UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended February 28, 2007
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
Commission file No. 0-33259
SECURITY DEVICES INTERNATIONAL INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware Applied For
(State of incorporation) (I.R.S. Employer Identification Number)
120 Adelaide Street West
Suite 2500
Toronto, Ontario
Canada M5H 1T1
-------------------------------------------------
(Address of Principal Executive Office) Zip Code
(647) 388-1117
----------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the proceeding 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 is a shell company (as defined in
Rule 12b-2 of the Exchange Act):
Yes No __X____
------------ -
As of September 10, 2007, the Company had 14,330,050 issued and outstanding
shares of common stock.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report includes "forward-looking statements". All statements other
than statements of historical facts included in this report, regarding the
Company's financial position, business strategy, plans and objectives, are
forward-looking statements. Although the Company believes that the expectations
reflected in the forward-looking statements and the assumptions upon which such
forward-looking statements are based are reasonable, it can give no assurance
that such expectations and assumptions will prove to have been correct.
REASONS FOR AMENDED REPORT
This report has been amended so that certain parts of the Management's
Discussion and Analysis section of this report and the Company's financial
statements correspond with the Company's registration statement on Form SB-2
(File No. 333-143301) to reflect certain enhanced disclosures in the notes to
the financial statements. There were no changes in the amounts reported in the
Company's interim financial statements included in the 10-QSB report previously
filed on April 16, 2007 (File No. 333-132456).
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
TABLE OF CONTENTS
Page No
Interim Balance Sheets as at February 28, 2007 and
November 30, 2006 1
Interim Statement of Operations for the three months ended
February 28, 2007 and February 28, 2006 2
Interim Statement of Cash Flows for the three months ended
February 28, 2007 and February 28, 2006 3
Interim Statements of changes in Stockholders' Equity for the
three months ended February 28, 2007 and for the period from
inception (March 1, 2005) to November 30, 2006 4
Condensed Notes to Interim Financial Statements 5-8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Balance Sheets
As at February 28, 2007 and November 30, 2006
(Amounts expressed in US Dollars)
(Unaudited)
February 28, November 30,
2007 2006
ASSETS $ $
CURRENT
Cash and cash equivalents 2,279,701 1,463,833
Prepaid expenses and other (Note 8) 10,665 4,452
------------ ------------
Total Current Assets 2,290,366 1,468,285
Plant and Equipment, net (Note 4) 8,249 -
------------ ------------
TOTAL ASSETS 2,298,615 1,468,285
------------ ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 134,208 104,011
Loans from Directors/Shareholders (Note 7) 4,941 4,227
------------ ------------
Total Current Liabilities 139,149 108,238
------------ ------------
STOCKHOLDERS' EQUITY
Capital Stock (Note 5) 13,701 11,365
Additional Paid-In Capital 4,571,500 3,198,180
Deficit Accumulated During the Development Stage (2,425,735) (1,849,498)
------------ ------------
Total Stockholders' Equity 2,159,466 1,360,047
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,298,615 1,468,285
============ ============
See condensed notes to the interim financial statements.
1
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Operations
For the Three Months Ended February 28, 2007 and February 28, 2006
(Amounts expressed in US Dollars)
(Unaudited)
For the For the
quarter quarter
ended ended
Cumulative February 28, February 28,
since inception 2007 2006
$ $ $
REVENUES - - -
---------------- ------------ ------------
OPERATING EXPENSES:
Research and Product Development Cost 848,886 310,586 90,175
Amortization 130 130 -
General and Administration 1,597,741 286,543 26,024
---------------- ------------ ------------
TOTAL OPERATING EXPENSES 2,446,757 597,259 116,199
---------------- ------------ ------------
LOSS FROM OPERATIONS (2,446,757) (597,259) (116,199)
Other Income-Interest 21,022 21,022 -
---------------- ------------ ------------
LOSS BEFORE INCOME TAXES (2,425,735) (576,237) (116,199)
---------------- ------------ ------------
Income taxes - - -
---------------- ------------ ------------
NET LOSS (2,425,735) (576,237) (116,199)
---------------- ------------ ------------
Loss per share - basic and diluted (0.04) (0.02)
------------ ------------
Weighted average common shares
outstanding 13,415,518 7,398,324
------------ -----------
See condensed notes to the interim financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statement of Cash Flows
For the Three Months Ended February 28, 2007 and February 28, 2006
(Amounts expressed in US Dollars)
(Unaudited)
For the For the
quarter quarter
ended ended
Cumulative February 28, February 28,
since inception 2007 2006
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (2,425,735) (576,237) (116,199)
Items not requiring an outlay of cash:
Issue of shares for professional
services 74,000 - -
Stock based compensation 1,254,926 204,986 -
Amortization 130 130
Changes in non-cash working capital:
Accounts payable and accrued liabilities 134,208 30,197 82,467
Prepaid expenses and other (10,665) (6,213) -
---------------- ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (973,136) (347,137) (33,732)
---------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (8,379) (8,379) -
---------------- ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (8,379) (8,379) -
---------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from directors/shareholders 4,941 714 4,209
Proceeds from issuance of common shares 3,161,275 1,170,670 95,600
Exercise of stock options 95,000 - -
---------------- ------------ ------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 3,261,216 1,171,384 99,809
---------------- ------------ ------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS FOR THE PERIOD 2,279,701 815,868 66,077
Cash and cash equivalents,
beginning of period - 1,463,833 126
---------------- ------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD 2,279,701 2,279,701 66,203
INCOME TAXES PAID - - -
================ ============ ============
See condensed notes to the interim financial statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statement of Changes in Stockholders' Equity
Three months ended February 28, 2007 and for Period from Inception (March 1,
2005) to November 30, 2006.
