of the European Society of
Cardiology; and
o Emanuel Mendes, an electrical engineer at the forefront of Israel's
R&D for almost 50 years.
SDI's strategic collaboration with Elad resulted in the patent pending
LEKTROX system. Featuring the unique extended range Wireless Electro-Muscular
Disruption Technology, (or "W-EMDT"), SDI's first products, the LEKTROX 37/38mm
and 40mm round ammunition will be ready for the market in 2007 with a 12-guage
version to be introduced later.
LEKTROX has been specially designed for use with standards issue riot
guns, M203 grenade launchers and regular 12-guage shotguns. This will allow
military, law enforcement agencies etc. to quickly deploy LEKTROX without the
need for lengthy, complex training methods or significant functional adjustments
to vehicles or personal equipment. Simplicity of use is also a key benefit for
the home security market where most users have little or no specialized
training.
LEKTROX is a 3rd generation electric solution. First generation solutions
were electric batons and hand-held stun guns which had a range of arm's length.
2nd generation were the wired electric charge solutions. 3rd generation are the
wireless electric bullets. Currently, there is still no 3rd generation wireless
electric bullet on the market.
LEKTROX is being specifically developed to achieve the highest operational
success at the greatest distance of those known to be currently in development.
Causing instant target incapacitation up to distances of 60 yards, the LEKTOX
will give maximum field superiority to military personnel, law enforcement
officers and other security operatives in situations that do not call for the
use of lethal ammunition.
The LEKTROX Electric Bullet is totally safe in storage, transportation,
handling and loading. Locked in safe mode until its internal electric and
mechanical systems are activated by contact with the target, LEKTROX eliminates
any possibility of the round's accidental charging.
3
Exploiting proven fin technologies, the LEKTROX Electric Bullet maintains
excellent stability for the highest possible accuracy. In addition LEKTROX
achieves distances way beyond those reached by previous generation, wired
electric ammunition systems.
In addition to achieving a greater range, the LEKTROX delivers new levels
of effectiveness and safety through the use of
o Unique mechanisms that reduce the projectile's kinetic energy
o W-EMDT that instantly incapacitates the target without causing serious
injury or lethality.
To reduce kinetic energy levels, the bullet's head is composed of a
collapsible material that enlarges the contact surface and absorbs part of the
impact. Additional energy is transferred to other absorption mechanisms that use
the energy to release the Multiple Mini-Harpoon mechanism and activate the
built-in electrical system.
When released, the mini-harpoons fix the bullet irremovably to the
target's clothing or body. At the same time, the bullet's electrical system
releases a W-EMDT charge that imitates the electro-neural impulses used by the
human body. Sending out a control signal to the muscles, this high voltage low
current pulse safely overrides the target's nervous system inducing a harmless
muscle spasm that causes them to fall to the ground helpless.
Operating at lower than critical cardio-fibrillation levels, the LEKTROX
W-EMDT electric output has been designed in line with stringent medical
equipment standards that protect patients from permanent injury. Enabling full
recovery with no clinical after effects, LEKTROX helps decreases liability for
wrongful injury or death.
When introduced, the Short Range LEKTROX will have a safe firing range of
2-10 yards and will be fired from a proprietary system powered by a pressurized
air cartridge. Simple to operate, this laser-aiming system will be point and
fire exactly as they would with a standard pistol trigger. The round will fire
with low recoil enabling a quick firing of a second or third round if necessary.
The cost of manufacturing a LEKTROX electrical round is estimated to be
between $10 and $12. An electric round is estimated to sell at a retail price
between $60 and $75. In comparison, rubber, smoke or stun rounds typically sell
for $20 to $28. A cartridge for the TASER(R) sells for approximately $60.
The cost to manufacture a launcher for the Short Range LEKTROX is
estimated to be $150. SDI estimates that the short range launcher will sell at a
retail price of approximately $875 per unit. In comparison, the X26c Citizen
Defense System (PISTOL) sells for approximately $1,000.
SDI anticipates that most of its revenues will be generated from initial
and repeat sales of electrical rounds.
4
As of September 10, 2007 SDI has completed the following steps in the
development of the LEKTROX:
o Design and testing of ballistic rounds. o Production of various
ballistic rounds.
o Design of `electrical arms' to adhere to clothing or skin.
o Design of safety/armed mechanism.
o Production of mechanical systems.
o Design of electrical system.
o Production of electrical system.
o Integration and assembly of mechanical and electrical sub-systems for
electrical rounds.
Key steps to be completed include:
o Testing of different ballistic rounds.
o Production of completed rounds.
o Powder loading testing.
o Testing of complete electrical rounds.
o Adjustment of electrical rounds based on test results.
o Testing with military and law enforcement organizations.
o Completion of fully operational Long Range LEKTROX for production.
o Clinical testing on animals and humans.
See Item 6 of this report for information regarding the cost and timing of
the remaining steps in the development of the LEKTROX.
The electrical aspects of the LEKTROX are being developed by Emanuel
Mendez and assisted by D.P. Electronic Systems, Ltd., a company controlled by
Alexander Blaunshtein. Alexander Blaunshtein is a principal shareholder of SDI
and is the son of Natan Blaunstein, who is one of SDI's directors. During the
period from its inception (March 1, 2005) through January 31, 2007 SDI paid
$106,100 to D.P. Electronic Systems.
The mechanical development of the LEKTROX is being completed by Elad
Engineering Ltd., an Israeli company which has designed weapons for the Israeli
Military. During the period from its inception (March 1, 2005) to January 31,
2007 SDI paid $509,200 to Elad Engineering for research and development.
SDI does not have written agreements with Elad Engineering or D.P.
Electronic Systems for work relating to the development of the LEKTROX.
Once operational prototypes are completed, SDI plans to joint venture or
license the LEKTROX to larger companies which have the financial capability,
expertise and relationships for manufacturing, distribution, marketing, sales
and training. As of September 10, 2007 SDI has not entered into any joint
venture or licensing agreements.
5
Competition
The primary competitive factors in the market for non-lethal weapons are a
weapon's cost, effectiveness, and ease of use.
In the military market a wide variety of weapon systems are used. Conducted
energy devices, such as the LEKTROX, have gained increased acceptance during the
last two years as a result of the increased role of military personnel in Iraq
and Afghanistan. Conducted energy weapons have gained limited acceptance in the
private citizen market for non-lethal weapons.
SDI's primary competitors will be Taser International, Inc. and Stinger
Systems, Inc. The LEKTROX will also compete indirectly with a variety of other
non-lethal alternatives, including pepper spray and impact weapons sold by
companies such as Armor Holdings, Inc. and Jaycor, Inc.
SDI believes that its competitive advantage will be the ability of the
LEKTROX to effectively incapacitate offenders from a distance as far as 75
meters without a trail of wires leading back to the launcher. Stun Gun operators
must be in direct physical contact with combatants while the TASER(R) has a
range of less than seven meters. In contrast, the LEKTROX will be designed to
have a range which is over four times farther that TASER(R), providing a
significant safety advantage for enforcement officers and security personnel.
Patents
Two patent applications, one for the electrical mechanism and the other for
the mechanical mechanism of the LEKTROX, have been filed by SDI with the U.S.
Patent Office.
SDI does not hold any foreign patents.
SDI's patents may not protect its proprietary technology. In addition,
other companies may develop products similar to the LEKTROX or avoid patents
held by SDI. Disputes may arise between SDI and others as to the scope and
validity of its patents. Any defense of its patents could prove costly and time
consuming and SDI may not be in a position, or may not consider it advisable, to
carry on such a defense. In addition, others may acquire or independently
develop the same or similar unpatented proprietary technology used by SDI.
