SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(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, 2010
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 71-1050654
--------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1101 Pennsylvania Ave., NW, 6th Floor
Washington, DC 20004
---------------------------------------------
(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
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act): [ ] Yes [X] No
The aggregate market value of the voting stock held by non-affiliates of the
Company on May 31, 2010 was approximately $3,678,000.
As of February 28, 2011, the Company had 25,878,050 issued and outstanding
shares of common stock.
Documents incorporated by reference: None
ITEM 1. BUSINESS
Security Devices International Inc. ("SDI" or the "Company") is a defense
technology company specializing in the development of innovative next generation
solutions for security situations that do not require the use of lethal force,
or ammunition. SDI is currently developing 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).
The BIP40 is a direct impact less-than-lethal ammunition round. Developed
to respond to the increasing demand for security solutions in circumstances that
do not require lethal force to control. Patented technologies allow for
operational effectiveness at distances of up to 262 feet (80m), while still
enhancing target safety if engaged from close range.
The BIP40 operates with smokeless powder as a propellant, ensuring
consistent velocity and accuracy at long distances. The head of the round has a
collapsible nose which absorbs the kinetic energy upon impact. The Company holds
a global patent for the collapsible nose.
Designed to supersede previous blunt impact solutions such as foam, baton,
sponge and rubber bullets, the BIP40's technology enables the projectile to
engage the target with higher kinetic energy while meeting official, military
standard requirements.
The WEP40 is an industry leading electric ammunition round that was
developed to answer the growing need for an effective, extended range electric
incapacitation solution for situations that do not require the use of lethal
force to control. Incorporating SDI's patent-pending technologies allows for
this ammunition round to deliver operational success at distances up to 160 feet
(50m).
The Market sectors for these products include; the military, army, navy,
air force, peacekeeping, homeland security, and law enforcement professionals.
The WEP40 when deployed emits a Wireless Electro-Muscular Disruption Technology
that incapacitates the targeted individual. The BIP40 is a non-electrical
ammunition round that will stop an individual with targeted accuracy. The
Company's products were designed for a standard 40mm ammunition casing, for use
with standard issue weapons such as riot guns and M203 grenade launchers.
As of February 28, 2011 SDI has completed the following steps in the
development of the BIP40 and the WEP40:
o Design and testing of the BIP40 version 1.0 is complete
o Design and testing of the WEP40 version 1.0 is complete
During the year ending November 30, 2011 SDI plans to have operational
BIP40 ammunition rounds.
2
SDI anticipates that its capital requirements for the twelve-month period
ending November 30, 2011 will be:
Production costs $120,000
General and Administrative Expenses 576,000
-------
Total $696,000
========
Competition
The Company's industry is highly competitive and composed of many domestic
and foreign companies. The Corporation has experienced and expects to continue
to experience, substantial competition from numerous competitors whom it expects
to continue to improve their products and technologies. Competitors may announce
and introduce new products, services or enhancements that better meet the needs
of end-users or changing industry standards, or achieve greater market
acceptance due to pricing, sales channels or other factors. Competitors may be
able to respond more quickly than the Company to changes in end-user
requirements and devote greater resources to the enhancement, promotion and sale
of their products.
Patents
Four patent applications, one for the electrical mechanism and three other
for the mechanical mechanism of the WEP40 and BIP40, have been filed by SDI with
the U.S. Patent Office and other patent offices worldwide.
SDI has also filed several foreign patents applications.
SDI's patents may not protect its proprietary technology. In addition,
other companies may develop products similar to the BIP40 and WEP40 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 SDI family of products (the "Family of
Products") will be considered a military or crime control product by the United
States Department of Commerce and the export of the Family of Products 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 these products.
Foreign regulations pertaining to non-lethal weapons are numerous and often
unclear and a number of countries prohibit these type of devices.
3
The Company's Family of Products 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 WEP40, to private citizens or
security personnel.
General
As of February 28, 2011 SDI did not have any full-time employees.
SDI's offices are located at 1101 Pennsylvania Ave., NW, 6th Floor
Washington, DC 20004, and 338 Church Street Oakville, Ontario L6J 1P1 Canada..
SDI's rents its Ontario office at a cost of $1,700 per month pursuant to a lease
which expires on September 30, 2012. The annual commitments, excluding
proportionate realty and maintenance costs and taxes are as follows:
Year ended November 30, 2011 $ 20,400
Year ended November 30, 2012 $ 17,000
The USA office does not have a lease term and runs month by month. SDI believes
its offices are adequate to meet its foreseeable future needs.
SDI's website is www.lektrox.com.
ITEM 2. DESCRIPTION OF PROPERTY
See Item 1 of this report.
4
ITEM 3. LEGAL PROCEEDINGS.
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
OTHER SHAREHOLDER MATTERS.
SDI's common stock is 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 periods indicated:
Three Months Ended High Low
------------------ ---- ---
February 2009 $0.81 $0.31
May 2009 $0.60 $0.33
August 2009 $0.91 $0.15
November 2009 $0.42 $0.19
February 2010 $0.34 $0.20
May 2010 $0.34 $0.17
August 2010 $0.92 $0.18
November 2010 $0.41 $0.25
As of February 28, 2010 SDI had approximately 250 shareholders of record
and 25,878,050 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.
5
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN
OF OPERATION
SDI is a defence technology company specializing in the development of
innovative next generation solutions for security situations that do not require
the use of lethal force. SDI is currently developing 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).
The BIP40 is a direct impact less-than-lethal ammunition round. Developed to
respond to the increasing demand for security solutions in circumstances that do
not require lethal force to control. Patented technologies allow for operational
effectiveness at distances of up to 262 feet (80m), while still enhancing target
safety if engaged from close range.
The BIP40 operates with smokeless powder as a propellant, ensuring consistent
velocity and accuracy at long distances. The head of the round has a collapsible
nose which absorbs the kinetic energy upon impact. The Company holds a global
patent for the collapsible nose.
Designed to supersede previous blunt impact solutions such as foam, baton,
sponge and rubber bullets, the BIP40's technology enables the projectile to
engage the target with higher kinetic energy while meeting official, military
standard requirements.
The WEP40 is an industry leading electric ammunition round that was developed to
answer the growing need for an effective, extended range electric incapacitation
solution for situations that do not require the use of lethal force to control.
Incorporating SDI's patent-pending technologies allows for this ammunition round
to deliver operational success at distances up to 160 feet (50m).
The Market sectors for these products include; the military, army, navy, air
force, peacekeeping, homeland security, and law enforcement professionals. The
WEP40 when deployed emits a Wireless Electro Neuro-Muscular Disruption
Technology that incapacitates the targeted individual. The BIP40 is a
non-electrical ammunition round that will stop an individual with targeted
accuracy. The Company's products were designed for a standard 40mm ammunition
casing, for use with standard issue weapons such as riot guns and M203 grenade
launchers.
SDI has terminated their agreement with Elad Engineering of Israel, dated
November 30, 2009 and is in the midst of negotiating a new arrangement for
future services with this company.
SDI continues to speak to large defence technology companies, and are looking to
manufacture their BIP40 in the United States in calendar 2011.
6
Commencing June 2010, new management was put in place to administer the day to
day operations of SDI with an aim to build the company to a point that an
effective partnership with a large defense technology company could be executed
and to reduce the monthly expenses of the company and provide responsible fiscal
over sight to the company.
Two new directors were appointed to the board of directors; Mr. Harry Walters,
with an extensive history working with the United States Government and the
Pentagon, brings excellent insight into the United States Military to further
SDI's forward momentum with the United States Dept. of defense, and Mr. Patrick
Bryan who brings an extensive background in business as well as Military service
and managing a modern weapons company that dealt with United States Government
agencies, both Military and civilian.
The Company appointed members of the board to serve on the audit committee to
oversee financial statements once completed.
The Company appointed a Chief operating Officer to assist the President with the
day to day operations of the company.
The Company contracted Level 4 Capital Corp. to assist with the financial
strategy of SDI during this fiscal 2010 and to work with the Company with
restructurings, contract negotiations, and operational issues.
The Company joined the Association of the United States Army and attended their
annual conference in October 2010 in Washington, D.C. At the conference, SDI was
shown interest from two large defense technology companies, and is now in
advanced stage discussions with them to form a proposed joint venture with at
least one of them.
The Company opened a US office in Washington DC to accommodate the large US
military presence.
SDI was incorporated on March 1, 2005 and for the period from inception to
November 30, 2010 has not generated any revenue.
During the year ended November 30, 2010:
o Research and product development expenses were substantially lower
since the development of the Company's products was nearing
completion.
o General and administrative expenses increased primarily due to the
following reasons:
Effective June 1, 2010, the Company entered into a `Consulting and
Professional Services agreement' with Level 4 Capital Corp. for a
term of five months. The consultant is to provide various
managerial, legal and investor relation services. The total fees for
the services agreed are $360,000. The consultant agreed and the
Company issued 1,800,000 common shares of the Company at $0.20 per
7
share in lieu of fees. The Company expensed $360,000 to general and
administrative expense during the year ended November 30, 2010.
