FINANCIAL INSTRUMENTS

The Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies and processes for managing those risks and the methods used to measure them.

Currency risk

The Company held its cash balances within banks in Canada in both United States dollars and Canadian dollars and with banks in United States in United States dollars. The Company’s operations are conducted in USA and its subsidiary operates in Canada. The value of the Canadian dollar against the United States dollar may fluctuate with the changes in economic conditions.

During the year ended November 30, 2017, in comparison to the prior year, the US dollar weakened in relation to the Canadian dollar and upon the translation of the Company’s subsidiary’s revenue, expenses, assets and liabilities held in Canadian dollars, the Company recorded translation adjustment gain of $24,734 ( 2016 - a loss of $10,619), in other comprehensive income or loss. The convertible debentures issued by SDI in Canadian currency reflected a currency loss of $55,007 and gain of $18,749 for the years ended November 30, 2017 and 2016, respectively.

The Company's Canadian subsidiary revenue, costs of sales, operating costs and capital expenditures are denominated in Canadian dollars. Consequently, fluctuations in the U.S. dollar exchange rate against the Canadian dollar increases the volatility of sales, cost of sales and operating costs and overall net earnings when translated into U.S. dollars. The Company is not using any forward and option contracts to fix the foreign exchange rates. Using a 10% fluctuation in the US exchange rate, the impact on the loss and stockholders’ deficiency is not material except the effect on the foreign exchange conversion of the convertible debt issued in Canadian dollars.

Credit risk and economic dependence

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The financial instruments that potentially subject the Company to credit risk consist of cash and accounts receivable. The Company maintains cash with high credit quality financial institutions located in Canada.

The Company provides credit to its customers in the normal course of its operations. It carries out, on a continuing basis, credit checks on its customers. The Company’s operations rely significantly on one supplier. Notwithstanding the Company can source alternative suppliers.

Credit Concentration

For the year ended November 30, 2017, two customers represented approximately 48% of total revenues (2016 - 31% from two customers).

The accounts receivable from two customers represents approximately 85% of accounts receivable as of November 30, 2017 (2016 - 93% from three customers).

The Company’s customers are primarily in North America. Revenues primarily consists of the sale of BIP munition.

Vendor Concentration

The Company currently purchases 100% of its inventory from one supplier.