Government Regulation
Under current regulations the LEKTROX will be considered a crime control
product by the United States Department of Commerce and the export of the
LEKTROX will be regulated under export administration regulations. As a result,
export licenses from the Department of Commerce will be required for all
shipments to foreign countries other than Canada. In addition, the Department of
Commerce has regulations which may restrict the export of technology used in the
LEKTROX.
6
The LEKTROX will be controlled, restricted or its use prohibited by
several state and local governments. In many cases, the law enforcement and
corrections market is subject to different regulations than the private citizen
market. Many states have regulations restricting the sale of stun guns and
hand-held shock devices, such as the LEKTROX, to private citizens or security
personnel.
Foreign regulations pertaining to non-lethal weapons are numerous and
often unclear and a number of countries prohibit devices similar to the LEKTROX.
General
As of September 10, 2007 SDI did not have any full-time employees.
SDI's offices are located at 120 Adelaide Street West, Suite 2500,
Toronto, Ontario, Canada M5H 1T1. SDI's leases this space on a month-to-month
basis at a rate of $1,000 per month. SDI's offices are expected to be adequate
to meet SDI's foreseeable future needs.
SDI's website is www.lektrox.com.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
See Item 1.
ITEM 3. LEGAL PROCEEDINGS.
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SDI is not involved in any legal proceedings and SDI does not know of any
legal proceedings which are threatened or contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
Not Applicable
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
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OTHER SHAREHOLDER MATTERS.
--------------------------
On August 28, 2006 SDI's common stock was listed on the OTC Bulletin Board
under the symbol "SDEV". The following shows the high and low closing prices for
SDI's common stock for the months indicated:
Month High Low
September 2006 $0.80 $0.15
October 2006 $0.77 $0.65
November 2006 $2.25 $0.60
December 2006 $2.02 $1.75
January 2007 $3.65 $1.75
7
As of September 10, 2007, SDI had approximately 200 shareholders and
14,330,050 outstanding shares of common stock.
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors. SDI's Board of Directors is not restricted
from paying any dividends but is not obligated to declare a dividend. No
dividends have ever been declared and it is not anticipated that dividends will
ever be paid.
SDI's Articles of Incorporation authorize its Board of Directors to issue
up to 5,000,000 shares of preferred stock. The provisions in the Articles of
Incorporation relating to the preferred stock allow SDI's directors to issue
preferred stock with multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to the holders of SDI's
common stock. The issuance of preferred stock with these rights may make the
removal of management difficult even if the removal would be considered
beneficial to shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or tender
offers if these transactions are not favored by SDI's management.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF
OPERATION
SDI was incorporated on March 1, 2005 and as of February 15, 2007 has not
yet generated any revenue.
During the year ended November 30, 2006 capital became available to SDI
and as a result SDI was able to spend more on research and product development.
During the period from inception (March 1, 2005) through November 30, 2006
SDI's operations used $(625,999) in cash. During this period:
o SDI borrowed $4,227 (net) from its officers and directors,
o raised $425,105 from the sale of 1,839,880 shares of common stock to
private investors,
o raised $400,000 from the public sale of 2,000,000 shares of common
stock at a price of $0.20 per share, and
o raised $1,165,500 from subscriptions for common stock, and
o raised $95,000 from three of its officers and directors upon the
exercise of options to purchase 950,000 shares of common stock.
SDI is a defense technology company which is developing LEKTROX, a unique
line of wireless electric ammunition for use in military, homeland security, law
enforcement, and professional and home security scenarios.
8
SDI's plan of operation during the twelve-month period ending August 31,
2008 is as follows:
Projected Estimated
Activity Completion Date Cost
- -------- --------------- -----------
Completion of fully operational Long Range LEKTROX
prototype (37-38MM) up to production file: 9/07
Completion of fully operational Long Range LEKTROX
prototype (40MM) up to production file: 9/07
Completion of mechanical aspects of Long Range
LEKTROX prototype (12 GUAGE) 2/08
Completion of tooling for Long Range LEXTROX 2/08
Total for above: $1,460,000
SDI plans to develop a Short Range version of the LEKTROX after the
development to the Long Range LEKTROX has been completed. However, since the
development of the Long Range LEKTROX is not yet complete, SDI does not know the
time or cost involved in developing a Short Range LEKTROX.
SDI anticipates that its capital requirements for the twelve-month
period ending August 31, 2008 will be:
Research and Development $1,460,000
General and administrative expenses 100,000
Patent filings 30,000
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Total $1,590,000
=============
SDI does not anticipate that it will need to hire any employees prior to
December 31, 2007. SDI does not expect that it will need to raise additional
capital during the twelve months ending August 31, 2008. SDI believes that its
cash on hand at August 31, 2007 will satisfy its working capital needs for the
next eighteen months.
SDI does not have any commitments or arrangements from any persons to
provide SDI with any additional capital it may need.
ITEM 7. FINANCIAL STATEMENTS
--------------------
See the financial statements attached to this report.
9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
---------------------------------------------
Not applicable
ITEM 8A. CONTROLS AND PROCEDURES
-----------------------
Sheldon Kales, the Company's Chief Executive Officer and Rakesh Malhotra, the
Company's Principal Financial Officer, have evaluated the effectiveness of the
Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of
the Securities Exchange Act of 1934) as of the end of the period covered by this
report, and in their opinion the Company's disclosure controls and procedures
are effective. There were no changes in the Company's internal controls over
financial reporting that occurred during the fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
controls over financial reporting.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
------------------------------------------------------------
Name Age Position
---- --- --------
Sheldon Kales 50 Chief Executive Officer and a Director
Boaz Dor 52 Secretary and a Director
Rakesh Malhotra 50 Chief Financial Officer
Gregory Sullivan 40 Director
The directors of SDI serve until the first annual meeting of its
shareholders and until their successors have been duly elected and qualified.
The officers serve at the discretion of SDI's directors.
Sheldon Kales has been an officer and director of SDI since March 2005. Since
February 2004 Mr. Kales has been working on the development of the LEKTROX.
Between January 2000 and February 2004 Mr. Kales was the President of Yangtze
Telecom, a company which provides messaging and related services for cell phone
users in China. Mr. Kales founded, and between 1985 and 2001, operated Argus
Investigation Services.
Boaz Dor has been a director of SDI since April 2005 and its Secretary since
March 15, 2006. Mr. Dor served in the Israeli Defense Forces from 1972 to 1975.
Recruited by the Israeli Secret Services, Mr. Dor was assigned to the
International Security Division for Aviation Security for the Israeli
Government, eventually assuming the position of Head of Security for the Embassy
of Israel and El Al Israel Airlines in Cairo, Egypt, and later, as Vice-Consul
and Head of Security for the Israeli Consulate in Toronto and Western Canada and
El Al Israel Airlines. In 1989, Mr. Dor resigned from the public sector to open
a security consulting firm. In 1991, he was appointed executive director of
security for the Seabeco Group of Companies where Mr. Dor oversaw international
operations in Switzerland, Belgium, Russia, New York and Toronto. Since 2000 Mr.
10
Dor has owned and operated Ozone Water Systems Inc., a water purification
company.
Rakesh Malhotra has been SDI's Chief Financial Officer since January 7, 2007.
Mr. Malhotra is a United States Certified Public Accountant (CPA) and a Canadian
Chartered Accountant (CA). Mr. Malhotra graduated with Bachelor of Commerce
(Honors) from the University of Delhi (India) and worked for A.F Ferguson & Co.
(Indian correspondent for KPMG) and obtained his CA designation in India. Having
practiced as a Chartered Accountant for over ten years in New Delhi, Mr.