(Amounts expressed in US Dollars)
(Unaudited)
Number of Common Additional
Common Shares Paid-in Deficit
Shares amount Capital accumulated Total
$ $ $ $ $
Balance as of March 1, 2005 - - - - -
Issuance of Common shares
for professional services 6,525,000 6,525 58,725 - 65,250
Issuance of common shares
for cash 397,880 398 99,072 99,470
Net loss for the period - - - (188,699) (188,699)
----------- -------- --------- ----------- -----------
Balance as of
November 30, 2005 6,922,880 6,923 57,797 (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
Stock based compensation 204,986 204,986
Net loss for the three
month period ended
February 28, 2007 - - - (576,237) (576,237)
----------- -------- --------- ----------- -----------
Balance as of
February 28, 2007 13,701,050 13,701 4,571,500 (2,425,735) 2,159,466
----------- -------- --------- ----------- -----------
The accompanying notes are an integral part of these financial statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of all recurring accruals)
considered necessary for fair presentation have been included. Operating
results for the interim period are not necessarily indicative of the
results that may be expected for the year ended November 30, 2007.
Interim financial statements should be read in conjunction with the
company's annual audited financial statements for the year ended
November 30, 2006.
The Company was incorporated under the laws of the state of Delaware on
March 1, 2005. The interim financial statements include the accounts of
Security Devices International Inc. (the "Company").
2. NATURE OF OPERATIONS
The Company is currently in the advanced stages of developing LEKTROX, a
unique line of wireless electric ammunition for use in military,
homeland security, law enforcement, and professional and home security
scenarios. LEKTROX has been specially designed for use with standards
issue riot guns, M203 grenade launchers and regular 12-guage shotguns.
This will allow military, law enforcement agencies etc. to quickly
deploy LEKTROX without the need for lengthy, complex training methods or
significant functional adjustments to vehicles or personal equipment.
Simplicity of use is also a key benefit for the home security market
where most users have little or no specialized training. LEKTROX is a
3rd generation electric solution. First generation solutions were
electric batons and hand-held stun guns which had a range of arm's
length. 2nd generations were the wired electric charge solutions. 3rd
generations are the wireless electric bullets. Currently, there is still
no 3rd generation wireless electric bullet on the market.
The Company is in the development stage and has not yet realized
revenues from its planned operations. The Company has incurred a loss of $
576,237 during the three month period ended February 28, 2007. At February
28, 2007, the Company had an accumulated deficit during the development
stage of $2,425,735 which includes a non- cash stock based compensation
cost of $1,254,926. The Company has funded operations through the issuance
of capital stock. During the year ended November 30, 2006 the Company
raised $1,982,333 primarily through issue of common stock. (See note 5).
During the quarter ended February 28, 2007, the company raised an
additional $1,170,670 through issue of common stock. The company has a
working capital of $ 2,151,217 and shareholders' equity of $2,159,466 as at
February 28, 2007. Management's plan is to continue raising additional
funds through future equity or debt financing until it achieves profitable
operations
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
3. 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.
4. PLANT AND EQUIPMENT, NET
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
February 28, 2007 November 30,2006
Accumulated Accumulated
Cost Depreciation Cost Depreciation
$ $ $ $
-------------------------------------------------------------------------
Computer equipment 8,379 130 - -
8,379 130 - -
------- ---
Net carrying amount $8,249 $Nil
------ ----
5. ISSUANCE OF CAPITAL STOCK
Year ended November 30, 2006
i) On December 31, 2005 the Company authorized the issuance of
486,000 common shares for cash for a total consideration of
$48,600.
ii) On January 31, 2006 the Company authorized the issuance of
470,000 common shares for cash for a total consideration of $
47,000.
iii) On March 8, 2006 the Company authorized the issuance of 286,000
common shares for cash @ $0.175 per share for a total
consideration of $50,050. On the same day, the Company authorized
the issuance of 50,000 shares to a consultant for the services
rendered as finder's fees. These services were valued @$0.175 per
common share and expensed as consulting fees in the amount of
$8,750.
