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 February 28, 2011
[ ] 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 71-1050654
------------------------------ --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1101 Pennsylvania Ave., NW, 6th Floor
Washington, DC 20004
------------------------------------------
(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: 25,878,050 shares outstanding
as of April 12, 2010.
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2011
(Amounts expressed in US Dollars)
(Unaudited)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2011
(Amounts expressed in US Dollars)
(Unaudited)
TABLE OF CONTENTS
Page No
Interim Balance Sheets as at February 28, 2011 and November 30, 2010 1
Interim Statement of Operations for the three months ended February 28,
2011 and February 28, 2010 2
Interim Statement of Cash Flows for the three months ended February 28,
2011 and February 28, 2010 3
Interim Statements of changes in Stockholders' Deficit for the three
months ended February 28, 2011 and for the period from inception
(March 1, 2005) to November 30, 2010 4
Condensed Notes to Interim Financial Statements 5-16
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Balance Sheets
As at February 28, 2011 and November 30, 2010
(Amounts expressed in US Dollars)
February 28, November 30,
2011 2010
(unaudited) (audited)
ASSETS $ $
CURRENT
Cash 71,570 247,328
Prepaid expenses and other 16,953 38,419
---------- ----------
Total Current Assets 88,523 285,747
Plant and Equipment, net (Note 4) 26,504 29,200
---------- ----------
TOTAL ASSETS 115,027 314,947
---------- ----------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 767,098 787,641
---------- ----------
Total Current Liabilities 767,098 787,641
---------- ----------
Going Concern (note 2)
Related Party Transactions (note 8)
Commitments (note 9)
Subsequent Events (note 10)
STOCKHOLDERS' DEFICIT
Capital Stock (Note 5)
Preferred stock, $0.001 par value, 5,000,000
shares authorized, Nil issued and
outstanding (2009 - nil)
Common stock, $0.001 par value 50,000,000
shares authorized, 25,878,050 issued
and outstanding (2010 -25,878,050) 25,878 25,878
Additional Paid-In Capital 16,026,078 15,876,078
Deficit Accumulated During the Development
Stage (16,704,027) (16,374,650)
---------- ----------
Total Stockholders' Deficit (652,071) (472,694)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 115,027 314,947
---------- ----------
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, 2011 and February 28, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
For the For the
Cumulative three months three months
since inception ended ended
(March 1, 2005) February 28, February 28,
2011 2010
$ $ $
OPERATING EXPENSES:
Research and Product Development Cost 7,652,784 159,809 271,213
Amortization 32,269 2,696 1,978
General and Administration 9,291,568 166,872 273,083
----------- ---------- ---------
TOTAL OPERATING EXPENSES 16,976,621 329,377 546,274
----------- ---------- ---------
LOSS FROM OPERATIONS (16,976,621) (329,377) (546,274)
Other Income-Interest 272,594 - -
----------- ---------- ---------
LOSS BEFORE INCOME TAXES (16,704,027) (329,377) (546,274)
Income taxes - - -
----------- ---------- ---------
NET LOSS AND COMPREHENSIVE LOSS (16,704,027) (329,377) (546,274)
Loss per share - basic and diluted (0.01) (0.03)
---------- ---------
Weighted average common shares outstanding 25,878,050 16,174,606
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, 2011 and February 28, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
For the For the
three months three months
Cumulative ended ended
since inception February 28, February 28,
(March 1, 2005) 2011 2010
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (16,704,027) (329,377) (546,540)
Items not requiring an outlay of cash:
Issue of shares for services 584,500 - -
Stock based compensation for options and
warrants (included in general and
administration expenses) 5,556,406 - 93,493
Loss on cancellation of common stock 34,400 - -
Amortization 32,269 2,696 2,244
Changes in non-cash working capital:
Prepaid expenses and other (16,953) 21,466 3,644
Accounts payable and accrued liabilities 767,098 (20,543) 85,801
------------ ---------- ---------
NET CASH USED IN OPERATING ACTIVITIES (9,746,307) (325,758) (361,358)
------------ ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (58,773) - -
------------ ---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (58,773) - -
------------ ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Stock subscriptions received 180,000 150,000
Net proceeds from issuance of common shares 9,629,150 - 357,500
Cancellation of common stock (50,000) - -
Exercise of stock options 117,500 - -
------------ ---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,876,650 150,000 357,500
------------ ---------- ---------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD 71,570 (175,758) (3,858)
Cash, beginning of period - 247,328 55,431
------------ ---------- ---------
CASH, END OF PERIOD 71,570 71,570 51,573
============ ========== =========
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 Three months ended February 28, 2011 and for Period from Inception (March
1, 2005) to November 30, 2010.