Malhotra moved to the Middle East and worked for five years with the
International Bahwan Group in a senior finance position. Between 2000 and 2001
Mr. Malhotra worked as a Chartered Accountant with a medium sized accounting
firm in Toronto and then worked for five years as the Vice President of Finance
for a private group of companies in Toronto. Since 2005 Mr. Malhotra has been
the Chief Financial Officer for Yukon Gold Corporation Inc. and a consultant to
a number of public companies.
Gregory Sullivan has been a director of SDI since April 2005. Mr. Sullivan has
been a law enforcement officer for the past 20 years. During his law enforcement
career, Mr. Sullivan has trained with federal, state and municipal agencies in
the United States, Canada and the Caribbean and has gained extensive experience
in the use of lethal and non-lethal weapons. Mr. Sullivan has also trained
personnel employed by both public and private agencies in the use of force and
firearms. Mr. Sullivan served four years with the military reserves in Canada.
None of SDI's directors are independent as that term is defined in section
121(A) of the listing standards of the American Stock Exchange.
SDI does not have a compensation committee or an audit committee. Rakesh
Malhotra is SDI's financial expert. However, since he is an officer of SDI Mr.
Malhotra is not independent as that term is defined in section 121(A) of the
listing standards of the American Stock Exchange.
SDI has not adopted a Code of Ethics applicable to its principal
executive, financial, and accounting officers and persons performing similar
functions. SDI does not believe a Code of Ethics is needed at this time since
SDI has only four officers.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table shows the compensation during the period from March 1,
2005 (the inception of the Company) to November 30, 2005, and for the year ended
November 30, 2006, paid or accrued, to Sheldon Kales, the Principal Executive
Officer of SDI. None of the executive officers of SDI received compensation in
excess of $100,000 during this period.
11
All
Other
Annual
Stock Option Compen-
Name and Principal Fiscal Salary Bonus Awards Awards sation
Position Year (1) (2) (3) (4) (5) Total
- ------------------ ----- ------ ----- ------ ------ -------- -----
Sheldon Kales, 2006 -- -- -- $342,500 -- $342,500
President 2005 -- -- $25,000 -- -- $ 25,000
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) During the periods covered by the table, the value of SDI's shares issued
as compensation for services to the persons listed in the table.
(4) The value of all stock options granted during the periods covered by the
table calculated as being the difference between the market price of SDI's
common stock and the option price on the date of grant.
(5) All other compensation received that SDI could not properly report in any
other column of the table.
SDI does not have an employment agreement with any of its officers.
The following shows the amounts which SDI expects to pay to its officers
during the twelve month period ending December 31, 2007, and the time these
persons plan to devote to SDI's business.
Proposed Time to be Devoted to the
Name Compensation Business of SDI
---- ------------ -------------------------
Sheldon Kales * 100%
Boaz Dor * 50%
Rakesh Malhotra $18,000 10%
Gregory Sullivan * 10%
* These officers/directors have agreed to serve without cash compensation
until SDI has accumulated gross revenues of $500,000. In lieu of cash
compensation, these persons have received shares of SDI's common stock as
well as options.
Once accumulated revenue reaches $500,000, SDI's directors may compensate
its officers depending upon a variety of factors, including past sales volume
and the anticipated results of its future operations. However, there are no
sales, net income, or other thresholds which are required for SDI's directors to
increase the compensation paid to SDI's officers. SDI may issue shares of its
common stock to its officers in payment of compensation owed to its officers.
12
Long-Term Incentive Plans. SDI does not provide its officers or employees with
pension, stock appreciation rights, long-term incentive or other plans and has
no intention of implementing any of these plans for the foreseeable future.
Employee Pension, Profit Sharing or other Retirement Plans. SDI does not have a
defined benefit, pension plan, profit sharing or other retirement plan, although
it may adopt one or more of such plans in the future.
Compensation of Directors During Year Ended November 30, 2006
Name Paid in Cash Stock Awards (1) Option Awards (2)
---- ------------ ---------------- -----------------
Boaz Dor -- -- $120,156
Gregory Sullivan -- -- $120,156
(1) The fair value of stock issued for services computed in accordance with FAS
123R on the date of grant.
(2) The fair value of options granted computed in accordance with FAS 123R on
the date of grant.
Stock Option and Bonus Plans
- ----------------------------
SDI has adopted stock option and stock bonus plans. A summary description
of these plans follows. In some cases these Plans are collectively referred to
as the "Plans".
Incentive Stock Option Plan. SDI's Incentive Stock Option Plan authorizes
the issuance of shares of SDI's Common Stock to persons that exercise options
granted pursuant to the Plan. Only SDI employees may be granted options pursuant
to the Incentive Stock Option Plan. The option exercise price is determined by
SDI's directors but cannot be less than the market price of SDI's common stock
on the date the option is granted.
Non-Qualified Stock Option Plan. SDI's Non-Qualified Stock Option Plan
authorizes the issuance of shares of SDI's Common Stock to persons that exercise
options granted pursuant to the Plans. SDI's employees, directors, officers,
consultants and advisors are eligible to be granted options pursuant to the
Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Stock Bonus Plan. SDI's Stock Bonus Plan allows for the issuance of shares
of common stock to it's employees, directors, officers, consultants and
advisors. However bona fide services must be rendered by the consultants or
advisors and such services must not be in connection with the offer or sale of
securities in a capital-raising transaction.
Summary. The following lists, as of February 20, 2007, the options granted
pursuant to the Plans. Each option represents the right to purchase one share of
SDI's common stock.
13
Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ------------ ----------- --------------
Incentive Stock Option Plan 1,000,000 -- N/A 1,000,000
Non-Qualified Stock Option Plan 2,250,000 825,000 N/A 1,425,000
Stock Bonus Plan 150,000 N/A -- 150,000
The following lists the unexercised options which were outstanding as of
February 20, 2007 and held by the SDI's officers and directors. All of the
options listed below were granted pursuant to SDI's Non-Qualified Stock Option
Plan.
Shares underlying
unexercised options which are:
----------------------------- Exercise Expiration
Name Exercisable Unexercisable Price Date
----
Sheldon Kales 100,000 -- $0.25 10/29/11
Boaz Dor 100,000 -- $0.25 10/29/11
Rakesh Malhotra 125,000 -- $1.50 01/17/12
Gregory Sullivan 100,000 -- $0.25 10/29/11
(1) These options will expire on the first to occur of the following: (i) the
expiration date of the option, (ii) the date the option holder is removed
from office for cause, or (iii) the date the option holder resigns as an
officer of the Company.
For the purpose of these options "Cause" means any action by the Option
Holder or any inaction by the Option Holder which constitutes:
(i) fraud, embezzlement, misappropriation, dishonesty or breach of trust;
(ii) a willful or knowing failure or refusal by the Option Holder to
perform any or all of his material duties and responsibilities as an
officer of SDI, other than as the result of the Option Holder's death
or Disability; or
(iii) gross negligence by the Option Holder in the performance of any or
all of his material duties and responsibilities as an officer of SDI,
other than as a result of the Option Holder's death or Disability;
For purposes of these options "Disability" means any mental or physical
illness, condition, disability or incapacity which prevents the Option Holder
from reasonably discharging his duties and responsibilities as an officer of SDI
for a minimum of twenty hours per week.
The following table shows the weighted average exercise price of the
outstanding options granted pursuant to SDI's stock option plans as of November
30, 2006, SDI's most recent fiscal year end. SDI's stock option plans have not
been approved by its shareholders.