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
5. ISSUANCE OF CAPITAL STOCK (Cont'd)
iv) By means of a prospectus dated May 5, 2006 the Company offered to
the public up to 2,000,000 shares of its common stock at a price
of $0.20 per share. The Company closed the offering on July 31,
2006 after receiving consideration of $400,000 and issued
2,000,000 common shares in August, 2006.
v) The company directors exercised 950,000 stock options to purchase
950,000 common shares for a total consideration of $95,000 on
November 1, 2006.
vi) On November 29, 2006 the company authorized the issuance of
200,000 common shares for cash @$1.00 per common share. A
commission of $20,015 was paid to the agent and this amount is
netted with additional paid in capital. The proceeds received
were part of the Private offering effective November 20, 2006.
vii) As at November 30, 2006 the company received stock subscription
for $1,165,500. This was also part of the private offering
effective November 20, 2006. The Company closed this private
offering on December 12, 2006 when it had completed the sale of
2,536,170 shares of its common stock to a group of private
investors.
Three months ended February 28, 2007
On December 12, 2006 the Company completed the sale of 2,536,170 shares
of its common stock to a group of private investors. The shares were
sold in the private offering at a price of $1.00 per share and are
restricted securities as that term is defined in Rule 144 of the
Securities and Exchange Commission.
The Company had already issued 200,000 common shares on November 29,
2006 and it issued the balance 2,336,170 shares on December 12, 2006.
The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 for the sale of these shares.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
6. STOCK BASED COMPENSATION
Per SEC Staff Accounting Bulletin 107, Topic 14.F, "Classification of
Compensation Expense Associated with Share-Based Payment Arrangements"
stock based compensation expense is being presented in the same lines as
cash compensation paid. As such, stock based compensation is no longer
presented separately.
Effective January 7, 2007 the company appointed a CFO and granted stock
options to acquire 125,000 common shares under its Non-Qualified Stock
Option Plan. The exercise price for the options was set at $1.50 per
share. These options vest immediately and expire on January 7, 2012. The
stock based compensation cost of $204,986 has been expensed in this
quarter.
The fair value of each grant was estimated at the grant date using the
Black-Scholes option-pricing model. The Black-Scholes option pricing
model requires the use of certain assumptions, including expected terms,
expected volatility, expected dividends and risk-free interest rate to
calculate the fair value of stock-based payment awards. The assumptions
used in calculating the fair value of stock option awards involve
inherent uncertainties and the application of management judgment.
The estimated volatility used is the historic volatility. The expected
term calculation is based upon the expected term the option is to be
held, which is full term of the option. The risk-free interest rate is
based upon the U.S. Treasury yield in effect at the time of grant for an
instrument with a maturity that is commensurate with the expected term
of the stock options. The dividend yield of zero is based on the fact
that we have never paid cash dividends on our common stock and we have
no present intention to pay cash dividends. The expected forfeiture rate
of 0% is based on immediate vesting of stock options.
The fair value of each option used for the purpose of estimating the
stock compensation is based on the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions:
Risk free rate 3.50%
Volatility factor 122.84%
Expected dividends 0%
Forfeiture rate 0%
Expected life 5 years
Exercise price $1.50
Grant date fair value of options $1.64
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
6. STOCK BASED COMPENSATION (Cont'd)
Market price of Company's common
stock on date of grant $1.90
Total number of options granted 125,000
Stock-based compensation cost
expense $204,986
Unexpended stock-based compensation
deferred over to next period nil
As of February 28, 2007 there was $Nil of unrecognized expense related
to non-vested stock-based compensation arrangements granted.
7. RELATED PARTY TRANSACTIONS
a) During the three month period ended February 28, 2007, all out
of pocket expenses of directors/promoters were expensed. The
Directors also made advances to the Company to meet the
operating expenses. These advances of $4,941 as at February 28,
2007 are unsecured and bear interest at 4% p.a.
b) A company controlled by a 13.7% (as of November 30, 2006)
shareholder, who is also the son of a director was paid
$168,100 from inception to February 28, 2007 ($78,000 for the
three months ended February 28, 2007) for research and
development (see note 9 (b))
8. PREPAID EXPENSES AND OTHER
Includes prepayments made for directors' and officers insurance for
$10,665.
9. SUBSEQUENT EVENTS
a) The Company had entered into an amended agreement in February
2007, with a director regarding development of its "Electrical
Shocker" ("ES") technology. Pursuant to the original agreement
executed in November 2006, the director was paid a total of
$38,000 which included $22,000 during the last quarter of 2006
and an additional $16,000 in January 2007. The Company has
expensed this payment of $22,000 as Research and Product
Development cost during 2006 and also expensed the balance
$16,000 to Research and Product Development cost in this quarter.
In addition, the director was paid $62,000 in February, 2007 upon
signing the amended agreement. The Company expensed this payment
of $62,000 to Research and Product Development in this quarter .
The director in return had
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2007
(Amounts expressed in US Dollars)
(Unaudited)
9. SUBSEQUENT EVENTS (Cont'd)
released the Company from a prior obligation to pay royalty
from the sale of any product developed using this technology.
In the absence of acceptance of the ES technology by the
Company, the Company cancelled 1,560,000 shares and the
director was paid $50,000 on March 12, 2007 in accordance with
the amended agreement. The Company accounted for this
transaction under the constructive retirement method in the
second quarter of 2007. The cancelled shares reverted to
authorized but unissued status. The stock and additional
paid-in-capital amounts were reduced with a total of $15,600
and a debit of $34,400 to retained earnings, being the excess
of purchase cost over the original issuance.
b) On March 12, 2007, the Company authorized the issuance of
50,000 common shares at $1.50 per share for a total cash
consideration of $75,000 to a consultant who rendered investor
relation services to the Company during the quarter ended May
31, 2007.
The market price of the total stock on the date of issuance was
$155,000. The difference of $80,000 between the market price of
the total stock ($155,000) and the issued price ($75,000)
represents the estimated fair value of the consultant's
services. The par value of the shares in the amount of $50 will
be credited to share capital and the balance of $154,950
credited to additional paid-in capital and shown as issuance of
common shares for cash and services in interim statement of
changes in stockholder's equity.
c) The Company has signed a letter of intent with a third party
Agent on a best effort basis for a private placement offering
of Common Shares in the amount of US$5million.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND PLAN OF OPERATIONS
SDI was incorporated on March 1, 2005. SDI is a defense technology company
which is developing LEKTROX, a unique line of wireless electric ammunition for
use in military, homeland security, law enforcement, and professional and home
security scenarios.
SDI plans to develop a Short Range version of the LEKTROX after the
development to the Long Range LEKTROX has been completed. However, since the
development of the Long Range LEKTROX is not yet complete, SDI does not know the
time or cost involved in developing a Short Range LEKTROX.
As of August 31, 2007 SDI had not generated any revenue.
During the three months ended February 28, 2007 more capital was available
to SDI and as a result SDI was able to spend more on research and product
development.
During the period from inception (March 1, 2005) through February 28, 2007
SDI's operations used $(973,131) in cash. During this period:
o SDI borrowed $4,941 (net) from its officers and directors,
o raised $2,761,275 from the sale of 4,176,050 shares of common
stock to private investors,
o raised $400,000 from the public sale of 2,000,000 shares of
common stock at a price of $0.20 per share, and
o raised $95,000 from three of its officers and directors upon the
exercise of options to purchase 950,000 shares of common stock.
SDI did not have any material future contractual obligations or off-balance
sheet arrangements as of August 31, 2007.
SDI anticipates that its capital requirements for the twelve-month period
ending May 31, 2008 will be:
Research and Development $1,460,000
General and administrative expenses 100,000
Patent filings 30,000
-------------
Total $1,590,000
=============
SDI does not anticipate that it will need to hire any employees prior to
December 31, 2007. SDI does not expect that it will need to raise additional
capital during the twelve months ending May 31, 2008. SDI believes that its cash
on hand at May 31, 2007 will satisfy its working capital needs for the next
eighteen months.
SDI does not have any commitments or arrangements from any persons to
provide SDI with any additional capital it may need.
Controls and Procedures
Sheldon Kales, the Company's Chief Executive Officer and Rakesh
Malhotra, the Company's Principal Financial Officer, have evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the
period covered by this report, and in their opinion the Company's disclosure
controls and procedures are effective. There were no changes in the Company's
internal controls over financial reporting that occurred during the fiscal
quarter that have materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financial reporting.
PART II
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the three months ended February 28, 2007 the Company sold 2,336,170
shares of its common stock to a group of private investors at a price of $1.00
per share.
The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 with respect to the sale of these shares.
ITEM 5. OTHER INFORMATION
In March 2007 the Company purchased 1,560,000 shares of its common stock
from Alexander Blaunshtein for $50,000. These shares were returned to treasury
and cancelled. Alexander Blaunshtein is the son of Dr. Natan Blaunstein, who is
a director of the Company.
ITEM 6. EXHIBITS
The following exhibits are filed with this report:
Number Description
------ -----------
31 Rule 13a-14(a)/15d-14(a) certifications
32 Section 1350 certifications
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized on September
13, 2007.
SECURITY DEVICES INTERNATIONAL INC.
By /s/ Sheldon Kales
------------------------------------
Sheldon Kales, President and Chief
Executive Officer
By /s/ Rakseh Malhotra
------------------------------------
Rakesh Malhotra, Principal
Financial and Accounting Officer