Effective July 1, 2010, the Company obtained the services of a
consultant providing consulting, corporate strategy and Investor
relations for a term of three months at CAD $10,000 per month. The
consultant agreed and the Company issued 150,000 common shares of
the Company at $0.20 per share in lieu of fees. The Company expensed
$30,000 to general and administrative expense during the year ended
November 30, 2010.
The Company expensed stock based compensation expense (included in
general and administrative expenses) for issue and modification of
options and warrants for $289,670 during the year ended November 30,
2010 as compared to $182,213 for the prior year. Stock based
compensation expense does not require the use of cash, associated
with the issue or modification of the exercise price of certain
options granted to SDI's officers, directors and consultants.
During the period from inception (March 1, 2005) through November 30, 2010
SDI's operations used $9,420,549 in cash. During this period SDI:
o purchased $58,773 of equipment;
o raised $9,629,150 from the sale of shares of its common stock; and
o raised $117,500 from its officers and directors upon the exercise of
options to purchase 1,175,000 shares of common stock.
Changes to Issued Share Capital
Year ended November 30, 2009
On August 19, 2009 the Company sold 788,000 units to a group of private
investors. Each unit consisted of one share of common stock and one
warrant. Each warrant allows the holder to purchase one share of the
Company's common stock at a price of $0.50 per share at any time prior to
June 15, 2010. The shares were sold at a price of $0.25 per unit. The
shares of common stock are, and any shares issuable upon the exercise of
warrants will be, restricted securities, as that term is defined in Rule
144 of the Securities and Exchange Commission. The Company relied upon
the exemption provided by Section 4(2) of the Securities Act of 1933 in
connection
Year ended November 30, 2010
On January 4, 2010 the Company completed the placement for 1,510,000
common shares to private investors. The shares were sold at a price of
$0.25 per common share for a total consideration of $377,500. The Company
paid $20,000 as finder's fees. The shares of common stock are restricted
securities, as that term is defined in Rule 144 of the Securities and
Exchange Commission. The Company relied upon the exemption provided by
Section 4(2) of the Securities Act of 1933 in this connection.
In May, 2010, the Company received $10,800 being the exercise of options
to acquire 108,000 common shares at an exercise price of $0.10 per common
share. The Company issued 108,000 common shares during the quarter ended
August 31, 2010.
8
On June 1, 2010 the Company sold 1,000,000 shares of common stock to a
private investor at a price of $0.20 per share. The shares of common stock
are restricted securities, as that term is defined in Rule 144 of the
Securities and Exchange Commission. The Company relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 in connection with
the sale of these securities.
In June 9, 2010 the Company sold 650,000 shares of common stock to two
private investors at a price of $0.20 per share. The Company relied upon
the exemption provided by Section 4(2) of the Securities Act of 1933 in
connection with the sale of these shares. The shares sold are restricted
securities, as that term is defined in Rule 144 of the Securities and
Exchange Commission.
On August 31, 2010 the Company sold 700,000 shares of common stock to a
private investor at a price of $0.20 per share. The shares of common stock
are restricted securities, as that term is defined in Rule 144 of the
Securities and Exchange Commission. The Company relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 in connection with
the sale of these securities.
On September 22, 2010 the Company sold 2,250,000 shares of common stock to
private investors at a price of $0.20 per share. The shares of common
stock are restricted securities, as that term is defined in Rule 144 of
the Securities and Exchange Commission. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act of 1933 in
connection with the sale of these securities.
On October 18, 2010 the Company sold 1,925,000 shares of common stock to
private investors at a price of $0.20 per share. The shares of common
stock are restricted securities, as that term is defined in Rule 144 of
the Securities and Exchange Commission. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act of 1933 in
connection with the sale of these securities.
On October 18, 2010 the Company issued 2,500,000 shares of common stock
for services which includes 550,000 common shares issued to directors for
settlement of debt and cancellation of options and 1,800,000 common shares
for services provided by an outside Company which is owned by an officer
of this Company.
SDI relied upon the exemption provided by Section 4(2) of the Securities
Act of 1933 with respect to the sale of the securities listed above. The
investors in these offerings were provided with full information regarding
SDI. There was no general solicitation in connection with these private
offerings. The investors in these offerings acquired SDI's securities for
their own account. The certificates representing the shares of common
stock issued to the investors in these offerings bear restricted legends
providing that the shares cannot be sold except pursuant to an effective
registration statement or an exemption from registration.
SDI anticipates that its capital requirements for the twelve-month period
ending November 30, 2011 will be:
9
Development and Production costs $120,000
General and Administrative Expenses 576,000
-------
Total $696,000
========
Other than the foregoing, SDI did not have any material future contractual
obligations or off balance sheet arrangements as of November 30, 2010.
SDI does not have any commitments or arrangements from any persons to
provide SDI with any additional capital it may need. Without additional capital
SDI will not be able to fund its anticipated capital requirements outlined
above.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8 FINANCIAL STATEMENTS
See the financial statements included with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
ITEM 9A. and 9A(T). CONTROLS AND PROCEDURES
a) SDI maintains a system of controls and procedures designed to ensure
that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded,
processed, summarized and reported, within time periods specified in the SEC's
rules and forms and to ensure that information required to be disclosed by SDI
in the reports that it files or submits under the 1934 Act, is accumulated and
communicated to SDI's management, including its Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. As of November 30, 2010, SDI's Principal Executive Officer
and Principal Financial Officer evaluated the effectiveness of the design and
operation of SDI's disclosure controls and procedures. Based on that evaluation,
the Principal Executive Officer and Principal Financial Officer concluded that
SDI's disclosure controls and procedures were effective.
Management's Report on Internal Control Over Financial Reporting
SDI's management is responsible for establishing and maintaining adequate
internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting. As defined by the
Securities and Exchange Commission, internal control over financial reporting is
a process designed by, or under the supervision of SDI's principal executive
officer and principal financial officer and implemented by SDI's Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of SDI's
financial statements in accordance with U.S. generally accepted accounting
principles.
10
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
SDI's management evaluated the effectiveness of its internal control over
financial reporting as of November 30, 2010 based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or the COSO Framework. Management's
assessment included an evaluation of the design of SDI's internal control over
financial reporting and testing of the operational effectiveness of those
controls.
Inherent in any small business is the pervasive problem involving
segregation of duties. Since SDI has a small accounting department, segregation
of duties cannot be completely accomplished at this stage in its corporate
lifecycle. Accordingly, SDI's management has added compensating controls to
reduce and minimize the risk of a material misstatement in SDI's annual and
interim financial statements.
Based on this evaluation, SDI's management concluded that SDI's internal
control over financial reporting was effective as of November 30, 2010.
There was no change in SDI's internal control over financial reporting that
occurred during the year ended November 30, 2010 that has materially affected,
or is reasonably likely to materially affect, SDI's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
11
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Name Age Position
---- --- --------
Gregory Sullivan 44 President, Principal Executive Officer and a
Director
Dean Thrasher 47 Chief Operating Officer
Boaz Dor 56 Secretary and a Director
Rakesh Malhotra 54 Principal Financial and Accounting Officer
Harry Walters 56 Director
Patrick Bryan 46 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.
Gregory Sullivan has been a director of SDI since April 2005. On May 30, 2010
Mr. Sullivan was appointed SDI's President and Principal Executive Officer. 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.
Dean Thrasher has been the COO of SDI since November 1, 2010. Mr. Thrasher is a
senior executive with more than twenty five years of start-up business
management skills, mergers & acquisitions, product launches, product
development, and funding experience in the technology, wholesale, manufacturing,
distribution, retail and franchise sectors, as well as extensive international
business and public market experience. Dean has run and managed several private
companies as well as a TSX-Venture listed public company. His previously tenures
include Chair of both private and public companies, as well as holding a seat on
the Board of Directors of these entities.
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.
Dor has owned and operated Ozone Water Systems Inc., a water purification
company.
12
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) degree from the University of Delhi (India) and worked for A.F Ferguson
& Co. (the Indian correspondent for KPMG) and obtained his CA designation in
India. Having practiced as an 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. During 2000 and 2001,
Mr. Malhotra worked as a chartered accountant with a mid-sized accounting firm
in Toronto performing audits of public companies. Since 2005 Mr. Malhotra has
been a consultant to a number of public companies. Mr. Malhotra has more than 20
years experience in accounting and financing.
Harry Walters has been a director of SDI since June 8, 2011. Since 2000, Mr.
Walter's has been a principal in the Lafayette Equity Fund, a $12 million
Washington, DC-based venture capital fund investing in emerging growth
technology companies. Since 2000, Mr. Walters has also been an independent
consultant to the financial industry. Mr. Walters, a graduate of the United
States Military Academy at West Point, served as the Administrator of Veterans
Affairs, reporting to President Ronald Reagan, from 1983 to 1986.
Patrick Bryan has been a director of SDI since June 8, 2011. Since 2009, Mr.
Bryan has been an independent consultant in the international trade area. Prior
to that time, Mr. Bryan was the Chief Executive Officer (2004-2008), and later a
consultant (2009), to Land Warfare Resources Corporation, a firm holding the
technology for a new type of military assault rifle.