14
Number of Securities
Number Remaining Available
of Securities For Future Issuance
to be Issued Weighted-Average Under Equity
Upon Exercise Exercise Price of Compensation Plans,
of Outstanding of Outstanding Excluding Securities
Plan category Options (a) Options Reflected in Column (a)
- ------------- -------------- ----------------- -----------------------
Incentive Stock Option Plan -- -- 1,000,000
Non-Qualified Stock Option Plan 700,000 $0.46 1,550,000
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the ownership of SDI's common stock as of August
31, 2007 by each shareholder known by SDI to be the beneficial owner of more
than 5% of SDI's outstanding shares, each director and executive officer and all
directors and executive officers as a group. Except as otherwise indicated, each
shareholder has sole voting and investment power with respect to the shares they
beneficially own.
Number
Name of Shares (1) Percent of Class
---- ------------- ----------------
Sheldon Kales 2,992,000 21%
Boaz Dor 1,257,500 8.9%
Rakesh Malhotra -- --
Gregory Sullivan 405,000 2.8%
Dror Shachar (2) 1,200,000 8.4%
All Officers and Directors 4,654,500 32.6%
as a group (four persons)
(1) Does not reflect shares issuable upon the exercise of options.
(2) Dror Shachar holds these shares for the benefit of his father, Mark
Shachar.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The following lists all shares of SDI's common stock which have been issued
since its incorporation:
15
Consideration
Shareholder Date of Sale Shares Issued Paid for Shares
Sheldon Kales 3-03-05 2,300,000 Services rendered,
valued at $23,000
Sheldon Kales 3-04-05 200,000 Services rendered,
valued at $2,000
Boaz Dor 3-03-05 900,000 Services rendered,
valued at $9,000
Gregory Sullivan 3-03-05 40,000 Services rendered,
valued at $400
Gregory Sullivan 3-04-05 200,000 Services rendered,
valued at $2,000
Alexander Blaunshtein (1) 3-03-05 1,560,000 Services rendered,
valued at $15,600
Consultant 3-03-05 1,200,000 Services rendered,
valued at $12,000
Consultants 3-04-05 125,000 Services rendered,
valued $1,250
Private Investors 4-15-05 397,880 $ 99,470
Private Investors 12-31-05 486,000 $ 48,600
Private Investors 1-31-06 470,000 $ 47,000
Private Investors 3-08-06 286,000 $ 50,050
Consultant 3-08-06 50,000 Services rendered,
valued at $8,750
Public Investors 5-06/7-06 2,000,000 $ 400,000
Sheldon Kales 11-06 550,000 $ 55,000 (2)
Boaz Dor 11-06 200,000 $ 20,000 (2)
Gregory Sullivan 11-06 200,000 $ 20,000 (2)
Private Investors 12-06 2,536,170 $ 2,536,170
Private Investors 4-07/5-07 2,139,000 $ 4,812,750
(1) Alexander Blaunshtein is the son of Natan Blaunstein, a former director of
SDI.
(2) Shares were issued upon the exercise of stock options.
Sheldon Kales, Natan Blaunstein, Boaz Dor and Gregory Sullivan are the
promoters and parents of SDI.
The services relating to the shares issued in March 2005 were provided for
the development of the LEKTROX and were valued at $0.01 per share. The 50,000
shares issued in March 2006 to a consultant were issued as compensation for
introducing investors to SDI and were valued at $0.175 per share which is the
price, per share, received by SDI for the shares sold for cash in March 2006.
The electrical aspects of the LEKTROX are being developed by Emanuel
Mendez and assisted by D.P. Electronic Systems, Ltd., a company controlled by
Alexander Blaunsthein. Alexander Blaunstein is a principal shareholder of SDI
16
and is the son of Natan Blaunstein, a former director of SDI. During the period
from its inception (March 1, 2005) through February 15, 2007 SDI paid $106,100
to D.P. Electronic Systems. SDI is of the opinion that its arrangement with D.P.
Electronic Systems is at least as favorable as that which SDI could have
obtained from any unrelated third party.
ITEM 13. EXHIBITS
--------
Exhibit
Number Description of Exhibit
- -------- ----------------------
3.1 Articles of Incorporation (Incorporated by reference to the same
exhibit filed with the Company's
registration statement on Form SB-2
(File No. 333-12456).
3.2 Bylaws (Incorporated by reference to the same
exhibit filed with the Company's
registration statement on Form SB-2
(File No. 333-132456).
31 Rule 13a-14(a) Certifications *
32 Section 1350 Certifications *
* Filed with this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------
Schwartz Levitsky Feldman, LLP ("Schwartz Levitsky") audited SDI's
financial statements for the year ended November 30, 2006.
The following table shows the aggregate fees billed and billable to SDI
during the years ended November 30, 2006 and 2005 by Schwartz Levitsky.
2006 2005
---- ----
Audit Fees $16,800 $10,800
Audit-Related Fees $ 1,000 $ 700
Financial Information Systems -- --
Design and Implementation Fees -- --
Tax Fees -- --
All Other Fees -- --
Audit fees represent amounts billed for professional services rendered for
the audit of SDI's annual financial statements. Audit-Related fees represent
17
amounts billed for the services related to the filing of SDI's registration
statements on Form SB-2 and Form S-8. Before Schwartz Levitsky was engaged by
Security Devices to render audit services, the engagement was approved by
Security Device's Directors.
18
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
PERIODS ENDED NOVEMBER 30, 2006 AND 2005
Together with Report of Independent Registered Public Accounting Firm
(Amounts expressed in US Dollars)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
PERIODS ENDED NOVEMBER 30, 2006 AND 2005
(Amounts expressed in US Dollars)
TABLE OF CONTENTS
Page No
Report of Independent Registered Public Accounting Firm 1
Balance Sheets as at November 30, 2006 and November 30, 2005 2
Statement of Operations for the year ended November 30, 2006
and nine months (since inception) ended November 30, 2005 3
Statement of Cash Flows for the year ended November 30, 2006 and
nine months (since inception) ended November 30, 2005 4
Statement of Stockholders' Equity for the year ended November
30, 2006 and for the nine months (since inception) ended
November 30, 2005 5
Notes to Financial Statements 6-22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Security Devices International, Inc.
(A Development Stage Enterprise)
We have audited the accompanying balance sheets of Security Devices
International, Inc. (incorporated in Delaware, United States of America) as
at November 30, 2006 and 2005 and the related statements of operations,
cash flows and stockholders' deficiency for the year ended November 30,
2006, the nine month period from inception to November 30, 2005 and the
period from inception to November 30, 2006. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Security Devices
International, Inc. as of November 30, 2006 and 2005, and the results of
its operations and its cash flows for the year ended November 30, 2006, the
nine month period from inception to November 30, 2005 and the period from
inception to November 30, 2006 in accordance with generally accepted
accounting principles in the United States of America.
