UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2009 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _______ Commission File Number: None Security Devices International, Inc. --------------------------------------- (Exact Name of Registrant as Specified in its Charter) Delaware Applied For -------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2171 Avenue Rd., Suite 103 Toronto, Ontario Canada M5M 4B4 ---------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number including area code: (416) 787-1871 N/A ---------------------------------------------------------------------- Former name, former address, and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] 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 definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Larger accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X] Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 14,447,050 shares outstanding as of May 31, 2009. SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) INTERIM FINANCIAL STATEMENTS MAY 31, 2009 (Amounts expressed in US Dollars) (Unaudited) TABLE OF CONTENTS Page No Interim Balance Sheets as at May 31, 2009 and November 30, 2008 1 Interim Statement of Operations for the six months and three months ended May 31, 2009 and May 31, 2008 and the period from Inception (March 1, 2005) to May 31, 2009 2 Interim Statement of Cash Flows for the six months ended May 31, 2009 and May 31, 2008 3 Interim Statements of changes in Stockholders' Equity for the six months ended May 31, 2009 and for the period from inception (March 1, 2005) to November 30, 2008 4 Condensed Notes to Interim Financial Statements 5-9 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Interim Balance Sheets As at May 31, 2009 and November 30, 2008 (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) May 31, November 30, 2009 2008 (unaudited) (audited) ASSETS $ $ CURRENT Cash and cash equivalents 700,516 2,167,699 Prepaid expenses and other 30,317 45,984 ------------ ------------ Total Current Assets 730,833 2,213,683 Plant and Equipment, net (Note 4) 24,750 25,450 ------------ ------------ TOTAL ASSETS 755,583 2,239,133 ------------ ------------ LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities 222,378 219,081 ------------ ------------ Total Current Liabilities 222,378 219,081 ------------ ------------ Related Party Transactions (note 7) Commitments (note 8) STOCKHOLDERS' EQUITY Capital Stock (Note 5) 14,447 14,447 Additional Paid-In Capital 13,199,514 13,084,826 Deficit Accumulated During the Development Stage (12,680,756) (11,079,221) ------------ ------------ Total Stockholders' Equity 533,205 2,020,052 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 755,583 2,239,133 ------------ ------------ See condensed notes to the interim financial statements. 1 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Statements of Operations For the Six Months and Three Months Ended May 31, 2009 and May 31, 2008 and the Period from inception (March 1, 2005) to May 31, 2009 (Amounts expressed in US Dollars) (Unaudited- Prepared by Management) For the For the For the For the six months six months three months three months Cumulative ended ended ended ended Since May 31, May 31, May 31, May 31, inception 2009 2008 2009 2008 $ $ $ $ $ --------------------------------------------------------------- OPERATING EXPENSES: Research and Product Development Cost 5,667,719 1,152,676 1,291,074 616,283 729,065 Amortization 15,391 4,142 3,943 2,164 2,006 General and administration (note 6) 7,265,481 447,771 1,521,690 174,510 1,073,503 ------------ ------------ ------------ ------------ ------------ TOTAL OPERATING EXPENSES 12,948,591 1,604,589 2,816,707 792,957 1,804,574 ------------ ------------ ------------ ------------ ------------ LOSS FROM OPERATIONS (12,948,591) (1,604,589) (2,816,707) (792,957) (1,804,574) Other Income-Interest 267,835 3,054 42,202 - 13,986 ------------ ------------ ------------ ------------ ------------ LOSS BEFORE INCOME TAXES (12,680,756) (1,601,535) (2,774,505) (792,957) (1,790,588) Income taxes - - - - - ------------ ------------ ------------ ------------ ------------ NET LOSS (12,680,756) (1,601,535) (2,774,505) (792,957) (1,790,588) ------------ ------------ ------------ ------------ ------------ Loss per share - basic and diluted (0.11) (0.19) (0.06) (0.13) ------------ ------------ ------------ ------------ Weighted average common shares outstanding 14,447,050 14,330,050 14,447,050 14,330,050 ------------ ------------ ------------ ------------
See condensed notes to the interim financial statements. 2 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Interim Statement of Cash Flows For the Six Months Ended May 31, 2009 and May 31, 2008 and the Period from Inception (March 1, 2005) to May 31, 2009 (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) For the For the six months six months Cumulative ended ended since inception May 31, May 31, (March 1, 2005) 2009 2008 $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period (12,680,756) (1,601,535) (2,774,505) ------------- ------------- ------------- Items not requiring an outlay of cash: Issue of shares for professional services 154,000 - - Stock based compensation (included in general and administration expenses) 4,842,117 114,688 1,231,056 Compensation expense for warrants issued (Included in general and administration expenses) 357,094 - - Loss on cancellation of common stock 34,400 - - Amortization 15,391 4,142 3,943 Changes in non-cash working capital: Prepaid expenses and other (30,317) 15,667 6,952 Accounts payable and accrued liabilities 222,378 3,297 113,023 ------------- ------------- ------------- NET CASH USED IN OPERATING ACTIVITIES (7,085,693) (1,463,741) (1,419,531) ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Plant and Equipment (40,141) (3,442) (2,793) ------------- ------------- ------------- NET CASH USED IN INVESTING ACTIVITIES (40,141) (3,442) (2,793) ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from issuance of common shares 7,769,650 - - Cancellation of common stock (50,000) - - Exercise of stock options 106,700 - - ------------- ------------- ------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 7,826,350 - - ------------- ------------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FOR THE PERIOD 700,516 (1,467,183) (1,422,324) Cash and cash equivalents, beginning of period - 2,167,699 5,293,176 ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD 700,516 700,516 3,870,852 ============= ============= ============= INCOME TAXES PAID - - - ============= ============= ============= INTEREST 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 Six months ended May 31, 2009 and for Period from Inception (March 1, 2005) to May 31, 2009. (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) 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 (audited) 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 (audited) 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 ended November 30, 2007 - - - (4,827,937) (4,827,937) ----------- -------- ---------- ---------- ---------- Balance as of November 30, 2007(audited) 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 period - - - (4,401,786) (4,401,786) Balance as of November 30, 2008(audited) 14,447,050 14,447 13,084,826 (11,079,221) 2,020,052 Stock based compensation - - 114,688 - 114,688 Net loss for the period - - - (1,601,535) (1,601,535) ----------- -------- ---------- ---------- ---------- Balance as of May 31, 2009 (unaudited) 14,447,050 14,447 13,199,514 (12,680,756) 533,205 ----------- -------- ---------- ---------- ----------
See condensed notes to the interim financial statements. 4 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Condensed Notes to Interim Financial Statements May 31, 2009 (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) 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, 2009. Interim financial statements should be read in conjunction with the company's annual audited financial statements for the year ended November 30, 2008. 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 has completed the development of a fully operational 40MM long range LEKTROX, a unique line of wireless electric ammunition for use in military, homeland security, law enforcement, and professional and home security scenarios and the Company is now planning for a production line. LEKTROX has been specially designed for use with standards issue riot guns and M203 grenade launchers. 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. The Company is in the development stage and has not yet realized revenues from its planned operations. The Company has incurred a loss of $ 1,601,535 during the six month period ended May 31, 2009. At May 31, 2009, the Company had an accumulated deficit during the development stage of $12,680,756 which includes a non- cash stock based compensation expense of $4,842,117. During the first quarter of 2007, the company raised $1,170,670 through issue of common stock. During the second quarter of 2007, the Company raised an additional $4,688,375 (net of expenses of $279,375) through the issue of Common stock. Further, during the last quarter of 2008, the Company received $11,700 due to the exercise of stock options. The Company did not raise any funds during the six months ended May 31, 2009. 5 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Condensed Notes to Interim Financial Statements May 31, 2009 (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) 2. NATURE OF OPERATIONS-Cont'd The Company has a working capital of $ 508,455 and stockholders' equity of 533,205 as at May 31, 2009. Management's plan is to continue raising additional funds through future equity or debt financing until it achieves profitable operations. 3. RESEARCH AND PRODUCT DEVELOPMENT Research and Product Development costs, including acquired research and product development costs, are charged against income in the period acquired or 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 Furniture and Fixtures 30% declining balance method Nov. 30, May 31, 2009 Accumulated 2008 Accumulated Cost Amortization Cost Amortization $ $ $ $ ------------ ------------ --------- ----------- Computer equipment 25,750 10,610 22,958 8,102 Furniture and fixtures 14,391 4,781 13,741 3,147 ------ ------ ------ ----- 40,141 15,391 36,699 11,249 ------ ------ ------ ----- Net carrying amount $24,750 $25,450 ------- ------- 5. CAPITAL STOCK a) Authorized 50,000,000 Common shares, $0.001 par value And 5,000,000 Preferred shares, $0.001 par value 6 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Condensed Notes to Interim Financial Statements May 31, 2009 (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) 5. CAPITAL STOCK-Cont'd 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 14,447,050 Common shares c) Changes to Issued Share Capital Year ended November 30, 2008 The Company received $11,700 and issued 117,000 common shares on exercise of stock options by a director of the Company. Six month period ended May 31, 2009 The Company did not issue any common shares during the six month period ended May 31, 2009. 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. 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. 