Harry Walters and Patrick Bryan are independent as that term is defined in
Section 803 of the NYSE AMEX Company Guide.
SDI does not have a compensation 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 803 of the NYSE AMEX Company Guide.
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.
SDI believes its directors are qualified to act as such due to their
experience in the law enforcement or weapons industries and their general
business backgrounds.
Sheldon Kales resigned as an officer and director of SDI on May 30, 2010.
13
ITEM 11. EXECUTIVE COMPENSATION
The following table shows the compensation for the two years ended November
30, 2010 earned by SDI's Principal Executive Officers. None of the other
directors or officers of SDI received compensation in excess of $100,000 during
these years.
All
Other
Annual
Stock Option
Name and Principal Fiscal Salary Bonus Awards Awards Compensation
Position Year (1) (2) (3) (4) (5) Total
----------------- ---- ------ ----- ------ ------ ------------- -----
Gregory Sullivan, 2010 -- -- -- $144,311 $77,000 $221,311
President since
May 30, 2010
Sheldon Kales, 2010 -- -- -- $ 13,097 $45,500 $58,597
President prior to 2009 -- -- -- $ 40,293 $126,500 $166,793
May 30, 2010
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) The fair value of stock issued for services computed in accordance with ASC
718 on the date of grant.
(4) The fair value of options and warrants granted computed in accordance with
ASC 718 on the date of grant, adjusted for the fair value relating to
lowering the exercise price of options granted.
(5) Amount represents consulting fees paid during the year.
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 year period ending November 30, 2011, and the time these persons plan
to devote to SDI's business.
Proposed Time to be devoted to the
Name Compensation business of SDI
---- ------------ ---------------
Gregory Sullivan $75,000 90%
Dean Thrasher $96,000 70%
Boaz Dor $36,000 50%
Rakesh Malhotra $30,000 10%
There are no sales, net income, or other thresholds which are required for
SDI's directors to increase the compensation which in the future may be paid to
SDI's officers. SDI may also issue shares of its common stock or options to
compensate its officers and directors for services provided to SDI.
14
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, 2010
Awards of Options
Name Paid in Cash (1) Stock Awards (2) or Warrants (3)
---- ---------------- ---------------- -----------------
Boaz Dor $64,250 (4) -- $5,820
Gregory Sullivan $50,500 (5) -- $144,311
Harry Walter - -- $24,941
Patrick Bryan - -- $24,941
(1) Represents consulting fees paid during the year
(2) The fair value of stock issued for services computed in accordance with ASC
718 on the date of grant.
(3) The fair value of options or warrants granted computed in accordance with
ASC 718 on the date of grant.
(4) Does not include compensation for $14,000 settled by issue of shares
(5) Does not include compensation of $26,500 settled by issue of shares
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.
15
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 28, 2011, the options granted
pursuant to the Plans. Each option represents the right to purchase one share of
SDI's common stock.
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 5,000,000 1,450,000 N/A 2,375,000
Stock Bonus Plan 150,000 N/A -- 150,000
The following tables show all options granted and exercised by SDI's
current officers and directors since the inception of SDI and through February
28, 2011, and the options held by the officers and directors named below. All of
the options listed below were granted pursuant to SDI's Non-Qualified Stock
Option Plan.
16
Options Granted/Exercised
-------------------------
Shares
Grant Options Exercise Expiration Acquired on Value
Name Date Granted (#) Price Date Exercise (1) Realized (2)
---- ------ ----------- -------- ---------- ------------ ------------
Gregory Sullivan 10/29/05 200,000 $0.10 10/29/11 200,000 $100,000
Boaz Dor 10/29/05 200,000 $0.10 10/29/11 200,000 $100,000
Rakesh Malhotra 1/07/07 125,000 $0.25 06/30/14
Boaz Dor 01/24/08 117,000 $0.10 01/24/13 117,000 $ 25,740
Harry Walters 6/15/10 50,000 $0.20 6/15/15
Patrick Bryan 6/15/10 50,000 $0.20 6/15/15
Harry Walters 9/30/10 50,000 $0.20 9/30/15
Patrick Bryan 9/30/10 50,000 $0.20 9/30/15
(1) The number of shares received upon exercise of options.
(2) With respect to options exercised, the dollar value of the difference
between the option exercise price and the market value of the option shares
purchased on the date of the exercise of the options.
Shares underlying
unexercised options which are:
-----------------------------
Exercise Expiration
Name Exercisable Unexercisable Price Date
---- ----------- ------------- ------------ -----------
Rakesh Malhotra 125,000 -- $0.25 (2) 6-30-14 (3)
Harry Walters 50,000 -- $0.20 6-15-15
Patrick Bryan 50,000 -- $0.20 6-15-15
Harry Walters 50,000 -- $0.20 9-30-15
Patrick Bryan 50,000 -- $0.20 9-30-15
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.
(2) On June 17, 2009, SDI's directors approved the reduction of the exercise
price of these options to $0.25 per share.
(3) On December 4, 2009 SDI's directors extended the expiration date of these
options to June 30, 2014.
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
17
(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, 2010, SDI's most recent fiscal year end. SDI's stock option plans have not
been approved by its shareholders.
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 1,450,000 $0.27 2,375,000
Warrants
In addition to the options described above, SDI has granted warrants to its
officers and directors upon the terms shown below.
Shares Issuable
Grant Upon Exercise Exercise Expiration
Name Date of Options Price Date
---- ---- ----------- ----- ----
Gregory Sullivan 10-05-07 50,000 $0.25(1) 10-05-14
Boaz Dor 9-06-07 17,000 $0.25(1) 5-31-17
Gregory Sullivan 10-01-10 397,000 $0.20(2) 9-30-15
Boaz Dor 10-01-10 50,000 $0.20(3) 9-30-15
Rakesh Malhotra 10-01-10 175,000 $0.20(4) 9-30-15
(1)On June 17, 2009, SDI's directors approved the reduction of the exercise
price of these warrants to $0.25 per share.
(2) On October 1, 2010, the Board cancelled 725,000 options issued to the
director having an exercise price of $0.25 per share and expiring on various
dates ranging from October 29, 2011 to January 4, 2015 and issued warrants to
acquire 397,000 common shares exercisable at $0.20 per share with an expiry
term of five years and 500,000 common shares in lieu thereof.
18
(3) On October 1, 2010, the Board cancelled 400,000 options issued to
thedirector having an exercise price of $0.25 per share and expiring on
various dates ranging from October 29, 2011 to June 30, 2014 and issued
warrants to acquire 50,000 common shares exercisable at $0.20 per share with
an expiry term of five years and 50,000 common shares in lieu thereof.
(4)On October 1, 2010, the Board cancelled 175,000 options issued to the
officer having an exercise price of $0.25 per share and expiring on June 30,
2014 and issued warrants to acquire 175,000 common shares exercisable at
$0.20 per share with an expiry term of five years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDERS MATTERS
The following table shows the ownership of SDI's common stock as of
February 28, 2011 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
---- ------------- ----------------
Gregory Sullivan 900,000 3.5%
Boaz Dor 1,070,000 4.1%
Sheldon Kales 2,540,910 9.8%
All Officers and Directors 1,970,000 7.6%
as a group (six persons)
(1)Does not reflect shares issuable upon the exercise of options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Schwartz Levitsky Feldman, LLP ("Schwartz Levitsky") audited SDI's
financial statements for the years ended November 30, 2010 and 2009.
19
The following table shows the aggregate fees billed and billable to SDI
during these years by Schwartz Levitsky.
2010 2009
---- ----
Audit Fees $20,000 $16,200
Audit-Related Fees $10,500 $ 8,320
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
amounts billed for the services related to the reviews of SDI's 10-Q reports.
Before Schwartz Levitsky was engaged by Security Devices to render audit
services, the engagement was approved by Security Device's Directors.
ITEM 15. 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).
10.1 Agreement with Level 4 Capital Corp. (Incorporated by reference to the
same exhibit filed with the
Company's report on Form 10-Q for
the three months ended August 31,
2010.
31 Rule 13a-14(a) Certifications *
32 Section 1350 Certifications *
* Filed with this report.
20
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2010 AND 2009
Together with Report of Independent Registered Public Accounting Firm
(Amounts expressed in US Dollars)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2010 AND 2009
(Amounts expressed in US Dollars)
TABLE OF CONTENTS
Page No
Report of Independent Registered Public Accounting Firm 1
Balance Sheets as at November 30, 2010 and November 30, 2009 2
Statements of Operations and Comprehensive loss for the
years ended November 30, 2010 and November 30, 2009 and the
period from inception (March 1, 2005) to November 30, 2010 3
Statements of Cash Flows for the years ended November 30, 2010
and November 30, 2009 and the period from inception (March 1, 2005)
to November 30, 2010 4
Statements of Stockholders' Deficit for the years ended November 30,
2010 and November 30, 2009 and the period from inception
(March 1, 2005) to November 30, 2010 5
Notes to Financial Statements 6-31
Schwartz Levitsky Feldman llp
CHARTERED ACCOUNTANTS
LICENCED PUBLIC ACCOUNTANTS
TORONTO, MONTREAL
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. (the "Company") as at November 30, 2010 and 2009 and the
related statements of operations and comprehensive loss, cash flows and
stockholders' equity (deficiency) for the years ended November 30, 2010 and 2009
and the period from inception (March 1, 2005) to November 30, 2010. 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 audits.