"SCHWARTZ LEVITSKY FELDMAN LLP"
Toronto, Ontario, Canada Chartered Accountants
February 20, 2007 Licensed Public Accountants
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Balance Sheets
As at November 30, 2006 and 2005
(Amounts expressed in US Dollars)
2006 2005
ASSETS $ $
CURRENT
Cash and cash equivalents 1,463,833 126
Prepaid expenses and other (Note 8) 4,452 -
----------- ---------
Total Current Assets 1,468,285 126
----------- ---------
TOTAL ASSETS 1,468,285 126
----------- ---------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 4) 104,011 16,076
Loans from Directors/Shareholders (Note 7) 4,227 8,029
----------- ---------
Total Current Liabilities 108,238 24,105
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital Stock (Note 5) 11,365 6,923
Additional Paid-In Capital 3,198,180 157,797
Deficit Accumulated During the Development Stage (1,849,498)(188,699)
----------- ---------
Total Stockholders' Equity (Deficiency) 1,360,047 (23,979)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,468,285 126
----------- ---------
The accompanying notes are an integral part of these financial
statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Operations
Year Ended November 30, 2006 and the Period from Inception (March 1, 2005) to
November 30, 2005 (Amounts expressed in US Dollars)
Cumulative
since inception 2006 2005
$ $ $
EXPENSES:
Research and Product Development Cost 538,300 458,300 80,000
General and administration (Note 6) 1,311,198 1,202,499 108,699
------------ ----------- ----------
TOTAL OPERATING EXPENSES 1,849,498 1,660,799 188,699
------------ ----------- ----------
LOSS BEFORE INCOME TAXES (1,849,498) (1,660,799) (188,699)
Income taxes (Note 9) - - -
------------ ----------- ----------
NET LOSS (1,849,498) (1,660,799) (188,699)
------------ ----------- ----------
Loss per share - basic and diluted (0.19) (0.03)
----------- ----------
Weighted average common shares outstanding 8,623,258 6,808,409
----------- ----------
The accompanying notes are an integral part of these financial
statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statement of Cash Flows
Year Ended November 30, 2006 and Period from Inception (March 1, 2005) to
November 30, 2005
(Amounts expressed in US Dollars)
Cumulative
since inception 2006 2005
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (1,849,498) (1,660,799) (188,699)
Items not requiring an outlay of cash:
Issue of shares for professional services 74,000 8,750 65,250
Stock based compensation (included in
General and Administration Expenses) 1,049,940 1,049,940 -
Changes in non-cash working capital:
Accounts payable and accrued liabilities 104,011 87,935 16,076
Prepaid expenses and other (4,452) (4,452) -
------------- ------------- -----------
NET CASH USED IN OPERATING ACTIVITIES (625,999) (518,626) (107,373)
------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from directors/shareholders 4,227 (3,802) 8,029
Proceeds from issuance of common shares 825,105 725,635 99,470
Exercise of stock options 95,000 95,000 -
Stock subscriptions received 1,165,500 1,165,500 -
------------- ------------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,089,832 1,982,333 107,499
------------- ------------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS FOR THE PERIOD 1,463,833 1,463,707 126
Cash and cash equivalents, beginning
of period - 126 -
------------- ------------- -----------
CASH AND CASH EQUIVALENTS, END OF 1,463,833 1,463,833 126
PERIOD ============= ============= ===========
INCOME TAXES PAID - - -
============= ============= ===========
INTEREST PAID - - -
============= ============= ===========
The accompanying notes are an integral part of these financial
statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
Year ended November 30, 2006 and for Period from Inception (March 1, 2005) to
November 30, 2005.
(Amounts expressed in US Dollars)
Number of Common Additional
Common Shares Paid-in Deficit
Shares Amount Capital Accumulated Total
$ $ $ $
Balance as of March 1, 2005 - - - - -
Issuance of Common shares
for professional services 6,525,000 6,525 58,725 - 65,250
Issuance of common shares
for cash 397,880 398 99,072 - 99,470
Net loss for the period - - - (188,699) (188,699)
----------- --------- ---------- ----------- -----------
Balance as of
November 30, 2005 6,922,880 6,923 157,797 (188,699) (23,979)
Issuance of common shares
for cash 956,000 956 94,644 - 95,600
Issuance of common shares
for cash 286,000 286 49,764 - 50,050
Issuance of common shares
to consultant for services 50,000 50 8,700 - 8,750
Issuance of common shares
for cash 2,000,000 2,000 398,000 - 400,000
Exercise of stock options 950,000 950 94,050 - 95,000
Issuance of common shares
for cash (net of agent
commission) 200,000 200 179,785 - 179,985
Stock subscriptions received - - 1,165,500 - 1,165,500
Stock based compensation - - 1,049,940 - 1,049,940
Net loss for the year - - - (1,660,799) (1,660,799)
Balance as of
November 30, 2006 11,364,880 11,365 3,198,180 (1,849,498) 1,360,047
----------- --------- ---------- ----------- -----------
The accompanying notes are an integral part of these financial
statements.
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
1. BASIS OF PRESENTATION
The financial statements include the accounts of Security Devices
International Inc. (the "Company"). The Company was incorporated under
the laws of the state of Delaware on March 1, 2005. The first period of
the financial statements commenced March 1, 2005 and ended November 30,
2005.
2. NATURE OF OPERATIONS
The Company is currently in the advanced stages of developing LEKTROX, a
unique line of wireless electric ammunition for use in military,
homeland security, law enforcement, and professional and home security
scenarios. LEKTROX has been specially designed for use with standards
issue riot guns, M203 grenade launchers and regular 12-guage shotguns.
This will allow military, law enforcement agencies etc. to quickly
deploy LEKTROX without the need for lengthy, complex training methods or
significant functional adjustments to vehicles or personal equipment.
Simplicity of use is also a key benefit for the home security market
where most users have little or no specialized training. LEKTROX is a
3rd generation electric solution. First generation solutions were
electric batons and hand-held stun guns which had a range of arm's
length. 2nd generations were the wired electric charge solutions. 3rd
generations are the wireless electric bullets. Currently, there is still
no 3rd generation wireless electric bullet on the market.
The Company is in the development stage and has not yet realized
revenues from its planned operations. The Company has incurred a loss of
$ 1,660,799 during the year ended November 30, 2006. At November 30,
2006, the Company had an accumulated deficit during the development
stage of $1,849,498 which includes a non- cash stock based compensation
cost of $1,049,940. The Company has funded operations through the
issuance of capital stock. During the year ended November 30, 2006 the
Company raised $1,982,333 primarily through issue of common stock. (See
note 5). Subsequent to the year end the company raised an additional
$1,170,670 through issue of common stock. The company has a working
capital and shareholders equity of $1,360,047 as at November 30, 2006
and Management's plan is to continue raising additional funds through
future equity or debt financing until it achieves profitable operations
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Use of Estimates
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of
America. Because a precise determination of assets and liabilities,
and correspondingly revenues and expenses, depends on future events,
the preparation of financial statements for any period necessarily
involves the use of estimates and assumption an example being
assumptions in valuation of stock options. Actual amounts may differ
from these estimates. These financial statements have, in
management's opinion, been properly prepared within reasonable limits
of materiality and within the framework of the accounting policies
summarized below.
b) Income Taxes
The Company accounts for income taxes under the provisions of SFAS
No. 109, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
Deferred income taxes are provided using the liability method. Under
the liability method, deferred income taxes are recognized for all
significant temporary differences between the tax and financial
statement bases of assets and liabilities.
Current income tax expense (recovery) is the amount of income taxes
expected to be payable (recoverable) for the current period. A
deferred tax asset and/or liability is computed for both the expected
future impact of differences between the financial statement and tax
bases of assets and liabilities and for the expected future tax
benefit to be derived from tax losses. Valuation allowances are
established when necessary to reduce deferred tax asset to the amount
expected to be "more likely than not" realized in future tax returns.