(Amounts expressed in US Dollars)
(Amounts expressed in US Dollars)
Deficit
Number of Common Additional Accumulated
Common Shares Paid-in 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 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)
Stock subscriptions received 150,000 150,000
Net loss for the period (329,377) (329,377)
---------- ------- --------- ----------- ----------
Balance as of February 28, 2011 25,878,050 25,878 16,026,078 (16,704,027) (652,071)
See condensed notes to the interim financial statements
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do
not include all information and footnotes necessary for a fair presentation
of financial position, results of operations and cash flows in conformity
with U.S. generally accepted accounting principles (GAAP); however, such
information reflects all adjustments (consisting solely of normal recurring
adjustments), which are, in the opinion of management, necessary for a fair
statement of the results for the interim periods.
The condensed financial statements should be read in conjunction with the
financial statements and Notes thereto together with management's
discussion and analysis of financial condition and results of operations
contained in the Company's annual report on Form 10-K for the year ended
November 30, 2010. In the opinion of management, the accompanying condensed
financial statements reflect all adjustments of a normal recurring nature
considered necessary to fairly state the financial position of the Company
at February 28, 2011 and November 30, 2010, the results of its operations
for the three-month periods ended February 28, 2011 and February 28, 2010,
and its cash flows for the three-month periods ended February 28, 2011 and
February 28, 2010. In addition, some of the Company's statements in this
quarterly report on Form 10-Q may be considered forward-looking and involve
risks and uncertainties that could significantly impact expected results.
The results of operations for the three-month period ended February 28,
2011 are not necessarily indicative of results to be expected for the full
year.
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 defense technology corporation specializing in the
development of innovative next generation less-than-lethal solutions for
security situations that do not require the use of deadly 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.
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
2. NATURE OF OPERATIONS AND GOING CONCERN-Cont'd
At February 28, 2011, the Company has not yet achieved profitable
operations, had a working capital deficiency of $678,575 and has
accumulated losses of $16,704,027 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. The Company further received an additional
$150,000 subscription for shares pending allotment during the three month
period ended February 28, 2011.
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 $ 329,377 during the three month period
ended February 28, 2011 primarily due to its research and development
activities. At February 28, 2011, the Company had an accumulated deficit
during the development stage of $16,704,027 which includes a non- cash
stock based compensation expense of $5,556,406 for issue of options and
warrants.
3. RESEARCH AND PRODUCT DEVELOPMENT
Research and Product Development costs, including acquired research and
product development costs, are charged against income in the period
incurred.
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
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
Leasehold Improvements straight line over period of lease
February 28, 2011 November 30, 2010
----------------- -----------------
Accumulated Accumulated
Cost Amortization Cost Amortization
$ $ $ $
Computer equipment 35,211 21,550 35,211 20,442
Furniture and fixtures 15,310 9,594 15,310 9,131
Leasehold Improvements 8,252 1,125 8,252 -
------ ------ ------ ------
58,773 32,269 58,773 29,573
------ ------ ------- -------
Net carrying amount $26,504 $29,200
------- -------
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.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
5. CAPITAL STOCK-Cont'd
b) Issued
25,878,050 Common shares
c) Changes to Issued Share Capital
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.
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
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.
Three months ended February 28, 2011
The Company received subscriptions for 750,000 common shares at $0.20 per
share. The Company has not issued any shares during this period.
6. STOCK BASED COMPENSATION
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
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
6. STOCK BASED COMPENSATION-Cont'd
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:
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:
10
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
6. STOCK BASED COMPENSATION-Cont'd
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 166.16%
Stock-based compensation cost expensed $13,326
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
11
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
6. STOCK BASED COMPENSATION-Cont'd
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:
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
12
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
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.
Three months ended February 28, 2011
The Company did not issue any options during the three month period ended
February 28, 2011.
7. STOCK PURCHASE WARRANTS
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.
13
SECURITY DEVICES INTERNATIONAL, INC
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
7. STOCK PURCHASE WARRANTS-Cont'd
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.
Three months ended February 28, 2011
The Company did not issue any stock purchase warrants during the three
month period ended February 28, 2011.
8. RELATED PARTY TRANSACTIONS
The Company expensed a total of $25,000 as Management fee for payment to
its two directors for the three month period ended February 28, 2011.
The Company expensed $3,500 for services provided by the CFO of the Company
and $24,000 for services provided by COO of the Company.