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 the Company as of November 30,
2010 and 2009, and the results of its operations and its cash flows for the
years ended November 30, 2010 and 2009 and the period from inception (March 1,
2005) to November 30, 2010 in accordance with generally accepted accounting
principles in the United States of America.
The company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company's internal controls
over financial reporting. Accordingly, we express no such opinion.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in note 2 to the
financial statements, the company has not commenced operations and has no source
of operating revenue and expects to incur significant expenses before
establishing operating revenue. The Company's future success is dependent upon
its ability to raise sufficient capital, not only to maintain its operating
expenses, but also to continue to develop and be able to profitably market its
product. That raises substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
"SCHWARTZ LEVITSKY FELDMAN LLP"
Toronto, Ontario, Canada Chartered Accountants
March 14, 2011 Licensed Public Accountants
1
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Balance Sheets
As at November 30, 2010 and 2009
(Amounts expressed in US Dollars)
2010 2009
ASSETS $ $
CURRENT
Cash 247,328 55,431
Prepaid expenses and other 38,419 31,172
-------------------------
Total Current Assets 285,747 86,603
Plant and Equipment, net (Note 9) 29,200 29,924
-------------------------
TOTAL ASSETS 314,947 116,527
-------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 4) 787,641 691,729
-------------------------
Total Current Liabilities 787,641 691,729
-------------------------
Going Concern (Note 2)
Related Party Transactions (Note 8)
Commitments (Note 11)
Subsequent Events (Note 13)
STOCKHOLDERS' DEFICIT
Capital Stock (Note 5)
Preferred stock, $0.001 par value, 5,000,000
shares authorized, Nil issued and outstanding
(2008 - nil)
Common stock, $0.001 par value 50,000,000 shares
authorized, 25,878,050 issued and outstanding
(2009 -15,235,050) 25,878 15,235
Additional Paid-In Capital 15,876,078 13,463,251
Deficit Accumulated During the Development Stage (16,374,650) (14,053,688)
-------------------------
Total Stockholders' Deficit (472,694) (575,202)
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 314,947 116,527
-------------------------
The accompanying notes are an integral part of these
financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Operations and Comprehensive loss
Years Ended November 30, 2010 and 2009 and the Period from Inception (March 1,
2005) to November 30, 2010 (Amounts expressed in US Dollars)
Cumulative
since inception 2010 2009
--------------- ---- ----
$ $ $
EXPENSES:
Research and Product Development 7,492,975 946,702 2,031,230
Amortization 29,573 8,976 9,348
General and administration 9,124,696 1,365,284 941,702
---------- ----------- ---------
TOTAL OPERATING EXPENSES 16,647,244 2,320,962 2,982,280
----------- ----------- ------------
LOSS FROM OPERATIONS (16,647,244) (2,320,962) (2,982,280)
Other Income 272,594 - 7,813
----------- ----------- ------------
LOSS BEFORE INCOME TAXES (16,374,650) (2,320,962) (2,974,467)
Income taxes (Note 10) - - -
----------- ----------- ------------
NET LOSS AND COMPREHENSIVE LOSS (16,374,650) (2,320,962) (2,974,467)
----------- ----------- ------------
Loss per share - basic and
diluted (0.12) (0.20)
----------- ------------
Weighted average common shares
outstanding 18,612,924 14,671,576
----------- ------------
The accompanying notes are an integral part of these
financial statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Years Ended November 30, 2010 and 2009 and the Period from Inception (March 1,
2005) to November 30, 2010 (Amounts expressed in US Dollars)
Cumulative
Since inception 2010 2009
--------------- ---- ----
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (16,374,650)(2,320,962)(2,974,467)
Items not requiring an outlay of
cash:
Issue of shares for services 584,500 430,500 -
Stock based compensation for
options and warrants
(included in general and
administration expenses) 5,556,406 289,670 182,213
Loss on cancellation of common stock 34,400 - -
Amortization 29,573 8,976 9,348
Changes in non-cash working capital:
Prepaid expenses and other (38,419) (7,247) 14,812
Accounts payable and accrued
liabilities 787,641 95,912 472,648
----------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (9,420,549)(1,503,151)(2,295,446)
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (58,773) (8,252) (13,822)
----------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (58,773) (8,252) (13,822)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock subscriptions received 30,000 30,000
Net Proceeds from issuance of
common shares 9,629,150 1,662,500 197,000
Cancellation of common stock (50,000) - -
Exercise of stock options 117,500 10,800 -
----------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,726,650 1,703,300 197,000
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
FOR THE YEAR 247,328 191,897 (2,112,268)
Cash, beginning of Year - 55,431 2,167,699
----------- ---------- ----------
CASH, END OF YEAR 247,328 247,328 55,431
=========== ========== ==========
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 Changes in Stockholders' Deficit
For the years ended November 30, 2010 and 2009 and the period from inception
(March 1, 2005) to November 30, 2010.
(Amounts expressed in US Dollars)
Number of Common Additional Deficit
Common Shares Paid-in Accumulated During
Shares amount Capital Development Stage 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
Issuance of common shares for stock
Subscriptions received in prior
year 1,165,500 1,165 (1,165) - -
Issuance of common shares for cash 1,170,670 1,171 1,169,499 1,170,670
Issuance of common shares for cash
and services 50,000 50 154,950 155,000
Issuance of common shares for cash
(net of expenses) 2,139,000 2,139 4,531,236 4,533,375
Cancellation of stock (1,560,000) (1,560) (14,040) (15,600)
Stock based compensation 2,446,433 2,446,433
Issue of warrants 357,094 357,094
Net loss for the year - - - (4,827,937) (4,827,937)
------------ -------- ---------- ----------- -----------
Balance as of November 30, 2007 14,330,050 14,330 11,842,187 (6,677,435) 5,179,082
Exercise of stock options 117,000 117 11,583 11,700
Stock based compensation - - 1,231,056 - 1,231,056
Net loss for the year - - - (4,401,786) (4,401,786)
------------ -------- ---------- ----------- -----------
Balance as of November 30, 2008 14,447,050 14,447 13,084,826 (11,079,221) 2,020,052
Issuance of common shares for cash 788,000 788 196,212 197,000
Stock based compensation - - 177,990 - 177,990
Compensation expense for warrants 4,223 4,223
Net loss for the year - - - (2,974,467) (2,974,467)
------------ -------- ---------- ----------- -----------
Balance as of November 30, 2009 15,235,050 15,235 13,463,251 (14,053,688) (575,202)
Issuance of common shares for cash 8,143,000 8,143 1,665,157 1,673,300
Issuance of common shares
for services and debt 2,500,000 2,500 428,000 430,500
Stock subscriptions received 30,000 30,000
Stock based compensation 289,670 289,670
Net loss for the year (2,320,962) (2,320,962)
------------ -------- ---------- ----------- -----------
Balance as of November 30, 2010 25,878,050 25,878 15,876,078 (16,374,650) (472,694)
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, 2010 and 2009
(Amounts expressed in US Dollars)
1. BASIS OF PRESENTATION
The financial statements which include the accounts of Security Devices
International Inc. (the "Company" or "SDI") were prepared in accordance
with US GAAP. The Company was incorporated under the laws of the state
of Delaware on March 1, 2005.
2. NATURE OF OPERATIONS AND GOING CONCERN
The Company is a defence technology corporation specializing in the
development of innovative next generation solutions for security
situations that do not require the use of lethal force, or ammunition.
SDI is currently developing 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 November 30, 2010,
the Company has not yet achieved profitable operations, had a working
capital deficiency of $501,894 and has accumulated losses of $16,374,650
since inception and expects to incur further losses in the development
of its business, all of which limits 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 shares pending allotment during the
year ended November 30, 2010
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
The Company has incurred a loss of $ 2,320,962 during the year ended
November 30, 2010 primarily due to its research and development
activities and non-cash stock based compensation expense for $289,670.
At November 30, 2010, the Company had an accumulated deficit during the
development stage of $16,374,650 which includes a non- cash stock based
compensation expense of $5,556,406 for issue of options and warrants.
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(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. As the 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. Actual amounts may differ from these
estimates. Significant estimates include accruals, valuation
allowance for deferred tax assets, estimates for calculation of
stock based compensation and estimating the useful life of its plant
and equipment.
b) Income Taxes
The Company accounts for income taxes under FASB Codification Topic
740-10-25 ("ASC 740-10-25"). Under ASC 740-10-25, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under ASC 740-10-25, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. The Company
provides a valuation allowance for deferred tax assets for which it
does not consider realization of such assets likely. The Company did
not incur any material impact to its financial condition or results
of operations due to the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return. The Company is subject to U.S federal jurisdiction income
tax examinations for the tax years 2006 through 2009. In addition,
the Company is subject to state and local income tax examinations
for the tax years 2006 through 2009.
c) Revenue Recognition
The Company's revenue recognition policies are expected to follow
common practice in the manufacturing industry. The Company will
record revenue when it is realized, or realizable and earned. The
Company considers revenue to be realized, or realizable and earned,
when the following revenue recognition requirements will be met:
persuasive evidence of an arrangement exists; the products or
services have been accepted by the customer via delivery or
installation acceptance; the sales price is fixed or determinable;
and collectability is probable. For product sales, the Company
determines that the earnings process is complete when title, risk of
loss and the right to use equipment has transferred to the customer.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Cont'd
d) Earnings (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, 2010 and 2009 that have been included in dilutive loss
per share calculation as the effects would have been anti-dilutive.