Tax law and rate changes are reflected in income in the period such
changes are enacted. Due to valuation allowance for deferred tax
assets, there are no deferred tax benefits or expenses for the years
ended November 30, 2006 and 2005.
c) Revenue Recognition
The Company's revenue recognition policies are expected to follow
common practice in the manufacturing industry.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
d) Loss per Share
The Company has adopted FAS No. 128, "Earnings per Share", which
requires disclosure on the financial statements of "basic" and
"diluted" loss per share. Basic loss per share is computed by
dividing net loss by the weighted average number of common shares
outstanding for the year. Diluted loss per share is computed by
dividing net loss by the weighted average number of common shares
outstanding plus common stock equivalents (if dilutive) related to
stock options and warrants for each year. There were no common
equivalent shares outstanding at November 30, 2006 and 2005 that have
been included in dilutive loss per share calculation as the effects
would have been anti-dilutive. At November 30, 2006, there were
700,000 options and no warrants outstanding. At November 30, 2005,
there were no options or warrants outstanding.
e) Fair Values
The carrying amount of the Company's cash, accounts payable and
accrued liabilities approximates fair values because of the short
term maturity of these instruments.
f) Research and Product Development
Research and Product Development costs, other than capital
expenditures but including acquired research and product development
costs, are charged against income in the period incurred.
g) Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123 (Revised
2004), "Share-Based Payment" (SFAS 123 (R)). SFAS 123 (R) requires
companies to recognize compensation cost for employee and
non-employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The
Company adopted the provisions of SFAS 123 (R) on December 1, 2005
using the "modified prospective" application method of adoption which
requires the Company to record compensation cost related to unvested
stock awards as of November 30, 2005 by recognizing the unamortized
grant date fair value of these awards over the remaining service
periods of those awards with no change in historical reported
earnings. The adoption of this standard did not affect the financial
statements for the period ended November 30, 2005, since up to that
date, no stock options had been issued to employees nor
non-employees. All awards granted to employees and non-employees
after November 30, 2005 are valued at fair value in accordance with
the provisions of SFAS 123 (R) by using the Black-Scholes option
pricing model and recognized on a straight line basis over the
service periods of each award.
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
The Company accounts for equity instruments issued in exchange for the
receipt of goods or services from other than employees in accordance
with SFAS No. 123 and the conclusions reached by the Emerging Issues
Task Force ("EITF") in Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring or
in Conjunction with Selling Goods or Services". Costs are measured at
the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is
more reliably measurable. The value of equity instruments issued for
consideration other than employee services is determined on the
earlier of a performance commitment or completion of performance by
the provider of goods or services as defined by EITF No. 96-18.
As of November 30, 2006 there was $Nil of unrecognized expense
related to non-vested stock-based compensation arrangements granted.
The total stock-based compensation expense relating to employees and
non employees for the year ended November 30, 2006 and 2005 was
$1,049,940 and $Nil respectively as no options were granted during
the year ended November 30, 2005.
h) Foreign Currency
The Company maintains its books, records and banking transactions in
U.S. dollars which is its functional and reporting currency. As such,
no translation adjustment is created.
i) Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting
comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net
assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net
income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities.
Comprehensive income (loss) is not presented in the Company's
financial statements since there is no difference between net loss
and comprehensive loss in any period presented.
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
j) Impairment of Long-lived Assets
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", long-lived assets to be held and used are
analyzed for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events and
circumstances have occurred that indicate possible impairment. If
there are indications of impairment, the Company uses future
undiscounted cash flows of the related asset or asset grouping over
the remaining life in measuring whether the assets are recoverable.
In the event such cash flows are not expected to be sufficient
to recover the recorded asset values, the assets are written down to
their estimated fair value. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value of asset less
cost to sell.
k) Asset Retirement Obligation
The Company accounts for asset retirement obligations in accordance
with Financial Accounting Standards Board ("FASB") Statement No. 143,
"Accounting for Asset Retirement Obligations" ("Statement 143"),
which requires that the fair value of an asset retirement obligation
be recorded as a liability in the period in which a company incurs
the obligation.
l) Concentration of Credit Risk
SFAS No. 105, "Disclosure of Information About Financial Instruments
with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk", requires disclosure of any significant
off-balance sheet risk and credit risk concentration. The Company
does not have significant off-balance sheet risk or credit
concentration.
m) Cash and Cash Equivalents
Cash consists of cash and cash equivalents, which are short-term,
highly liquid investments with original terms to maturity of 90 days
or less.
10
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
n) Intellectual Property with Respect to Pending Patent Applications
Two patent applications, one for the electrical mechanism and the
other for the mechanical mechanism of the LEKTROX, have been filed by
the Company with the U.S. Patent Office. Expenditures for patent
applications as a result of research activity are not capitalized due
to the uncertain value of the benefits that may accrue.
o) Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections", which replaces APB Opinion No. 20,
"Accounting Changes", and SFAS No. 3, "Reporting Accounting Changes
in Interim Financial Statements - An Amendment of APB Opinion
No. 28". SFAS No. 154 provides guidance on the accounting for and
reporting of changes in accounting principles and error
corrections. SFAS No. 154 requires retrospective application to prior
period financial statements of voluntary changes in accounting
principles and changes required by new accounting standards when the
standard does not include specific transition provisions, unless it
is impracticable to do so. SFAS No. 154 also requires certain
disclosures for restatements due to correction of an error. SFAS
No. 154 is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005, and are
required to be adopted by the Company as of December 1, 2006. The
impact that the adoption of SFAS No. 154 will have on the Company's
results of operations and financial condition will depend on the
nature of future accounting changes adopted by the Company and the
nature of transitional guidance provided in future accounting
pronouncements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments - an amendment of FASB Statements No. 133
and 140". This Statement permits fair value of re-measurement for any
hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation; clarifies which interest-only
strips and principal-only strips are not subject to the requirements of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities"; establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an
embedded derivative requiring bifurcation; clarifies that concentrations
of credit risk in the form of subordination are not embedded
derivatives; and amended SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", to
eliminate the prohibition on a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial
11
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
interest other than another derivative financial instrument. SFAS No.
155 is effective for all financial instruments acquired, issued, or
subject to a re-measurement (new basis) event occurring after the
beginning of an entity's first fiscal year that begins after September
15, 2006. The Company is currently reviewing the effect, if any, the
proposed guidance will have on its financial position and operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets", which amends SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". In a significant change to current guidance, SFAS No. 156
permits an entity to choose either of the following subsequent
measurement methods for each class of separately recognized servicing
assets and servicing liabilities: (1) Amortization Method or (2) Fair
Value Measurement Method. SFAS No. 156 is effective as of the beginning
of an entity's first fiscal year that begins after September 15, 2006.
The Company is currently reviewing the effect, if any, the proposed
guidance will have on its financial position and operations.
In July 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises' financial
statements in accordance with SFAS No. 109, "Accounting for Income
Taxes". FIN 48 prescribes a recognition threshold and measurement
attributable for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48
also provides guidance on derecognizing, classification, interest and
penalties, accounting in interim periods, disclosures and transitions.
FIN 48 is effective for fiscal years beginning after December 15, 2006.
The Company is currently reviewing the effect, if any, FIN 48 will have
on its financial position and operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measures"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles ("GAAP"), expands disclosures about fair value measurements,
and applies under other accounting pronouncements that require or permit
fair value measurements. SFAS No. 157 does not require any new fair
value measurements, however the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. SFAS No.
157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, which for the Company would be its
fiscal year beginning November 1, 2008. The implementation of SFAS No.
12
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
157 is not expected to have a material impact on the Company's results
of operations and financial condition.
In September 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension
and Other Postretirement Plans - an amendment of FASB Statements No. 87,
88, 106, and 132(R)". This statement requires employers to recognize the
overfunded or underfunded status of a defined benefit postretirement
plan (other than a multi-employer plan) as an asset
or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This statement
also requires an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. The provisions of SFAS No. 158 are effective for employers
with publicly traded equity securities as of the end of the fiscal year
ending after December 15, 2006. The adoption of this statement is not
expected to have a material effect on the Company's future reported
financial position or results of operations.