9. COMMITMENTS
a) Effective January 1, 2011, a director of the Company renewed consulting
agreement with the Company on the following terms:
Monthly
Consulting Fees Expiration of
from January through Consulting
Name December 2011 Agreement
---- ------------- ---------
Boaz Dor $3,000 12-31-2011
14
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
9. COMMITMENTS-Cont'd
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 terminated their MOU
with the contractor during the quarter ended February 28, 2011 and is in
the midst of negotiating with the contractor for future services.
c) The Company has commitments for leasing office premises in Oakville,
Ontario, Canada to September 30, 2012 at a monthly rent (excluding
proportionate realty and maintenance costs and taxes) of Canadian $2,500
per month.
d) The Company signed a consulting agreement with the COO of the Company
for a period of six months commencing November 1, 2010. The officer will be
paid $8,000 plus applicable taxes.
e) The Company signed an agreement with a company to develop an Instructor
and Operator Training course for its line of less-than-lethal rounds at a
total commitment of $40,000. The Company has already paid $30,000 during
the quarter ended February 28, 2011.
10. SUBSEQUENT EVENTS
Subsequent to the quarter the Company raised proceeds of $100,000 by issue
of convertible debentures which carry an interest rate of 10% per annum
compounded annually. The term of the debenture is for a period of 12 months
ending on March 23, 2012. The debenture is convertible at any time while it
remains outstanding, as to both principal and interest, at the option of
the debenture holder to convert into fully paid non-assessable common
shares in the capital of the Company at Canadian $0.20 per share (the
"Conversion Price"). In addition to any payment made on account of
Principal due on maturity or any prepayment of principal, the Company
shall, as an additional capital payment, issue to the Debenture holders as
fully paid and non-assessable shares that number of common shares in the
capital of the Company ("the "Common Shares") as is equal to 20% of the
Principal amount paid at such time to such Debenture holder divided by the
then applicable Conversion Price or 20% x Principal Amount paid/Conversion
Price.
15
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2011
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
10. SUBSEQUENT EVENTS
The Company has signed a Memorandum of Understanding (MOU) with a large,
global defense technology company. The MOU maps out the intentions of both
groups to move forward in having SDI's 40mm Blunt Impact ammunition round
manufactured at their facility. A further definitive business agreement
will need to be executed further defining the parties' roles. The proposed
arrangement will enable SDI to produce and market their next generation
less-than-lethal ammunition products through this Company at their
production facility in the United States. The MOU represents SDI's first
step in entering the marketplace both internationally, and in North
America.
16
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATION
SDI is a less-than-lethal 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 in the
advanced stages of deploying their patent pending family of products. These
products consist of; the Blunt Impact Projectile 40mm (BIP40), and the Wireless
Electric Projectile 40mm (WEP40). The market sectors for these products include;
the military, army, navy, air force, peacekeeping, homeland security, and law
enforcement professionals. SDI's products were designed for use in existing 40mm
launchers.
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 metricconverterProductID262
feet262 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
metricconverterProductID160 feet160 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 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 its 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.
Subsequent to February 28, 2011, the Company has signed a Memorandum of
Understanding (MOU) with a large, global defense technology company. The MOU
maps out the intentions of both groups to move forward in having SDI's 40mm
Blunt Impact ammunition round manufactured at the facility of the global defense
technology company. A further definitive business agreement will need to be
executed further defining the parties' roles. The proposed arrangement will
enable SDI to produce and market its next generation less-than-lethal ammunition
2
products through this production facility in the United States. The MOU
represents SDI's first step in entering the marketplace both internationally and
in North America.
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 m2010 in Washington, D.C. At the conference,
SDI was shown interest by two large defense technology companies, and is now in
advanced stage discussions with them to form a proposed manufacturing
arrangement 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
February 28, 2011 has not generated any revenue.
During the three months ended February 28, 2011:
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 declined during the current
quarter as compared to the prior quarter as the Company did not
issue any options or warrants during the quarter and did not record
any stock based compensation expense. During the prior quarter the
Company recorded stock based compensation expense of $93,493.
3
During the period from inception (March 1, 2005) through November 30, 2010
SDI's operations used $9,746,307 in cash. During this period SDI:
o purchased $58,773 of equipment; and
o raised $9,876,650 (net) from the sale of shares of its common stock
and exercise of options from its officers and directors.
SDI anticipates that its capital requirements for the twelve-month period
ending February 28, 2012 will be:
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 February 28, 2011.
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.
See Note 10 to the financial statements included as part of this report for
information concerning events which occurred subsequent to February 28, 2011.
4
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 February 28, 2011, 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,
SDI's 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 February 28, 2011,
that materially affected, or are reasonably likely to materially affect, its
internal control over financial reporting.
5
PART II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 6. Exhibits
Exhibits
31.1 Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 for Gregory Sullivan.
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 Gregory Sullivan and Rakesh
Malhotra.
6
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: April 13, 2011
By: /s/ Gregory Sullivan
-----------------------------------
Gregory Sullivan, President
and Principal Executive
Officer
Date: April 13, 2011
By:
-----------------------------------
Rakesh Malhotra, Principal
Financial and Accounting
Officer
7