At November 30, 2010, there were 1,450,000 options and 1,289,000
warrants outstanding, which were convertible into equal number of
common shares of the Company. At November 30, 2009, there were
3,768,000 options and 1,105,000 warrants outstanding, which were
convertible into equal number of common shares of the Company.
e) Fair Values
The Company carries cash and accounts payable and accrued liabilities
at historical costs since their respective estimated fair values
approximate carrying values due to their current nature.
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
All awards granted to employees and non-employees after November 30,
2005 are valued at fair value by using the Black-Scholes option
pricing model and recognized on a straight line basis over the
service periods of each award. The Company accounts for equity
instruments issued in exchange for the receipt of goods or services
from other than employees using 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 of
November 30, 2010 there was $nil of unrecognized expense related to
non-vested stock-based compensation arrangements granted. The total
stock-based compensation expense relating to all employees and non
employees for the years ended November 30, 2010 and 2009 was $289,670
and $182,213 respectively
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Cont'd
h) Foreign Currency
The Company maintains its books, records and banking
transactions in U.S. dollars which is its functional and
reporting currency.
i) Comprehensive loss
Comprehensive loss includes all changes in equity (net assets) during
a period from non-owner sources. Examples of items to be included in
comprehensive loss, which are excluded from net loss, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities.
j) Financial Instruments
The Company's financial instruments consist of cash and accounts
payable and accrued liabilities.
The Company follows ASC 820-10, "Fair Value Measurements and
Disclosures" (ASC 820-10), which among other things, defines fair
value, establishes a consistent framework for measuring fair value
and expands disclosure for each major asset and liability category
measured at fair value on either a recurring or nonrecurring basis.
Fair value is an exit price, representing the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. As such, fair value
is a market-based measurement that should be determined based on
assumptions that market participants would use in pricing an asset or
liability. As a basis for considering such assumptions, a three-tier
fair value hierarchy has been established, which prioritizes the
inputs used in measuring fair value as follows:
o Level 1--Inputs are unadjusted, quoted prices in active markets for
identical assets or liabilities at the measurement date.
Assets that are generally included in this category are cash and cash
equivalents comprised of money market funds, restricted cash and
short-term investments.
o Level 2--Inputs (other than quoted prices included in Level 1) are
either directly or indirectly observable for the asset or liability
through correlation with market data at the measurement date and for
the duration of the instrument's anticipated life.
o Level 3--Inputs reflect management's best estimate of what market
participants would use in pricing the asset or liability at the
measurement date. Consideration is given to the risk inherent in the
valuation technique and the risk inherent in the inputs to the model.
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Cont'd
j) Financial Instruments-Cont'd
Assets and liabilities measured at fair value as of November 30, 2010
and 2009 are classified below based on the three fair value hierarchy
tiers described above:
Carrying Value Fair Value
November 30, 2010:
Cash $247,328 $247,328
Accounts payable and
accrued liabilities $787,641 $787,641
Carrying Value Fair Value
November 30, 2009:
Cash $55,431 $ 55,431
Accounts payable and
accrued liabilities $691,729 $691,729
Cash has been measured using Level 1 of the Fair Value Hierarchy.
k) Impairment 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.
l) Concentration of Credit Risk
The Company does not have significant off-balance sheet risk or
credit concentration.
10
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Cont'd
m) Intellectual Property with Respect to Pending Patent Applications
Four patent applications, one for the electrical mechanism and the
other three for the mechanical mechanism of the WEP40, 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.
n) Plant and Equipment
Plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided commencing in the month
following acquisition using the following annual rate and method:
Computer equipment 30% declining balance method
Furniture and fixtures 30% declining balance method
Leasehold Improvements straight line over period of lease
11
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Cont'd
o) Recent Accounting Pronouncements
In June 2009, the FASB issued Topic 105, which became the source of
authoritative GAAP recognized by the FASB to be applied by
nongovernmental entities. Rules and interpretive releases of the SEC
under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. On the effective date of this
Topic, the Codification will supersede all then-existing non-SEC
accounting and reporting standards. All other non-SEC accounting
literature not included in the Codification will become
non-authoritative. This Topic identifies the sources of accounting
principles and the framework for selecting the principles used in
preparing the financial statements of nongovernmental entities that
are presented in conformity with GAAP and arranged these sources of
GAAP in a hierarchy for users to apply accordingly. This Topic is
effective for financial statements issued for interim and annual
periods ending after September 15, 2009. The adoption of this topic
did not have a material impact on the Company's disclosure of the
financial statements.
In January 2010, the FASB issued an amendment to ASC 820, Fair Value
Measurements and Disclosure, to require reporting entities to
separately disclose the amounts and business rationale for
significant transfers in and out of Level 1 and Level 2 fair value
measurements and separately present information regarding purchase,
sale, issuance, and settlement of Level 3 fair value measures on a
gross basis. This standard, for which the Company is currently
assessing the impact, is effective for interim and annual reporting
periods beginning after December 15, 2009 with the exception of
disclosures regarding the purchase, sale, issuance, and settlement
of Level 3 fair value measures which are effective for fiscal years
beginning after December 15, 2010. The adoption of this standard is
not expected to have a significant impact on the Company's financial
statements. In February 2010, the FASB issued ASU No. 2010-09
"Subsequent Events (ASC Topic 855) "Amendments to Certain Recognition
and Disclosure Requirements" ("ASU No. 2010-09"). ASU No. 2010-09
requires an entity that is an SEC filer to evaluate subsequent events
through the date that the financial statements are issued and
removes the requirement for an SEC filer to disclose a date, in both
issued and revised financial statements, through which the filer had
evaluated subsequent events. The adoption of this standard did not
have an impact on the Company's financial statements.
12
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES-Cont'd
o) Recent Accounting Pronouncements Cont'd
In September 2009, FASB amended ASC 605, as summarized in ASU
2009-13, Revenue Recognition: Multiple-Deliverable Revenue
Arrangements. As summarized in ASU 2009-13, ASC Topic 605 has been
amended: (1) to provide updated guidance on whether multiple
deliverables exist, how the deliverables in an arrangement should be
separated, and the consideration allocated; (2) to require an entity
to allocate revenue in an arrangement using estimated selling prices
of deliverables if a vendor does not have VSOE or third-party
evidence of selling price; and (3) to eliminate the use of the
residual method and require an entity to allocate revenue using
the relative selling price method. The accounting changes in ASU
2009-13 are both effective for fiscal years beginning on or after
June 15, 2010, with early adoption permitted. Adoption may either
be on a prospective basis or by retrospective application. The
Company is currently evaluating the potential impact that the
adoption of this statement will have on its financial position and
results from operations and will adopt the provision of this
statement in fiscal 2011.
In February 2010, the FASB Accounting Standards Update 2010-10 (ASU
2010-10), "Consolidation (Topic 810): Amendments for Certain
Investment Funds." The amendments in this Update are effective as of
the beginning of a reporting entity's first annual period that begins
after November 15, 2009 and for interim periods within that first
reporting period. Early application is not permitted. The Company's
adoption of provisions of ASU 2010-10 did not have a material effect
on the financial position, results of operations or cash flows.
13
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2010 2009
---- ----
Accounts payable and accrued liabilities
are comprised of the following:
Trade payables $ 735,634 $ 658,932
Accrued liabilities 52,007 32,797
--------- ---------
$ 787,641 $ 691,729
--------- ---------
Accrued liabilities relate primarily to audit, legal and accounting
expenses
5. CAPITAL STOCK
a) Authorized
50,000,000 Common shares, $0.001 par value
And
5,000,000 Preferred shares, $0.001 par value
The Company'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
25,878,050 Common shares (2009: 15,235,050 Common shares)
14
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
5. CAPITAL STOCK-Cont'd
c) Changes to Issued Share Capital
Year ended November 30, 2009
On August 19, 2009 the Company sold 788,000 units to a group of private
investors. Each unit consisted of one share of common stock and one
warrant. Each warrant allows the holder to purchase one share of the
Company's common stock at a price of $0.50 per share at any time prior to
June 15, 2010. The shares were sold at a price of $0.25 per unit. The
shares of common stock are, and any shares issuable upon the exercise of
warrants will be, restricted securities, as that term is defined in Rule
144 of the Securities and Exchange Commission. The Company relied upon
the exemption provided by Section 4(2) of the Securities Act of 1933 in
connection
Year ended November 30, 2010
On January 4, 2010 the Company completed the placement for 1,510,000
common shares to private investors. The shares were sold at a price of
$0.25 per common share for a total consideration of $377,500. The Company
paid $20,000 as finder's fees. The shares of common stock are restricted
securities, as that term is defined in Rule 144 of the Securities and
Exchange Commission. The Company relied upon the exemption provided by
Section 4(2) of the Securities Act of 1933 in this connection.