In September 2006, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 108 (Topic 1N), "Quantifying
Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB
No. 108 addresses how the effect of prior year uncorrected misstatements
should be considered when quantifying misstatements in current year
financial statements. SAB No. 108 requires SEC registrants (i) to
quantify misstatements using a combined approach which considers both
the balance sheet and income statement approaches; (ii) to evaluate
whether either approach results in quantifying an error that is material
in light of relevant quantitative and qualitative factors; and (iii) to
adjust their financial statements if the new combined approach results
in a conclusion that an error is material. SAB No. 108 addresses the
mechanics of correcting misstatements that include effects from prior
years. It indicates that the current year correction of a material error
that includes prior year effects may result in the need to correct prior
year financial statements even if the misstatement in the prior year or
years is considered immaterial. Any prior year financial statements
found to be materially misstated in years subsequent to the issuance of
SAB No. 108 would be restated in accordance with SFAS No. 154,
"Accounting Changes and Error Corrections." Because the combined
approach represents a change in practice, the SEC staff will not require
registrants that followed an acceptable approach in the past to restate
prior years' historical financial statements. Rather, these registrants
can report the cumulative effect of adopting the new approach as an
13
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
adjustment to the current year's beginning balance of retained earnings.
If the new approach is adopted in a quarter other than the first
quarter, financial statements for prior interim periods within the year
of adoption may need to be restated. SAB No. 108 is effective for fiscal
years ending after November 15, 2006, which for the
Company is November 30, 2006. The implementation of SAB No. 108 is not
expected to have a material impact on the Company's results of
operations and financial condition.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2006 2005
---- ----
Accounts payable and accrued liabilities
are comprised of the following:
Trade payables $ 7,689 $ 5,210
Accrued liabilities 96,322 10,866
----------- ---------
$ 104,011 $ 16,076
========= =========
Accrued liabilities relate primarily to research and development and
legal and accounting costs.
5. CAPITAL STOCK
a) Authorized
50,000,000 Common shares, $0.001 par value
And
5,000,000 Preferred shares, $0.001 par value
SDI's Articles of Incorporation authorize its Board of Directors to
issue up to 5,000,000 shares of preferred stock. The provisions in the
Articles of Incorporation relating to the preferred stock allow the
directors to issue preferred stock with multiple votes per share and
dividend rights which would have priority over any dividends paid with
respect to the holders of SDI's common stock.
b) Issued
11,364,880 Common shares (2005: 6,922,880 Common shares)
14
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
5. CAPITAL STOCK (cont'd)
c) Changes to Issued Share Capital
November 30, 2005
i) On March 3, 2005, the Company authorized the issuance of
4,800,000 common shares to promoters for services rendered for
total consideration of $48,000 and 1,200,000 common shares to
consultants for services rendered for a total consideration of
$12,000. These shares were measured and recorded at the exchange
amount.
ii) On March 4, 2005, the Company authorized the issuance of 400,000
common shares to promoters for services rendered for total
consideration of $4,000 and 125,000 common shares to consultants
for services rendered for a total consideration of $1,250. These
shares were measured and recorded at the exchange amount.
iii) On April 15, 2004 the Company authorized the issuance of 397,880
Common shares for cash for a total consideration of $99,470.
November 30, 2006
i) On December 31, 2005 the Company authorized the issuance of 486,000
common shares for cash for a total consideration of $48,600.
ii) On January 31, 2006 the Company authorized the issuance of 470,000
common shares for cash for a total consideration of $ 47,000.
iii) On March 8, 2006 the Company authorized the issuance of 286,000
common shares for cash @ $0.175 per share for a total consideration
of $50,050. On the same day, the Company authorized the issuance of
50,000 shares to a consultant for the services rendered as finder's
fees. These services were valued @$0.175 per common share and
expensed as consulting fees in the amount of $8,750.
iv) By means of a prospectus dated May 5, 2006 the Company offered to
the public up to 2,000,000 shares of its common stock at a price of
$0.20 per share. The Company closed the offering on July 31, 2006
after receiving consideration of $400,000 and issued 2,000,000
common shares in August, 2006.
v) The company directors exercised 950,000 stock options to purchase
950,000 common shares for a total consideration of $95,000 on
November 1, 2006.
15
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
5. CAPITAL STOCK (cont'd)
vi) On November 29, 2006 the company authorized the issuance of 200,000
common shares for cash @$1.00 per common share. A commission of
$20,015 was paid to the agent and this amount is netted with
additional paid in capital. The proceeds received were part of the
Private offering effective November 20, 2006.
vii) As at November 30, 2006 the company received stock subscription for
$1,165,500. This was also part of the private offering effective
November 20, 2006. The Company closed this private offering on
December 12, 2006 when it had completed the sale of 2,536,170
shares of its common stock to a group of private investors.
d) Purchase Warrants
During the current year or prior year, no warrants were issued.
6. STOCK BASED COMPENSATION
Per SEC Staff Accounting Bulletin 107, Topic 14.F, "Classification of
Compensation Expense Associated with Share-Based Payment Arrangements"
stock based compensation expense is being presented in the same lines as
cash compensation paid.
Effective October 30, 2006 the Company adopted the following stock
option and stock bonus plans.
Incentive Stock Option Plan. The Company's Incentive Stock Option Plan
authorizes the issuance of shares of its Common Stock to persons that
exercise options granted pursuant to the Plan. Only employees may be
granted options pursuant to the Incentive Stock Option Plan. The option
exercise price is determined by its directors but cannot be less than
the market price of its common stock on the date the option is granted.
The Company has reserved 1,000,000 common shares under this plan. No
options have been issued under this plan as at November 30, 2006.
Non-Qualified Stock Option Plan. SDI's Non-Qualified Stock Option Plan
authorizes the issuance of shares of its Common Stock to persons that
exercise options granted pursuant to the Plans. SDI's employees,
directors, officers, consultants and advisors are eligible to be granted
options pursuant to the Plans, provided however that bona fide services
must be rendered by such consultants or advisors and such services must
not be in connection with the offer or sale of securities in a
capital-raising transaction. The Company has reserved 2,250,000 common
shares under this plan.
16
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION (cont'd)
Stock Bonus Plan. SDI's Stock Bonus Plan allows for the issuance of
shares of common stock to its employees, directors, officers,
consultants and advisors. However bona fide services must be rendered by
the consultants or advisors and such services must not be in connection
with the offer or sale of securities in a capital-raising transaction.
The Company has reserved 150,000 common shares under this plan. No
options have been issued under this plan as at November 30, 2006.
On October 31, 2006 the board of directors granted the following options
under its Non-Qualified Stock Option Plan:
1. Options to one director to acquire 650,000 common shares. The
exercise price for 550,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share.
2. Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share.
3. Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share.
4. Options to two consultants to acquire 150,000 common share each
for a total of 300,000 shares. The exercise price for 300,000
options was set at $0.50 per share.
All of the above options vest immediately and have an expiry date of
October 29, 2011.
On November 14, 2006 the board of directors granted the following
options under its Non-Qualified Stock Option Plan:
Options to one consultant to acquire 100,000 common shares. The exercise
price for 100,000 options was set at $1.00 per share. These options vest
immediately and expire on November 14, 2011.
17
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION (cont'd)
The fair value of each grant was estimated at the grant date using the
Black-Scholes option-pricing model. The Black-Scholes option pricing
model requires the use of certain assumptions, including expected
terms, expected volatility, expected dividends and risk-free interest
rate to calculate the fair value of stock-based payment awards. The
assumptions used in calculating the fair value of stock option awards
involve inherent uncertainties and the application of management
judgment. As the Company is relatively new and had limited data for
historic volatility, the estimated volatility was determined by
comparing the volatility of similar Companies within the industry
sector. The expected term calculation is based upon the expected term
the option is to be held, which is the full term of the option. The
risk-free interest rate is based upon the U.S. Treasury yield in
effect at the time of grant for an instrument with a maturity that is
commensurate with the expected term of the stock options. The dividend
yield of zero is based on the fact that we have never paid cash
dividends on our common stock and we have no present intention to pay
cash dividends. The expected forfeiture rate of 0% is based on
immediate vesting of stock options.