7 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Condensed Notes to Interim Financial Statements May 31, 2009 (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) 6. STOCK BASED COMPENSATION-Cont'd For the six month period ended May 31, 2009, the Company has recognized in the 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: Risk free rate 2.95% Expected dividends 0% Forfeiture rate 0% Exercise price $0.50 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 As of May 31, 2009 there was $Nil of unrecognized expense related to non-vested stock-based compensation arrangements granted. 7. RELATED PARTY TRANSACTIONS a) A Company Director has charged the Company a total amount of $3,000 for providing office space during the six month period ended May 31, 2009. b) The directors were compensated from January 1, 2009 as per their consulting agreements with the Company. One director was paid $50,000 as consulting fee and $7,500 as automobile allowance; one director was paid $31,250 as consulting fee and $5,000 as automobile allowance; one director was paid $15,625 as consulting fee and $5,000 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. 8 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Condensed Notes to Interim Financial Statements May 31, 2009 (Amounts expressed in US Dollars) (Unaudited-Prepared by Management) 7. RELATED PARTY TRANSACTIONS-Cont'd 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. 8. COMMITMENTS On February 4, 2009 the Company's directors approved consulting agreements with three of the Company's officers. The consulting agreements, which are effective retroactive to January 1, 2009, provide that the officers will consult with the Company in the areas of corporate operations and product development. The terms of the consulting agreements are shown below. The consulting agreements terminate on December 31, 2009. Monthly Monthly Automobile Name of Officer Consulting Fee Allowance --------------- -------------- ---------- Sheldon Kales $10,000 $1,500 Boaz Dor $ 6,250 $1,000 Greg Sullivan $ 3,125 $1,000 9. SUBSEQUENT EVENTS 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 will expense this additional non-cash stock based compensation expense relating to this modification for $63,302 in the third quarter of 2009. On June 17, 2009, the Company further approved the reduction of the exercise price of 317,000 outstanding warrants which had earlier been issued 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 will expense this additional non-cash compensation expense relating to this modification for $4,223 in the third quarter of 2009. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation Securities Devices International, Inc. was incorporated on March 1, 2005 and for the period from inception to May 31, 2009 has not yet generated any revenue. 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 situations. During the year ended November 30, 2008, and the six months ended May 31, 2009, substantially all of SDI's cash expenses were related to the development of its LEKTROX technology. During the six months ended May 31, 2009: o general and administrative expenses decreased primarily due to a decline in stock based compensation. General and administrative expenses included charges of $114,688, which did not require the use of cash, associated with lowering the exercise price of certain options granted to SDI's officers, directors and consultants . o Research and Product Development expenses were lower by $138,398 as compared to the same period ended May 31, 2008 since the development of the Company's products were nearing completion. During the period from inception (March 1, 2005) through May 31, 2009 SDI's operations used $(7,085,693) in cash. During this period SDI: o purchased $40,141 of equipment; o raised $7,719,650 from the sale of shares of its common stock; and o raised $106,700 from three of its officers and directors upon the exercise of options to purchase 1,067,000 shares of common stock. As of May 31, 2009 SDI had: Developed a fully operational Long Range LEKTROX (40MM) and the Company is now planning for a production line. SDI anticipates that its capital requirements for the twelve-month period ending May 31, 2010 will be: Development and Preproduction costs $ 900,000 General and Administrative Expenses 350,000 ---------- Total $1,250,000 ========== 10 SDI expects that it will need to raise approximately $1,000,000 in additional capital prior to December 31, 2009. Other than the foregoing, SDI did not have any material future contractual obligations or off balance sheet arrangements as of May 31, 2009. SDI does not have any commitments or arrangements from any persons to provide SDI with any additional capital it may need. Item 4. 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 May 31, 2009, 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. (b) Changes in Internal Controls. There were no changes in SDI's internal control over financial reporting during the quarter ended May 31, 2009, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. PART II Item 6. Exhibits Exhibits 31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Sheldon Kales. 31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Rakesh Malhotra. 32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 for Sheldon Kales and Rakesh Malhotra. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SECURITY DEVICES INTERNATIONAL, INC. Date: July 8, 2009 By: /s/ Sheldon Kales ----------------------------------- Sheldon Kales, President and Principal Executive Officer Date: July 9, 2009 By: /s/ Rakesh Malhotra ------------------------------------ Rakesh Malhotra, Principal Financial and Accounting Officer 12