In May, 2010, the Company received $10,800 being the exercise of options
to acquire 108,000 common shares at an exercise price of $0.10 per common
share. The Company issued 108,000 common shares during the quarter ended
August 31, 2010.
On June 1, 2010 the Company sold 1,000,000 shares of common stock to a
private investor at a price of $0.20 per share. The shares of common stock
are restricted securities, as that term is defined in Rule 144 of the
Securities and Exchange Commission. The Company relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 in connection with
the sale of these securities.
In June 9, 2010 the Company sold 650,000 shares of common stock to two
private investors at a price of $0.20 per share. The Company relied upon
the exemption provided by Section 4(2) of the Securities Act of 1933 in
connection with the sale of these shares. The shares sold are restricted
securities, as that term is defined in Rule 144 of the Securities and
Exchange Commission.
On August 31, 2010 the Company sold 700,000 shares of common stock to a
private investor at a price of $0.20 per share. The shares of common stock
are restricted securities, as that term is defined in Rule 144 of the
Securities and Exchange Commission. The Company relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 in connection with
the sale of these securities.
15
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
5. CAPITAL STOCK-Cont'd
On September 22, 2010 the Company sold 2,250,000 shares of common stock to
private investors at a price of $0.20 per share. The shares of common
stock are restricted securities, as that term is defined in Rule 144 of
the Securities and Exchange Commission. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act of 1933 in
connection with the sale of these securities.
On October 18, 2010 the Company sold 1,925,000 shares of common stock to
private investors at a price of $0.20 per share. The shares of common
stock are restricted securities, as that term is defined in Rule 144 of
the Securities and Exchange Commission. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act of 1933 in
connection with the sale of these securities.
On October 18, 2010 the Company issued 2,500,000 shares of common stock
for services which includes 550,000 common shares issued to directors for
settlement of debt and cancellation of options and 1,800,000 common shares
for services provided by an outside Company which is owned by an officer
of this Company.
6. STOCK BASED COMPENSATION
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, 2010.
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. By a resolution of the Board of
Directors, the Company amended this plan to increase the number of
common shares available under this plan from 2,250,000 to 4,500,000
effective October 10, 2007. The Company further amended its
Non-Qualified Stock Option Plan to increase the number of Common Shares
available under this plan to 5,000,000 and filed an S-8 registration
statement on April 10, 2008.
16
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(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,
2010.
Year ended November 30, 2009
On December 17, 2008, the Company approved the reduction of the exercise
price of 2,940,000 outstanding options which had earlier been issued at
prices ranging from $1.00 to $3.60 to a new option price of $0.50 per
share, with all other terms of the original grant remaining the same.
The Company expensed this additional non-cash stock based compensation
expense relating to this modification for $114,688. This reduction in
exercise price relates to a total of 1,150,000 options in total issued
to the Company's three directors; 300,000 options in total issued to the
Company's officer and the balance total of 1,490,000 unexercised options
issued in the past to various consultants.
On June 17, 2009, the Company approved the reduction of the exercise
price of 2,700,000 outstanding options which had on December 17, 2008
been reduced to an option price of $0.50 per share, to a new option
price of $0.25 per share, with all other terms of the original grant
remaining the same. The Company expensed this additional non-cash stock
based compensation expense relating to this modification for $63,302.
This reduction in exercise price relates to a total of 1,150,000 options
in total issued to the Company's three directors; 300,000 options in
total issued to the Company's officer and the balance total of 1,250,000
unexercised options issued in the past to various consultants.
For the year ended November 30, 2009 the Company has recognized in its
financial statements additional 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 calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
December 17, 2008:
Risk free rate 2.95%
Expected dividends 0%
Forfeiture rate 0%
Exercise price $0.50
Volatility 137.12%
Increase in fair value due to reduction in exercise
price of options $0.03-$0.09
Market price of Company's common stock on date of
reduction in exercise price $0.32
Stock-based compensation cost expensed $114,688
Unexpended stock-based compensation deferred over to
next period $Nil
17
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
June 17, 2009:
Risk free rate 2.95%
Expected dividends 0%
Forfeiture rate 0%
Exercise price $0.25
Volatility 125.79%
Increase in fair value due to reduction in exercise
price of options $0.02-$0.03
Market price of Company's common stock on date of
reduction in exercise price $0.25
Stock-based compensation cost expensed $63,302
Unexpended stock-based compensation deferred over to
next period $Nil
As of November 30, 2009 there was $Nil of unrecognized
expense related to non-vested stock-based
compensation arrangements granted.
Year ended November 30, 2010
On December 4, 2009, the Company approved the reduction of the exercise
price of 300,000 outstanding options which had earlier been issued at a
price of $0.50 to a new option price of $0.25 per share, with all other
terms of the original grant remaining the same. The Company expensed this
additional non-cash stock based compensation expense relating to this
modification for $6,534. The fair value of each option used for the
purpose of estimating the stock compensation is calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 173.24%
Exercise price $0.25
Increase in fair value due to reduction in exercise
price of options $0.02
Market price of Company's common stock on date of
reduction in exercise price $0.25
Stock-based compensation cost expensed $6,534
On December 4, 2009, the Company approved the extension of the expiration
of 2,900,000 outstanding options from their initial expiry date ranging
from November 2011 to April 2013 to a new expiration date of June 30,
2014 with all other terms of the original grant remaining the same. The
Company expensed this additional non-cash stock based compensation
expense relating to this modification for $63,282. The fair value of each
option used for the purpose of estimating the stock compensation is
calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
18
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 173.24%
Stock-based compensation cost expensed $63,282
On January 4, 2010, the board of directors granted options to a director
to acquire 100,000 common shares at an exercise price of $0.25 per share.
All of these options vested immediately and have an expiry of five years.
The Company expensed stock based compensation cost of $23,677. The fair
value of each option used for the purpose of estimating the stock
compensation is calculated using the Black-Scholes option pricing model
with the following weighted average assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 170.69%
Market price of Company's common stock on date
of grant of options $0.25
Stock-based compensation cost expensed $23,677
On May 20, 2010, the Company approved the extension of the expiration of
50,000 outstanding options from their initial expiry date from May 21,
2010 to a new expiration date of June 30, 2014 and a reduction in the
exercise price of the options from $0.50 to $0.25 with all other terms of
the original grant remaining the same. The Company expensed this
additional non-cash stock based compensation expense relating to this
modification for $13,326. The fair value of each option used for the
purpose of estimating the stock compensation is calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 166.16%
Stock-based compensation cost expensed $13,326
19
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
On June 15, 2010, the board of directors granted options to a director to
acquire 350,000 common shares, two directors to acquire 50,000 common
shares each and to a consultant to acquire 35,000 common shares. All
these 485,000 options were issued at an exercise price of $0.20 per share
and vest immediately with an expiry term of five years. The Company
expensed stock based compensation cost of $119,368. The fair value of
each option used for the purpose of estimating the stock compensation is
calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 164.99%
Market price of Company's common stock on date
of grant of options $0.26
Stock-based compensation cost expensed $119,368
On September 30, 2010, the board of directors granted options to two
directors to acquire 50,000 common shares each. All these 100,000 options
were issued at an exercise price of $0.20 per share and vest immediately
with an expiry term of five years. The Company expensed stock based
compensation cost of $25,271. The fair value of each option used for the
purpose of estimating the stock compensation is calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 189.45%
Market price of Company's common stock on date
of grant of options $0.26
Stock-based compensation cost expensed $25,271
On October 1, 2010, the Board cancelled 725,000 options issued to a
director having an exercise price of $0.25 per share and expiring on
various dates ranging from October 29, 2011 to January 4, 2015 and issued
warrants to acquire 397,000 common shares exercisable at $0.20 per share
with an expiry term of five years and 500,000 common shares in lieu
thereof. All outstanding payables to the said director for services
provided were adjusted against the said issuance of common shares. The
Company expensed this additional non-cash stock based compensation
expense relating to this modification for $31,097. The fair value of each
option used for the purpose of estimating the stock compensation is
calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
20
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
Risk free rate 3.25%
Expected dividends 0%
Forfeiture rate 0%
Volatility 189.42%
Stock-based compensation cost expensed $31,097
On October 1, 2010, the Board cancelled 400,000 options issued to a
director having an exercise price of $0.25 per share and expiring on
various dates ranging from October 29, 2011 to June 30, 2014 and issued
warrants to acquire 50,000 common shares exercisable at $0.20 per share
with an expiry term of five years and 50,000 common shares in lieu
thereof. All outstanding payables to the said director for services
provided were adjusted against the said issuance of common shares. The
Company concluded that there was no additional non-cash stock based
compensation expense relating to this modification. The fair value of
each option used for the purpose of estimating the stock compensation is
calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
Risk free rate 3.25%
Expected dividends 0%
Forfeiture rate 0%
Volatility 189.42%
Stock-based compensation cost expensed $Nil
On October 1, 2010, the Board cancelled 175,000 options issued to an
officer having an exercise price of $0.25 per share and expiring on June
30, 2014 and issued warrants to acquire 175,000 common shares exercisable
at $0.20 per share with an expiry term of five years. The Company
expensed this additional non-cash stock based compensation expense
relating to this modification for $1,607. The fair value of each option
used for the purpose of estimating the stock compensation is calculated
using the Black-Scholes option pricing model with the following weighted
average assumptions:
Risk free rate 3.25%
Expected dividends 0%
Forfeiture rate 0%
Volatility 189.42%
Stock-based compensation cost expensed $1,607
21
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
On October 1, 2010, the Board cancelled 300,000 options each for a total
of 600,000 options issued to two consultants having an exercise price of
$0.25 per share and expiring on June 30, 2014 and issued warrants to each
to acquire 300,000 common shares exercisable at $0.20 per share for a
total of 600,000 warrants with an expiry term of five years. The Company
expensed this additional non-cash stock based compensation expense
relating to this modification for $5,508. The fair value of each option
used for the purpose of estimating the stock compensation is calculated
using the Black-Scholes option pricing model with the following weighted
average assumptions:
Risk free rate 3.25%
Expected dividends 0%
Forfeiture rate 0%
Volatility 189.42%
Stock-based compensation cost expensed $5,508
As of November 30, 2010 there was $Nil of unrecognized expense related to
non-vested stock-based compensation arrangements granted.