For the year ended November 30, 2006, the Company has recognized in the
financial statements, stock-based compensation costs as per the
following details. The fair value of each option used for the purpose of
estimating the stock compensation is based on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Options Options
granted granted
October 31, November 14,
2006 2006
Risk free rate 3.50% 3.50%
Volatility factor 100% 100%
Expected dividends 0% 0%
Forteiture rate 0% 0%
Expected life 5 years 5 years
Range of exercise prices $0.10-0.50 $1.00
Market price of Company's common
stock on date of grant $0.65 $1.90
Total number of options granted 1,550,000 100,000
Grant date fair value of options $0.58 $1.58
Stock-based compensation cost
expensed for year ended
November 30, 2006 $892,214 $157,726
Unexpended stock-based compensation
deferred over to next year nil nil
18
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION (cont'd)
The following table summarizes the options outstanding under its
Non-Qualified Stock Option Plan as at Nov 30:
Option price Number of shares
Expiry date per share 2006 2005
----------- ------------ ---- ----
October 29, 2011 $0.25 300,000 -
October 29, 2011 $0.50 300,000 -
November 14, 2011 $1.00 100,000 -
---------- ---------
700,000 -
---------- ---------
Weighted average exercise
price at end of year $0.46 -
---------- ---------
Number of shares
2006 2005
---- ----
Outstanding, beginning of year - -
Granted 1,650,000 -
Expired - -
Exercised (950,000) -
Cancelled - -
Outstanding, end of year 700,000 -
----------- ---------------
Exercisable, end of year 700,000 -
----------- ---------------
At November 30, 2006, the weighted average contractual term of the
total outstanding, and the total exercisable options under the
Non-Qualified Stock Option Plan were as follows:
Weighted-Average
Remaining Contractual Term
Total outstanding options 4.9 years
Total exercisable options 4.9 years
19
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
7. RELATED PARTY TRANSACTIONS
During the years ended November 30, 2006 and 2005, no director was
paid any compensation in cash. All out of pocket expenses of
directors/promoters were expensed. During the year ended November 30,
2006, (Prior year `Nil') the Directors were issued Stock Options
(Refer to note 6).
a) Options to one director to acquire 650,000 common shares. The
exercise price for 550,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share. The Company
recognized stock based compensation expense of $386,302. The director
exercised the options to acquire 550,000 common shares at $0.10 per
share.
b) Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share. The Company
recognized stock based compensation expense of $176,028. The director
exercised the option to acquire 200,000 common shares at $0.10 per
share.
c) Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share. The Company
recognized stock based compensation expense of $176,028. The director
exercised the option to acquire 200,000 common shares at $0.10 per
share.
During the year ended November 30, 2005, the directors were
issued3,640,000shares in lieu of services rendered, which were measured
and recorded at the exchange amount.
The Directors also made advances to the Company to meet the operating
expenses. These advances of $4,227 (2005 $8,029) are unsecured and bear
interest at 4% p.a. Further, a Company Director has charged the Company
a total amount of $2,250 (2005: $2,250) for providing office space
during the year.
A company controlled by a 13.7% (as of November 30, 2006) shareholder,
who is also the son of a director was paid $106,100 from inception to
January 31, 2007 ($90,100 to November 30, 2006) for research and
development (see note 10(c))
8. PREPAID EXPENSES AND OTHER
Includes prepayments made to a consulting group for providing real-time
market data, news and innovative tools (2005: $ nil).
20
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
9. INCOME TAXES
The Company has certain non-capital losses of approximately $799,558
(2005: $188,699) available, which can be applied against future taxable
income and which expires in 2025 and 2026. These losses have not been
assessed by the tax authorities.
Reconciliation of statutory tax rate to the effective income tax rate is
as follows:
Federal statutory income tax rate (34.0) %
State income taxes, net of tax benefit (3.5) %
--------
Deferred tax asset valuation allowance (37.5) %
--------
Effective rate (0.0) %
Deferred tax asset components as of November 30, 2006 and 2005 are as
follows:
2006 2005
Operating losses available to offset future
income-taxes $799,558 $188,699
-------- --------
Expected Income tax recovery at statutory
rate of 37.5% ($299,834) ($70,762)
Valuation Allowance $299,834 $70,762
-------- -------
Net deferred tax assets - -
-------- -------
As the company is in the development stage, it has provided a 100 per
cent valuation allowance on the net deferred tax asset as of November
30, 2006 and 2005.
10. SUBSEQUENT EVENTS
a) Unregistered Sales of Equity Securities.
On December 12, 2006 the Company completed the sale of 2,536,170
shares of its common stock to a group of private investors. The
shares were sold in the private offering at a price of $1.00 per
share and are restricted securities as that term is defined in Rule
144 of the Securities and Exchange Commission.
The Company paid a commission of $20,015 in connection with the sale
of these shares. The Company received cash of $ 1,365,500 during the
year ended November 30, 2006 and the balance of $1,170,670 was
received subsequent to the year end. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act of 1933 for
the sale of these shares.
21
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
10. SUBSEQUENT EVENTS-Cont'd
b) Effective January 7, 2007 the company appointed a CFO and granted
stock options to acquire 125,000 common shares. The exercise price
for the options was set at $1.50 per share. These options vest
immediately and expire on November 14, 2011. The stock -based
compensation cost of $204,986 will be expensed in the next quarter
ending February 28, 2007.
The fair value of each option used for the purpose of estimating the
stock compensation is based on the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions:
Risk free rate 3.50%
Volatility factor 122.84%
Expected dividends nil
c) The Company has entered into an amended agreement in February 2007
with a director regarding development of its "Electrical Shocker"
("ES") technology. Pursuant to the original agreement executed in
November 2006, the director was paid a total of $38,000, which
included $22,000 during the last quarter of 2006 and an additional
$16,000 in January 2007. The director in return has released the
Company from a prior obligation to pay royalty from the sale of any
product developed using this technology. The Company has expensed
this payment of $22,000 as Research and Product Development cost
during 2006 and will expense the balance $16,000 to Research and
Product Development during the first quarter of 2007. In addition,
the director was paid $62,000 on February 6th 2007 upon signing the
amended agreement. The Company will expense this payment of $62,000
to Research and Product Development in the first quarter of 2007.
Should the development of a working industrial prototype of the ES
technology be completed to the satisfaction of the Company on or
before March 10, 2007, then the son of the director can retain
ownership of the 1,560,000 shares issued during March 2005 and valued
at $15,600 for services rendered ("subject shares") which represent
13.7% of the common shares of the Company as of November 30, 2006.
Should the development of a working industrial prototype of the ES
technology not be completed to the satisfaction of the Company on or
before March 10, 2007, then the subject shares will be cancelled by
the Company and the director will be paid $50,000 on March 10, 2007.
The Company took possession of the subject shares certificate upon
execution of the agreement. In the event of cancellation of these
shares, the Company will account for this transaction under the
constructive retirement method. The cancelled shares will revert to
authorized but unissued status. The stock and additional
paid-in-capital amounts will be reduced with a total of $15,600 and a
debit of $34,400 to retained earnings, being the excess of the
purchase cost over the original issuance.
22
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 12th day of September 2007.
SECURITY DEVICES INTERNATIONAL INC.
By /s/ Sheldon Kales
-----------------------------------------
Sheldon Kales, President and Chief
Executive Officer
By /s/ Rakesh Malhotra
-----------------------------------------
Rakesh Malhotra, Principal Financial and
Accounting Officer
Pursuant to the requirements of the Securities Act of l934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Title Date
/s/ Sheldon Kales
- ------------------------
Sheldon Kales Director September 12, 2007
/s/ Boaz Dor
- ------------------------
Boaz Dor Director September 12, 2007
/s/ Gregory Sullivan
- ------------------------
Gregory Sullivan Director September 12, 2007