The following table summarizes the options outstanding under its
Non-Qualified Stock Option Plan:
Number of shares
-------------------------
2010 2009
---- ----
Outstanding, beginning of year 3,768,000 3,768,000
Granted 685,000 -
Expired (220,000) -
Exercised (108,000) -
Forfeited (775,000)
Cancelled (1,900,000) -
----------- ----------
Outstanding, end of year 1,450,000 3,768,000
----------- -----------
Exercisable, end of year 1,450,000 3,768,000
----------- -----------
22
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
Option price Number of shares
Expiry date per share 2010
----------- --------- ----
January 29, 2012 $0.50 40,000
April 11, 2013 $0.50 150,000
June 30, 2014 $0.25 1,025,000
June 15, 2015 $0.20 100,000
September 30, 2015 $0.20 135,000
-------------------------------------------------------
TOTAL 1,450,000
---------
Weighted average exercise price:
Options outstanding at end of year $0.27
Options granted during the year $0.21
Options exercised during the year $0.10
Options cancelled during the year $0.24
Option price Number of shares
Expiry date per share 2009
----------- --------- ----
January 31, 2010 $1.20 120,000
May 21, 2010 $0.50 50,000
October 29, 2011 $0.25 300,000
October 29, 2011 $0.50 300,000
November 14, 2011 $0.25 100,000
January 7, 2012 $0.25 125,000
January 29, 2012 $0.50 40,000
April 23, 2012$0.25 300,000
October 12, 2012 $0.25 1,575,000
January 24, 2013 $0.10 108,000
April 11, 2013 $0.50 150,000
April 11, 2013 $0.25 600,000
-------------------------------------------------------
TOTAL 3,768,000
---------
Weighted average exercise price:
Options outstanding at end of year $0.29
23
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
The weighted average remaining contractual term of the total
outstanding, and the total exercisable options under the Non-Qualified
Stock Option Plan were as follows:
2010 2009
-----------------
(Years) (Years)
Total outstanding options 3.6 2.7
Total exercisable options 3.6 2.7
7. STOCK PURCHASE WARRANTS
Year ended November 30, 2009
On August 19, 2009 the Company sold 788,000 units to a group of private
investors. Each unit consisted of one share of common stock and one
warrant. Each warrant allows the holder to purchase one share of the
Company's common stock at a price of $0.50 per share at any time prior
to June 15, 2010.
Year ended November 30, 2010
On October 1, 2010, the Board cancelled 725,000 options issued to a
director having an exercise price of $0.25 per share and expiring on
various dates ranging from October 29, 2011 to January 4, 2015 and
issued warrants to acquire 397,000 common shares exercisable at $0.20
per share with an expiry term of five years and 500,000 common shares in
lieu thereof.
On October 1, 2010, the Board cancelled 400,000 options issued to a
director having an exercise price of $0.25 per share and expiring on
various dates ranging from October 29, 2011 to June 30, 2014 and issued
warrants to acquire 50,000 common shares exercisable at $0.20 per share
with an expiry term of five years and 50,000 common shares in lieu
thereof.
On October 1, 2010, the Board cancelled 175,000 options issued to an
officer having an exercise price of $0.25 per share and expiring on June
30, 2014 and issued warrants to acquire 175,000 common shares
exercisable at $0.20 per share with an expiry term of five years.
On October 1, 2010, the Board cancelled 300,000 options each for a total
of 600,000 options issued to two consultants having an exercise price of
$0.25 per share and expiring on June 30, 2014 and issued warrants to
each to acquire 300,000 common shares exercisable at $0.20 per share for
a total of 600,000 warrants with an expiry term of five years.
24
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
7. STOCK PURCHASE WARRANTS-Cont'd
Number of
Warrants Exercise Expiry
Granted Prices Date
$
Outstanding at
November 30, 2007 and
average exercise price 423,950 1.08
Granted in year 2008 - -
Exercised - -
Forfeited - -
Cancelled - -
- -
--------------------------------
Outstanding at 423,950 1.08
November 30, 2008 and
average exercise price
Granted in year 2009 788,000 0.50 6/15/2010
Exercised - -
Forfeited/Expired (106,950) (2.81)
Cancelled - -
--------------------------------
Outstanding at 1,105,000 0.50
November 30, 2009 and
average exercise price
Granted in year 2010 1,222,000 0.20 10/1/2015
Exercised - -
Forfeited/Expired (1,038,000) (0.50)
Cancelled - -
--------------------------------
1,289,000 0.22
Outstanding at November 30,
2010 and average exercise price
Exercisable at November 30, 2010 1,289,000 0.22
Exercisable at November 30, 2009 1,105,000 0.50
The weighted average remaining contractual term of the total
outstanding, and the total exercisable warrants were as follows:
2010 2009
-----------------
(Years) (Years)
Total outstanding warrants 4.9 1.8
Total exercisable warrants 4.9 1.8
25
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
8. RELATED PARTY TRANSACTIONS
The following transactions are in the normal course of operations and
are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
Year ended November 30, 2009:
a) A Company Director has charged the Company a total amount of $6,000
for providing office space during the year ended November 30, 2009.
b) The directors were compensated from January 1, 2009 as per their
consulting agreements with the Company. One director was paid
$110,000 as consulting fee and $16,500 as automobile allowance; one
director was paid $68,750 as consulting fee and $11,000 as
automobile allowance; one director was paid $40,000 as consulting
fee and $11,000 as automobile allowance.
c) On December 17, 2008 the board of directors approved the
reduction in the exercise price of the following options under
its Non-Qualified Stock Option Plan:
1. Reduction in the exercise price of the options already issued to
three directors to acquire 1,150,000 common shares from exercise
price of $1.20 to a new exercise price of $0.50 per share.
2. Reduction in the exercise price of the options already issued to
an officer to acquire 125,000 common shares from exercise price
of $1.25 to a new exercise price of $0.50 per share and reduction
in the exercise price to acquire 175,000 common shares from $1.20
to a new exercise price of $0.50 per share.
Stock based compensation cost relating to the reduction in the
exercise price of the options issued to directors and officers, as
above, amounting to $46,660 has been expensed to general and
administration expense.
d) On June 17, 2009 the board of directors approved the reduction in
the exercise price of the following options under its
Non-Qualified Stock Option Plan:
1. Reduction in the exercise price of the options already issued to
three directors to acquire 1,150,000 common shares from reduced
exercise price of $0.50 to a new exercise price of $0.25 per
share.
2. Reduction in the exercise price of the options already issued to
an officer to acquire 125,000 common shares from reduced exercise
price of $0.50 to a new exercise price
26
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
8. RELATED PARTY TRANSACTIONS-Cont'd
of $0.25 per share and further reduction in the exercise price to
acquire 175,000 common shares from $0.50 to a new exercise price of
$0.25 per share.
Stock based compensation cost relating to the reduction in the exercise
price of the options issued to directors and officers, as above,
amounting to $34,322 has been expensed to general and administration
expense.
e) On June 17, 2009, the Company further approved the reduction of the
exercise price of 317,000 outstanding warrants which had earlier been
issued to directors at $0.50 per share to a new exercise price of
$0.25 per share, with all other terms of the original issue remaining
the same. The Company expensed this additional non-cash compensation
expense relating to this modification for $ 4,223.
f) The Company expensed $ 21,300 being cost for services rendered by the
CFO for the year ended November 30, 2009.
Year ended November 30, 2010:
a) A Company Director has charged the Company a total of $1,500 for
providing office space. The said director resigned during the year
2010.
b) The directors were compensated as per their consulting agreements with
the Company. The Company expensed a total of $192,250 as Management fee
(including $41,000 paid to a director who resigned during the year) and
expensed a total of $7,000 as automobile allowance (including $3,000
paid to a director who resigned during the year)
c) On December 4, 2009 the board of directors approved extension of the
expiration of outstanding options from their initial expiry date to a
new expiration date of June 30, 2014 with all other terms of the
original grant remaining the same.
1. Extension of the expiration of 1,150,000 outstanding options
already issued to three directors from their initial expiry date
to a new expiration date of June 30, 2014;
3. Extension of the expiration of 300,000 outstanding options
already issued to an officer from their initial expiry date to a
new expiration date of June 30, 2014.
Stock based compensation cost relating to the extension in the expiry
date of the outstanding options issued to three directors and an officer,
as above, amounting to $30,213 has been expensed to general and
administration expense.
27
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
8. RELATED PARTY TRANSACTIONS-Cont'd
d) On January 4, 2010, the board of directors granted options to a
director to acquire 100,000 common shares at an exercise price of
$0.25 per share. All of these options vested immediately and have an
expiry of five years. The Company expensed stock based compensation
cost of $23,677.
e) On June 15, 2010, the board of directors granted options to a
director to acquire 350,000 common shares and to two directors to
acquire 50,000 common shares each. All these 450,000 options were
issued at an exercise price of $0.20 per share and vest immediately
with an expiry term of five years. The Company expensed stock based
compensation cost of $110,754 for these 450,000 options.
f) On September 30, 2010, the board of directors granted options to two
directors to acquire 50,000 common shares each. All these 100,000
options were issued at an exercise price of $0.20 per share and vest
immediately with an expiry term of five years. The Company expensed
stock based compensation cost of $25,271.
g) On October 1, 2010, the Board cancelled 725,000 options issued to a
director having an exercise price of $0.25 per share and expiring on
various dates ranging from October 29, 2011 to January 4, 2015 and
issued warrants to acquire 397,000 common shares exercisable at $0.20
per share with an expiry term of five years and 500,000 common shares
in lieu thereof. All outstanding payables to the said director for
services provided were adjusted against the said issuance of common
shares. The Company expensed this additional non-cash stock based
compensation expense relating to this modification for $31,097.
h) On October 1, 2010, the Board cancelled 400,000 options issued to a
director having an exercise price of $0.25 per share and expiring on
various dates ranging from October 29, 2011 to June 30, 2014 and
issued warrants to acquire 50,000 common shares exercisable at $0.20
per share with an expiry term of five years and 50,000 common shares
in lieu thereof. All outstanding payables to the said director for
services provided were adjusted against the said issuance of common
shares. The Company concluded that there was no additional non-cash
stock based compensation expense relating to this modification.
i) On October 1, 2010, the Board cancelled 175,000 options issued to an
officer having an exercise price of $0.25 per share and expiring on
June 30, 2014 and issued warrants to acquire 175,000 common shares
exercisable at $0.20 per share with an expiry term of five years. The
Company expensed this additional non-cash stock based compensation
expense relating to this modification for $1,607.
j) The Company expensed $29,725 for services provided by the CFO of the
Company and $8,000 for services provided by COO of the Company.
28
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
8. RELATED PARTY TRANSACTIONS-Cont'd
k) Effective June 1, 2010, the Company entered into a `Consulting and
Professional Services agreement' with Level 4 Capital Corp. for a term
of five months. The consultant is to provide various managerial, legal
and investor relation services. The total fees for the services agreed
was $360,000. The consultant agreed and the Company issued 1,800,000
common shares of the Company at $0.20 per share in lieu of fees. The
Company expensed $360,000 to general and administrative expense during
the year ended November 30, 2010. Subsequent to the completion of the
contract, the consultant became the Chief Operating officer of the
Company.
9. PLANT AND EQUIPMENT
Plant and equipment are recorded at cost less accumulated
depreciation.
Nov 30, 2010 Nov 30, 2009
Accumulated Accumulated
Cost Amortization Cost Amortization
$ $ $ $
Computer equipment 35,211 20,442 35,211 14,113
Furniture and fixtures 15,310 9,131 15,310 6,484
Leasehold Improvements 8,252 - - -
-----------------------------------------------------------------------
58,773 29,573 50,521 20,597
------ ------ ------ ------
Net carrying amount $29,200 $29,924
------- -------
Amortization expense $8,976 $9,348
------ ------
10. INCOME TAXES
The Company has certain non-capital losses of approximately $10,528,821
(2009: $8,501,446) available, which can be applied against future
taxable income and which expire as follows:
2025 $ 188,494
2026 $ 609,991
2027 $ 1,731,495
2028 $ 3,174,989
-
2029 $ 2,792,560
2030 $ 2,031,292
-----------
$10,528,821
Reconciliation of statutory tax rate to the effective income tax
rate is as follows:
Federal statutory income tax rate 35.0%
Deferred tax asset valuation allowance (35.0)%
-------
Effective rate (0.0)%
========
29
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
10. INCOME TAXES-Cont'd
Deferred tax asset components as of November 30, 2010 and 2009 are as
follows:
2010 2009
---- ----
Operating losses available to offset
future income-taxes $10,528,821 $8,501,446
----------- ----------
Expected Income tax recovery at
statutory rate of 35%
(2009: 35.0%) ($3,685,087)($2,975,506)
Valuation Allowance $3,685,087 $2,975,506
----------- ----------
Net deferred tax assets - -
----------- ----------
As the company is in the development stage and has not yet earned any
revenue, it has provided a 100 per cent valuation allowance on the net
deferred tax asset as of November 30, 2010 and 2009.
11. COMMITMENTS
a) On January 1, 2010, the Company's directors renewed consulting
agreements with the Company on the following terms:
Monthly
Consulting Fees from Expiration of
February through Consulting
Name December 2010 Agreement
---- -------------------- --------------
Boaz Dor $6,500 12-31-2010
Gregory Sullivan $6,500 12-31-2010
b) On November 30, 2009, the Company entered into a Memorandum of
Understanding ("MOU") with its research and development service
contractor ("the contractor"). This MOU covers various alternatives to
the Company to settle the liability to the contractor in the amount of
$658,932 as at November 30, 2009. Should the Company become insolvent,
or is unable to continue operations, or is unable to pay the contractor
pursuant to the MOU, then it will grant the contractor an exclusive,
irrevocable, worldwide, assignable, sub licensable, perpetual license to
further develop and to market the Company's electric bullet (WEP40) and
blunt impact (BIP40) technology. The Company will negotiate a royalty in
the event of granting such rights to the contractor. The Company
subsequent to the year end terminated their MOU with the contractor and
is in the midst of negotiating with the contractor for future services.
30
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2010 and 2009
(Amounts expressed in US Dollars)
11. COMMITMENTS-Cont'd
c) Effective June 1, 2010, the Company entered into a `Consulting and
Professional Services agreement' with Level 4 Capital Corp. for a term
of five months. The consultant is to provide various managerial, legal
and investor relation services. The total fees for the services agreed
are $360,000. The consultant agreed and the Company issued 1,800,000
common shares of the Company at $0.20 per share in lieu of fees. The
Company expensed $360,000 to general and administrative expense during
the year ended November 30, 2010.
d) Effective July 1, 2010, the Company obtained the services of a
consultant providing consulting, corporate strategy and Investor
relations for a term of three months at CAD $10,000 per month. The
consultant agreed and the Company issued 150,000 common shares of the
Company at $0.20 per share in lieu of fees. The Company expensed $30,000
to general and administrative expense during the year ended November 30,
2010.
e) The Company has commitments for leasing office premises in Oakville,
Ontario, Canada to September 30, 2012. The annual commitments, excluding
proportionate realty and maintenance costs and taxes are as follows:
Year ended November 30, 2011 $ 20,400
--------
Year ended November 30, 2012 $ 17,000
f) The Company signed a consulting agreement with an officer of the
Company for a period of six months commencing November 1, 2010. The
officer will be paid $8,000 plus applicable taxes.
12. SEGMENT DISCLOSURES
The Company, after reviewing its reporting systems, has determined that it
has one reportable segment and geographic segment. The Company's operations
are all related to the research and product development for its wireless
electric ammunition, as well as its blunt impact projectile. All assets of
the business are located in Canada.
13. SUBSEQUENT EVENTS
The Company signed a consulting agreement with a director of the Company
for a period of one year commencing January 1, 2011. The director will be
paid consulting fees of $3,000 per month.
Subsequent to the year end the Company received subscriptions for 650,000
common shares at $0.20 per share and received proceeds of $130,000.
The Company terminated their current MOU with their research and
development contractor and is now in the midst of negotiating with the
contractor for future services (refer to Commitment note 11(b))
31
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 14th day of March 2011.
SECURITY DEVICES INTERNATIONAL INC.
March 14, 2011 By /s/ Greg Sullivan
----------------------------------
Gregory Sullivan, President and
Principal Executive Officer
March 14, 2011 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/ Gregory Sullivan
----------------------
Gregory Sullivan Director March 14, 2011
/s/ Boaz Dor
----------------------
Boaz Dor Director March 14, 2011
----------------------
Harry Walters Director
/s/Patrick Bryan
----------------------
Patrick Bryan Director March 14, 2011
SECURITY DEVICES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBITS