Attached files
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended November 30, 2009
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. - None
SECURITY DEVICES INTERNATIONAL, INC.
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(Name of Small Business Issuer in its charter)
Delaware Applied For
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2171 Avenue Rd., Suite 103
Toronto, Ontario Canada M5M 4B4
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(Address of Principal Executive Office) Zip Code
Registrant's telephone number, including Area Code: (416) 787-1871
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. [ ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. [ ]
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Act): [ ] Yes [X] No
The aggregate market value of the voting stock held by non-affiliates of the
Company (9,901,050 shares) on May 31, 2009 was approximately $4,700,000.
As of February 20, 2010, the Company had 16,746,050 issued and outstanding
shares of common stock.
Documents incorporated by reference: None
ITEM 1. BUSINESS
--------
Security Devices International, Inc. is currently in the final stage of
developing LEKTROX, a unique line of wireless electric ammunition for use in
military, homeland security, law enforcement, and professional and home security
situations.
SDI's LEKTROX system was developed by Elad Engineering, a company located
in Israel with many years of experience in the weapons and medical device
industries.
SDI's strategic collaboration with Elad resulted in the patent pending
LEKTROX system. Featuring the unique extended range Wireless Electro-Muscular
Disruption Technology, (or "W-EMDT"), SDI's first product, the LEKTROX 40mm
round ammunition is expected to be competed during 2010.
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 third generation electric solution. First generation
solutions were electric batons and hand-held stun guns which had a range of
arm's length. Second generation were the wired electric charge solutions. Third
generation are the wireless electric bullets. Currently, there is still no third
generation wireless electric bullet on the market.
LEKTROX is being specifically developed to achieve the highest operational
success at the greatest distance of those known to be currently in development.
Causing instant target incapacitation up to distances of 50 meters, the LEKTOX
will give maximum field superiority to military personnel, law enforcement
officers and other security operatives in situations that do not call for the
use of lethal ammunition.
The LEKTROX Electric Bullet is totally safe in storage, transportation,
handling and loading. Locked in safe mode until its internal electric and
mechanical systems are activated by contact with the target, LEKTROX eliminates
any possibility of the round's accidental charging.
Exploiting proven technologies, the LEKTROX Electric Bullet maintains
excellent stability for the highest possible accuracy. In addition LEKTROX
achieves distances way beyond those reached by previous generation, wired
electric ammunition systems.
In addition to achieving a greater range, the LEKTROX delivers new levels
of effectiveness and safety through the use of
o Unique mechanisms that reduce the projectile's kinetic energy
o W-EMDT that instantly incapacitates the target without causing serious
injury or lethality.
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To reduce kinetic energy levels, the bullet's head is composed of a
collapsible material that enlarges the contact surface and absorbs part of the
impact. Additional energy is transferred to other absorption mechanisms that use
the energy to release the Multiple Mini-Harpoon mechanism and activate the
built-in electrical system.
Upon colliding with the target, the mini-harpoons are released and the
bullet is attached irremovably to the target's clothing or body. At the same
time, the bullet's electrical system releases a W-EMDT charge that imitates the
electro-neural impulses used by the human body. Sending out a control signal to
the muscles, this high voltage low current pulse safely overrides the target's
nervous system inducing a harmless muscle spasm that causes them to fall to the
ground helpless.
Operating at lower than critical cardio-fibrillation levels, the LEKTROX
W-EMDT electric output has been designed in line with stringent medical
equipment standards that protect patients from permanent injury. Enabling full
recovery with no clinical after effects, LEKTROX helps decreases liability for
wrongful injury or death.
The LEKTROX 40MM round can be fired from a standard rifle with low recoil.
Simple to operate, this system will be point and fire with a standard trigger.
As of February 20, 2010 SDI has completed the following steps in the
development of the LEKTROX:
o Design and testing of ballistic rounds.
o Production of various ballistic rounds.
o Design of `electrical arms' to adhere to clothing or skin.
o Design of safety/armed mechanism.
o Production of mechanical systems.
o Design of electrical system.
o Production of electrical system.
o Integration and assembly of mechanical and electrical sub-systems for
electrical rounds.
o Testing of different ballistic rounds
o Powder loading testing
o Testing of complete electrical rounds
o Adjustment of electrical rounds based on test results
o Two clinical studies in European clinics.
o Production of completed rounds.
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o Developed a fully operational Long Range LEKTROX (40MM) and tested the
rounds with military organizations.
o Designed moulds for the 40MM LEKTROX.
During the year ending November 30, 2010 SDI plans to complete the tooling
and moulds for the 40MM LEXTROX.
See Item 6 of this report for information regarding the timing of the
remaining steps in the development of the LEKTROX.
The mechanical development of the LEKTROX is being completed by Elad
Engineering Ltd., an Israeli company which has designed weapons for the Israeli
Military.
Competition
The primary competitive factors in the market for non-lethal weapons are a
weapon's cost, effectiveness, and ease of use.
In the military market a wide variety of weapon systems are used.
Conducted energy devices, such as the LEKTROX, have gained increased acceptance
during the last years as a result of the increased role of military personnel in
Iraq and Afghanistan. Conducted energy weapons have gained limited acceptance in
the private citizen market for non-lethal weapons.
SDI's primary competitors will be Taser International, Inc. and Stinger
Systems, Inc. The LEKTROX will also compete indirectly with a variety of other
non-lethal alternatives, including pepper spray and impact weapons sold by
companies such as Armor Holdings, Inc. and Jaycor, Inc.
SDI believes that its competitive advantage will be the ability of the
LEKTROX to effectively incapacitate offenders from a distance as far as 50
meters without a trail of wires leading back to the launcher.
Patents
Four patent applications, one for the electrical mechanism and other three
for the mechanical mechanism of the LEKTROX, have been filed by SDI with the
U.S. Patent Office and other patent offices worldwide.
SDI has also filed several foreign patents applications.
SDI's patents may not protect its proprietary technology. In addition,
other companies may develop products similar to the LEKTROX or avoid patents
held by SDI. Disputes may arise between SDI and others as to the scope and
validity of its patents. Any defense of its patents could prove costly and time
consuming and SDI may not be in a position, or may not consider it advisable, to
carry on such a defense. In addition, others may acquire or independently
develop the same or similar unpatented proprietary technology used by SDI.
4
Government Regulation
Under current regulations the LEKTROX will be considered a crime control
product by the United States Department of Commerce and the export of the
LEKTROX will be regulated under export administration regulations. As a result,
export licenses from the Department of Commerce will be required for all
shipments to foreign countries other than Canada. In addition, the Department of
Commerce has regulations which may restrict the export of technology used in the
LEKTROX.
The LEKTROX will be controlled, restricted or its use prohibited by
several state and local governments. In many cases, the law enforcement and
corrections market is subject to different regulations than the private citizen
market. Many states have regulations restricting the sale of stun guns and
hand-held shock devices, such as the LEKTROX, to private citizens or security
personnel.
Foreign regulations pertaining to non-lethal weapons are numerous and
often unclear and a number of countries prohibit devices similar to the LEKTROX.
Employees
The LEXTROX will be controlled, restricted or its use prohibited by
several state and local governments. In many cases, the law enforcement and
corrections market is subject to different regulations than the private citizen
market. Many states have regulations restricting the sale of stun guns and
hand-held shock devices, such as the LEXTROX, to private citizens or security
personnel.
General
As of February 20, 2010 SDI did not have any full-time employees.
SDI's offices are located at 2171 Avenue Rd., Suite 103, Toronto, Ontario,
Canada M5M 4B4. SDI's rental costs on this space for each of the two years
ending November 30, 2010, excluding SDI's share of operating and common area
expenses, will be $9,812. SDI's offices are expected to be adequate to meet
SDI's foreseeable future needs.
SDI's website is www.lektrox.com.
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
See Item 1 of this report.
ITEM 3. LEGAL PROCEEDINGS.
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SDI is not involved in any legal proceedings and SDI does not know of any
legal proceedings which are threatened or contemplated.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
Not Applicable
ITEM 5. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
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EQUITY AND OTHER SHAREHOLDER MATTERS.
------------------------------------
Since August 2006 SDI's common stock has been listed on the OTC Bulletin
Board under the symbol "SDEV". The following shows the high and low closing
prices for SDI's common stock for the periods indicated:
Three Months Ended High Low
------------------ ---- ---
February 2008 $2.10 $1.09
May 2008 $2.50 $1.10
August 2008 $2.51 $1.15
November 2008 $1.25 $0.31
February 2009 $0.81 $0.31
May 2009 $0.60 $0.33
August 2009 $0.91 $0.15
November 2009 $0.42 $0.19
As of February 20, 2010 SDI had approximately 200 shareholders and
16,745,050 outstanding shares of common stock.
Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors. SDI's Board of Directors is not restricted
from paying any dividends but is not obligated to declare a dividend. No
dividends have ever been declared and it is not anticipated that dividends will
ever be paid.
SDI's Articles of Incorporation authorize its Board of Directors to issue up
to 5,000,000 shares of preferred stock. The provisions in the Articles of
Incorporation relating to the preferred stock allow SDI's directors to issue
preferred stock with multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to the holders of SDI's
common stock. The issuance of preferred stock with these rights may make the
removal of management difficult even if the removal would be considered
beneficial to shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or tender
offers if these transactions are not favored by SDI's management.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
Not applicable.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
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AND PLAN OF OPERATION
---------------------
SDI was incorporated on March 1, 2005 and for the period from inception to
November 30, 2009 has not generated any revenue.
During the year ended November 30, 2009:
o Research and Product Development expenses were lower since the
development of the Company's products was nearing completion.
o General and administrative expenses decreased primarily due to a
decline in stock based compensation. General and administrative
expenses included charges of $177,990, 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.
During the period from inception (March 1, 2005) through November 30, 2009
SDI's operations used $7,917,398 in cash. During this period SDI:
o purchased $50,521 of equipment;
o raised $7,966,650 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.
In August 2009 SDI sold, in a private offering, 788,000 Units at a price
of $0.25 per Unit. Each Unit consisted of one share of SDI's common stock and
one warrant. Each warrant allows the Holder to purchase one additional share of
SDI's common stock at a price of $0.50 per share at any time on or before June
15, 2010.
In January 2010 SDI sold, in a subsequent private offering, 1,510,000
shares of its common stock at a price of $0.25 per share.
SDI relied upon the exemption provided by Section 4(2) of the Securities
Act of 1933 with respect to the sale of its securities in August 2009 and
January 2010. The investors in these offerings were provided with full
information regarding SDI. There was no general solicitation in connection with
these private offerings. The investors in these offerings acquired SDI's
securities for their own account. The certificates representing the shares of
common stock issued to the investors in these offerings bear restricted legends
providing that the shares cannot be sold except pursuant to an effective
registration statement or an exemption from registration.
As of November 30, 2009 SDI had developed a fully operational Long Range
LEKTROX (40MM) and was planning a production line.
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SDI anticipates that its capital requirements for the twelve-month period
ending November 30, 2010 will be:
Development and Preproduction costs $ 1,500,000
General and Administrative Expenses 375,000
------------
Total $ 1,875,000
============
Other than the foregoing, SDI did not have any material future contractual
obligations or off balance sheet arrangements as of November 30, 2009.
SDI does not have any commitments or arrangements from any persons to
provide SDI with any additional capital it may need. Without additional capital,
SDI will not be able to fund its anticipated capital requirements outlined
above.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
---------------------------------------------------------
Not applicable.
ITEM 8 FINANCIAL STATEMENTS
--------------------
See the financial statements included with this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
---------------------------------------------
Not applicable.
ITEM 9A. and 9A(T). CONTROLS AND PROCEDURES
-----------------------
(a) SDI maintains a system of controls and procedures designed to ensure
that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded,
processed, summarized and reported, within time periods specified in the SEC's
rules and forms and to ensure that information required to be disclosed by SDI
in the reports that it files or submits under the 1934 Act, is accumulated and
communicated to SDI's management, including its Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. As of November 30, 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 year ended November 30, 2009, that
materially affected, or are reasonably likely to materially affect, its internal
control over financial reporting.
Management's Report on Internal Control Over Financial Reporting
SDI's management is responsible for establishing and maintaining adequate
internal control over financial reporting and for the assessment of the
8
effectiveness of internal control over financial reporting. As defined by the
Securities and Exchange Commission, internal control over financial reporting is
a process designed by, or under the supervision of SDI's principal executive
officer and principal financial officer and implemented by SDI's Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of SDI's
financial statements in accordance with U.S. generally accepted accounting
principles.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
SDI's management evaluated the effectiveness of its internal control over
financial reporting as of November 30, 2009 based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission, or the COSO Framework. Management's
assessment included an evaluation of the design of SDI's internal control over
financial reporting and testing of the operational effectiveness of those
controls.
Inherent in any small business is the pervasive problem involving
segregation of duties. Since SDI has a small accounting department, segregation
of duties cannot be completely accomplished at this stage in its corporate
lifecycle. Accordingly, SDI's management has added compensating controls to
reduce and minimize the risk of a material misstatement in SDI's annual and
interim financial statements.
Based on this evaluation, SDI's management concluded that SDI's internal
control over financial reporting was effective as of November 30, 2009.
There was no change in SDI's internal control over financial reporting
that occurred during the year ended November 30, 2009 that has materially
affected, or is reasonably likely to materially affect, SDI's internal control
over financial reporting.
This report does not include an attestation report of SDI's independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by SDI's
independent registered public accounting firm pursuant to temporary rules of the
SEC that permit SDI to provide only management's report on internal control in
this report.
ITEM 9B. OTHER INFORMATION
-----------------
Not applicable.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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Name Age Position
---- --- --------
Sheldon Kales 54 Chief Executive Officer and a Director
Boaz Dor 55 Secretary and a Director
Rakesh Malhotra 53 Chief Financial Officer
Gregory Sullivan 43 Director
The directors of SDI serve until the first annual meeting of its
shareholders and until their successors have been duly elected and qualified.
The officers serve at the discretion of SDI's directors.
Sheldon Kales has been an officer and director of SDI since March 2005. Since
February 2004 Mr. Kales has been working on the development of the LEKTROX.
Between January 2000 and February 2004 Mr. Kales was the President of Yangtze
Telecom, a company which provides messaging and related services for cell phone
users in China. Mr. Kales founded, and between 1985 and 2001, operated Argus
Investigation Services.
Boaz Dor has been a director of SDI since April 2005 and its Secretary since
March 15, 2006. Mr. Dor served in the Israeli Defense Forces from 1972 to 1975.
Recruited by the Israeli Secret Services, Mr. Dor was assigned to the
International Security Division for Aviation Security for the Israeli
Government, eventually assuming the position of Head of Security for the Embassy
of Israel and El Al Israel Airlines in Cairo, Egypt, and later, as Vice-Consul
and Head of Security for the Israeli Consulate in Toronto and Western Canada and
El Al Israel Airlines. In 1989, Mr. Dor resigned from the public sector to open
a security consulting firm. In 1991, he was appointed executive director of
security for the Seabeco Group of Companies where Mr. Dor oversaw international
operations in Switzerland, Belgium, Russia, New York and Toronto. Since 2000 Mr.
Dor has owned and operated Ozone Water Systems Inc., a water purification
company.
Rakesh Malhotra has been SDI's Chief Financial Officer since January 7, 2007.
Mr. Malhotra is a United States Certified Public Accountant (CPA) and a Canadian
Chartered Accountant (CA). Mr. Malhotra graduated with Bachelor of Commerce
(Honors) degree from the University of Delhi (India) and worked for A.F Ferguson
& Co. (the Indian correspondent for KPMG) and obtained his CA designation in
India. Having practiced as an accountant for over ten years in New Delhi, Mr.
Malhotra moved to the Middle East and worked for five years with the
International Bahwan Group in a senior finance position. During 2000 and 2001,
Mr. Malhotra worked as a chartered accountant with a mid-sized accounting firm
in Toronto performing audits of public companies. Since 2005 Mr. Malhotra has
been a consultant to a number of public companies. Mr. Malhotra has more than 20
years experience in accounting and financing.
Gregory Sullivan has been a director of SDI since April 2005. Mr. Sullivan has
been a law enforcement officer for the past 20 years. During his law enforcement
career, Mr. Sullivan has trained with federal, state and municipal agencies in
the United States, Canada and the Caribbean and has gained extensive experience
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in the use of lethal and non-lethal weapons. Mr. Sullivan has also trained
personnel employed by both public and private agencies in the use of force and
firearms. Mr. Sullivan served four years with the military reserves in Canada.
None of SDI's directors are independent as that term is defined in section
121(A) of the listing standards of the American Stock Exchange.
SDI does not have a compensation committee or an audit committee. Rakesh
Malhotra is SDI's financial expert. However, since he is an officer of SDI Mr.
Malhotra is not independent as that term is defined in 803 of the NYSE Alternext
U.S. Company Guide.
SDI has not adopted a Code of Ethics applicable to its principal
executive, financial, and accounting officers and persons performing similar
functions. SDI does not believe a Code of Ethics is needed at this time since
SDI has only four officers.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table shows the compensation for the three years ended
November 30, 2009 paid or accrued, to Sheldon Kales, the Principal Executive
Officer of SDI. None of the executive officers of SDI received compensation in
excess of $100,000 during this period.
All
Other
Annual
Stock Option Compen-
Name and Principal Fiscal Salary Bonus Awards Awards sation
Position Year (1) (2) (3) (4) (5) Total
------------------ ----- ------ ----- ------ ------ ------- -----
Sheldon Kales, 2009 $ 40,293 $126,500 $166,793
President 2008 -- -- -- $155,948 -- $155,948
2007 -- -- -- $886,948 -- $886,948
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) The fair value of stock issued for services computed in accordance with FAS
123R on the date of grant.
(4) The fair value of options and warrants granted computed in accordance with
FAS 123R on the date of grant, adjusted for the fair value relating to
lowering the exercise price of options granted.
(5) Amount represents consulting fees paid to Mr. Kales during the year.
SDI does not have an employment agreement with any of its officers.
On February 4, 2009 SDI's directors approved consulting agreements with
three of it's officers. The consulting agreements provide that the officers will
consult with SDI in the areas of corporate operations and product development.
The consulting agreements were amended effective January 1, 2010. The terms of
the amended consulting agreements are shown below.
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Monthly
Monthly Consulting Fees for Expiration of
Consulting fees February through Car Consulting
Name for January 2010 December 2010 Allowance Agreement
---- ---------------- ------------------- --------- -------------
Sheldon Kales $5,000 $6,500 -- 12-31-10
Boaz Dor $5,000 $6,500 -- 12-31-10
Gregory Sullivan $5,000 $6,500 -- 12-31-10
The following shows the amounts which SDI expects to pay in cash as
consulting fees to its officers during the twelve month period ending December
31, 2010, and the time these persons plan to devote to SDI's business.
Proposed Time to be Devoted to the
Name Compensation Business of SDI
---- ------------ -------------------------
Sheldon Kales $ 76,500 100%
Boaz Dor $ 76,500 100%
Rakesh Malhotra $ 21,000 10%
Gregory Sullivan $ 76,500 50%
There are no sales, net income, or other thresholds which are required for
SDI's directors to increase the compensation which in the future may be paid to
SDI's officers. SDI may also issue shares of its common stock or options to
compensate its officers and directors for services provided to SDI.
Long-Term Incentive Plans. SDI does not provide its officers or employees with
pension, stock appreciation rights, long-term incentive or other plans and has
no intention of implementing any of these plans for the foreseeable future.
Employee Pension, Profit Sharing or other Retirement Plans. SDI does not have a
defined benefit, pension plan, profit sharing or other retirement plan, although
it may adopt one or more of such plans in the future.
Compensation of Directors During Year Ended November 30, 2009
-------------------------------------------------------------
Awards of Options
Name Paid in Cash (1) Stock Awards (2) or Warrants (3)
---- ---------------- ---------------- -----------------
Boaz Dor $79,750 -- $16,507
Gregory Sullivan $66,000 -- $10,243
(1) Represents consulting fees paid during the year.
(2) The fair value of stock issued for services computed in accordance with FAS
123R on the date of grant.
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(3) The fair value of options or warrants granted computed in accordance with
FAS 123R on the date of grant.
Stock Option and Bonus Plans
----------------------------
SDI has adopted stock option and stock bonus plans. A summary description
of these plans follows. In some cases these Plans are collectively referred to
as the "Plans".
Incentive Stock Option Plan. SDI's Incentive Stock Option Plan authorizes
the issuance of shares of SDI's Common Stock to persons that exercise options
granted pursuant to the Plan. Only SDI employees may be granted options pursuant
to the Incentive Stock Option Plan. The option exercise price is determined by
SDI's directors but cannot be less than the market price of SDI's common stock
on the date the option is granted.
Non-Qualified Stock Option Plan. SDI's Non-Qualified Stock Option Plan
authorizes the issuance of shares of SDI's Common Stock to persons that exercise
options granted pursuant to the Plans. SDI's employees, directors, officers,
consultants and advisors are eligible to be granted options pursuant to the
Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Stock Bonus Plan. SDI's Stock Bonus Plan allows for the issuance of shares
of common stock to it's employees, directors, officers, consultants and
advisors. However bona fide services must be rendered by the consultants or
advisors and such services must not be in connection with the offer or sale of
securities in a capital-raising transaction.
Summary. The following lists, as of February 20, 2010, the options granted
pursuant to the Plans. Each option represents the right to purchase one share of
SDI's common stock.
Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
------------ ----------- ------------ ----------- --------------
Incentive Stock Option
Plan 1,000,000 -- N/A 1,000,000
Non-Qualified Stock
Option Plan 5,000,000 3,598,000 N/A 335,000
Stock Bonus Plan 150,000 N/A -- 150,000
The following tables show all options granted and exercised by SDI's
officers and directors since the inception of SDI and through February 20, 2010,
and the options held by the officers and directors named below. All of the
options listed below were granted pursuant to SDI's Non-Qualified Stock Option
Plan.
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Options Granted/Exercised
-------------------------
Shares
Grant Options Exercise Expiration Acquired on Value
Name Date Granted (#) Price Date Exercise (1) Realized (2)
---- ------ ----------- -------- ---------- ------------ ------------
Sheldon Kales 10/29/05 550,000 $0.10 10/29/11 550,000 $275,000
Sheldon Kales 10/29/05 100,000 $0.25 10/29/11
Boaz Dor 10/29/05 200,000 $0.10 10/29/11 200,000 $100,000
Boaz Dor 10/29/05 100,000 $0.25 10/29/11
Gregory Sullivan 10/29/05 200,000 $0.10 10/29/11 200,000 $100,000
Gregory Sullivan 10/29/05 100,000 $0.25 10/29/11
Rakesh Malhotra 01/07/07 125,000 $1.50 01/07/12
Sheldon Kales 10/12/07 675,000 $1.20 10/12/12
Boaz Dor 10/12/07 300,000 $1.20 10/12/12
Rakesh Malhotra 10/12/07 175,000 $1.20 10/12/12
Gregory Sullivan 10/12/07 175,000 $1.20 10/12/12
Sheldon Kales 01/24/08 108,000 $0.10 01/24/13
Boaz Dor 01/24/08 117,000 $0.10 01/24/13 117,000 $ 25,740
Gregory Sullivan 01/22/10 100,000 $0.25 01/22/15
(1) The number of shares received upon exercise of options.
(2) With respect to options exercised, the dollar value of the difference
between the option exercise price and the market value of the option shares
purchased on the date of the exercise of the options.
Shares underlying
unexercised options which are:
----------------------------- Exercise Expiration
Name Exercisable Unexercisable Price Date
---- ----------- ------------- -------- ----------
Sheldon Kales 100,000 (1) -- $0.25 10-29-11
Boaz Dor 100,000 (1) -- $0.25 10-29-11
Gregory Sullivan 100,000 (1) -- $0.25 10-29-11
Rakesh Malhotra 125,000 -- $0.25 (2)
6-30-14 (3)
Sheldon Kales 675,000 -- $0.25 (2)
6-30-14 (3)
Boaz Dor 300,000 -- $0.25 (2)
6-30-14 (3)
Rakesh Malhotra 175,000 -- $0.25 (2)
6-30-14 (3)
Gregory Sullivan 175,000 -- $0.25 (2)
6-30-14 (3)
Sheldon Kales 108,000 -- $0.10 1-24-13
Gregory Sullivan 100,000 -- $0.25 1-22-15
(1) These options will expire on the first to occur of the following: (i) the
expiration date of the option, (ii) the date the option holder is removed
from office for cause, or (iii) the date the option holder resigns as an
officer of the Company.
(2) On June 17, 2009, SDI's directors approved the reduction of the exercise
price of these options to $0.25 per share.
14
(3) On December 4, 2009 SDI's directors extended the expiration date of these
options to June 30, 2014.
For the purpose of these options "Cause" means any action by the Option
Holder or any inaction by the Option Holder which constitutes:
(i) fraud, embezzlement, misappropriation, dishonesty or breach of trust;
(ii) a willful or knowing failure or refusal by the Option Holder to
perform any or all of his material duties and responsibilities as an
officer of SDI, other than as the result of the Option Holder's death
or Disability; or
(iii) gross negligence by the Option Holder in the performance of any or
all of his material duties and responsibilities as an officer of SDI,
other than as a result of the Option Holder's death or Disability;
For purposes of these options "Disability" means any mental or physical
illness, condition, disability or incapacity which prevents the Option Holder
from reasonably discharging his duties and responsibilities as an officer of SDI
for a minimum of twenty hours per week.
The following table shows the weighted average exercise price of the
outstanding options granted pursuant to SDI's stock option plans as of November
30, 2009, SDI's most recent fiscal year end. SDI's stock option plans have not
been approved by its shareholders.
Number of Securities
Number Remaining Available
of Securities For Future Issuance
to be Issued Weighted-Average Under Equity
Upon Exercise Exercise Price of Compensation Plans,
of Outstanding of Outstanding Excluding Securities
Plan category Options (a) Options Reflected in Column (a)
------------- -------------- ----------------- -----------------------
Incentive Stock Option Plan -- -- 1,000,000
Non-Qualified Stock Option Plan 3,598,000 $0.33 335,000
Warrants
--------
In addition to the options described above, SDI has granted warrants to
its officers and directors upon the terms shown below.
Shares Issuable
Grant Upon Exercise Exercise Expiration
Name Date of Options Price (1) Date
---- ---- --------------- --------- ----------
Boaz Dor 9-06-07 17,000 $0.25 5-31-17
Sheldon Kales 10-05-07 250,000 $0.25 10-05-14
Gregory Sullivan 10-05-07 50,000 $0.25 10-05-14
15
(1) On June 17, 2009, SDI's directors approved the reduction of the exercise
price of these warrants to $0.25 per share.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
------------------------------------------------------------------
RELATED STOCKHOLDERS MATTERS
----------------------------
The following table shows the ownership of SDI's common stock as of
February 20, 2010 by each shareholder known by SDI to be the beneficial owner of
more than 5% of SDI's outstanding shares, each director and executive officer
and all directors and executive officers as a group. Except as otherwise
indicated, each shareholder has sole voting and investment power with respect to
the shares they beneficially own.
Number
Name of Shares (1) Percent of Class
---- ------------- ----------------
Sheldon Kales 2,540,910 15.2%
Boaz Dor 1,020,000 6.1%
Rakesh Malhotra -- --
Gregory Sullivan 400,000 2.4%
Dror Shachar (2) 1,200,000 7.2%
All Officers and Directors 3,960,910 23.7%
as a group (four persons)
(1) Does not reflect shares issuable upon the exercise of options.
(2) Dror Shachar holds these shares for the benefit of his father, Mark
Shachar.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The following lists all shares of SDI's common stock which have been
issued since its incorporation:
Consideration
Shareholder Date of Sale Shares Issued Paid for Shares
----------- ------------ ------------- ---------------
Sheldon Kales 3-03-05 2,300,000 Services rendered,
valued at $23,000
Sheldon Kales 3-04-05 200,000 Services rendered,
valued at $2,000
Boaz Dor 3-03-05 900,000 Services rendered,
valued at $9,000
Gregory Sullivan 3-03-05 40,000 Services rendered,
valued at $400
16
Consideration
Shareholder Date of Sale Shares Issued Paid for Shares
----------- ------------ ------------- ---------------
Gregory Sullivan 3-04-05 200,000 Services rendered,
valued at $2,000
Alexander Blaunshtein (1) 3-03-05 1,560,000 Services rendered,
valued at $15,600
Consultant 3-03-05 1,200,000 Services rendered,
valued at $12,000
Consultants 3-04-05 125,000 Services rendered,
valued at $1,250
Private Investors 4-15-05 397,880 $ 99,470
Private Investors 12-31-05 486,000 $ 48,600
Private Investors 1-31-06 470,000 $ 47,000
Private Investors 3-08-06 286,000 $ 50,050
Consultant 3-08-06 50,000 Services rendered,
valued at $8,750
Public Investors 5-06/7-06 2,000,000 $ 400,000
Sheldon Kales 11-06 550,000 $ 55,000 (2)
Boaz Dor 11-06 200,000 $ 20,000 (2)
Gregory Sullivan 11-06 200,000 $ 20,000 (2)
Private Investors 12-06 2,536,170 $ 2,536,170
Consultant 3-12-07 50,000 Services rendered,
valued at $155,000
Private Investors 4-07/5-07 2,139,000 $4,812,750
Boaz Dor 11-08 117,000 $11,700 (2)
Private Investors 8-09 778,000 (3) $197,000
(1) Alexander Blaunshtein is the son of Natan Blaunstein, who was a former
director of SDI. In March 2007 these shares were purchased by SDI for
$50,000, cancelled, and returned to the status of authorized but unissued
shares.
(2) Shares were issued upon the exercise of stock options.
(3) Shares were sold as part of a Unit. Each Unit was sold for $0.25 and
consisted of one share of SDI's common stock and one warrant. Each warrant
allows the Holder to purchase one share of SDI's common stock at a price of
$0.50 per share at any time on or before June 15, 2010.
With the exception of the shares issued upon the exercise of shares issued
upon the exercise of options, SDI relied upon the exemption provided by Section
4(2) of the Securities Act of 1933 in connection with the issuance of these
shares.
Sheldon Kales, Natan Blaunstein, Boaz Dor and Gregory Sullivan are the
promoters and parents of SDI.
17
The services relating to the shares issued in March 2005 were provided for
the development of the LEKTROX and were valued at $0.01 per share. The 50,000
shares issued in March 2006 to a consultant were issued as compensation for
introducing investors to SDI and were valued at $0.175 per share which is the
price, per share, received by SDI for the shares sold for cash in March 2006.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
--------------------------------------
Schwartz Levitsky Feldman, LLP ("Schwartz Levitsky") audited SDI's
financial statements for the years ended November 30, 2009 and 2008.
The following table shows the aggregate fees billed and billable to SDI
during the years ended November 30, 2009 and 2008 by Schwartz Levitsky.
2009 2008
---- ----
Audit Fees $16,200 $15,000
Audit-Related Fees $8,320 $ 8,600
Financial Information Systems --
Design and Implementation Fees --
Tax Fees --
All Other Fees --
Audit fees represent amounts billed for professional services rendered for
the audit of SDI's annual financial statements. Audit-Related fees represent
amounts billed for the services related to the reviews of SDI's 10-Q reports and
reviews of SDI's registration statements on Form SB-2 and Form S-8. Before
Schwartz Levitsky was engaged by Security Devices to render audit services, the
engagement was approved by Security Device's Directors.
ITEM 15. EXHIBITS
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Articles of Incorporation (Incorporated by reference to the
same exhibit filed with the
Company's registration statement
on Form SB-2 (File No. 333-12456).
3.2 Bylaws (Incorporated by reference to the
same exhibit filed with the
Company's registration statement
on Form SB-2 (File No. 333-132456).
31 Rule 13a-14(a) Certifications *
32 Section 1350 Certifications *
* Filed with this report.
18
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2009 AND 2008
Together with Report of Independent Registered Public Accounting Firm
(Amounts expressed in US Dollars)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 2009 AND 2008
(Amounts expressed in US Dollars)
TABLE OF CONTENTS
Page No
-------
Report of Independent Registered Public Accounting Firm 1
Balance Sheets as at November 30, 2009 and November 30, 2008 2
Statements of Operations and Comprehensive loss for the years
ended November 30, 2009 and November 30, 2008 and the period
from inception (March 1, 2005) to November 30, 2009 3
Statements of Cash Flows for the years ended November 30, 2009
and November 30, 2008 and the period from inception (March 1, 2005)
to November 30, 2009 4
Statements of Stockholders' Equity (Deficit) for the years
ended November 30, 2009 and November 30, 2008 and the period
from inception (March 1, 2005) to November 30, 2009 5
Notes to Financial Statements 6-25
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Security Devices International, Inc.
(A Development Stage Enterprise)
We have audited the accompanying balance sheets of Security Devices
International, Inc. (the "Company") as at November 30, 2009 and 2008 and
the related statements of operations and comprehensive loss, cash flows and
stockholders' equity (deficiency) for the years ended November 30, 2009 and
2008 and the period from inception (March 1, 2005) to November 30, 2009.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of
November 30, 2009 and 2008, and the results of its operations and its cash
flows for the years ended November 30, 2009 and 2008 and the period from
inception (March 1, 2005) to November 30, 2009 in accordance with generally
accepted accounting principles in the United States of America.
The company is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
company's internal controls over financial reporting. Accordingly, we
express no such opinion.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in note 2 to the
financial statements, the company has not commenced operations and has no
source of operating revenue and expects to incur significant expenses
before establishing operating revenue. The Company's future success is
dependent upon its ability to raise sufficient capital, not only to
maintain its operating expenses, but also to continue to develop and be
able to profitably market its product. That raises substantial doubt about
its ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/ Schwartz Levitsky Feldman LLP
"SCHWARTZ LEVITSKY FELDMAN LLP"
Toronto, Ontario, Canada Chartered Accountants
February 26, 2010 Licensed Public Accountants
1
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Balance Sheets
As at November 30, 2009 and 2008
(Amounts expressed in US Dollars)
2009 2008
ASSETS $ $
CURRENT
Cash and cash equivalents 55,431 2,167,699
Prepaid expenses and other 31,172 45,984
----------- -----------
Total Current Assets 86,603 2,213,683
Plant and Equipment, net (Note 9) 29,924 25,450
----------- -----------
TOTAL ASSETS 116,527 2,239,133
----------- -----------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 4) 691,729 219,081
----------- -----------
Total Current Liabilities 691,729 219,081
----------- -----------
Going Concern (Note 2)
Related Party Transactions (Note 8)
Commitments (Note 11)
Subsequent Events (Note 13)
STOCKHOLDERS' EQUITY (DEFICIT)
Capital Stock (Note 5)
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, Nil issued and outstanding (2008 - nil)
Common stock, $0.001 par value 50,000,000 shares
authorized, 15,235,050 issued and outstanding
(2008 -14,447,050) 15,235 14,447
Additional Paid-In Capital 13,463,251 13,084,826
Deficit Accumulated During the Development Stage (14,053,688) (11,079,221)
----------- -----------
Total Stockholders' Equity (Deficit) (575,202) 2,020,052
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 116,527 2,239,133
----------- -----------
The accompanying notes are an integral part of these financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Operations and Comprehensive loss
Years Ended November 30, 2009 and 2008 and the Period from Inception (March 1,
2005) to November 30, 2009
(Amounts expressed in US Dollars)
Cumulative
since inception 2009 2008
$ $ $
EXPENSES:
Research and Product Development 6,546,273 2,031,230 2,632,548
Amortization 20,597 9,348 8,652
General and administration 7,759,412 941,702 1,834,237
------------ ------------ ------------
TOTAL OPERATING EXPENSES 14,326,282 2,982,280 4,475,437
------------ ------------ ------------
LOSS FROM OPERATIONS (14,326,282) (2,982,280) (4,475,437)
Other Income 272,594 7,813 73,651
LOSS BEFORE INCOME TAXES (14,053,688) (2,974,467) (4,401,786)
Income taxes (Note 10) - - -
------------ ------------ ------------
NET LOSS AND COMPREHENSIVE LOSS (14,053,688) (2,974,467) (4,401,786)
------------ ------------ ------------
Loss per share - basic and diluted (0.20) (0.31)
------------ ------------
Weighted average common shares outstanding 14,671,576 14,335,179
------------ ------------ ------------
The accompanying notes are an integral part of these financial statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Cash Flows
Years Ended November 30, 2009 and 2008 and the Period from Inception (March 1,
2005) to November 30, 2009
(Amounts expressed in US Dollars)
Cumulative
since inception 2009 2008
--------------- ---- ----
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (14,053,688) (2,974,467) (4,401,786)
Items not requiring an outlay of cash:
Issue of shares for professional services 154,000 - -
Stock based compensation (included in
general and administration expenses) 4,905,419 177,990 1,231,056
Compensation expense for warrants issued
(included in general and administration
expenses) 361,317 4,223 -
Loss on cancellation of common stock 34,400 - -
Amortization 20,597 9,348 8,652
Changes in non-cash working capital:
Prepaid expenses and other (31,172) 14,812 (9,196)
Accounts payable and accrued liabilities 691,729 472,648 44,239
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (7,917,398) (2,295,446) (3,127,035)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (50,521) (13,822) (10,142)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (50,521) (13,822) (10,142)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans/ (Repayments) from directors/shareholders - - -
Net Proceeds from issuance of common shares 7,966,650 197,000 -
Cancellation of common stock (50,000) - -
Exercise of stock options 106,700 - 11,700
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 8,023,350 197,000 11,700
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FOR THE YEAR 55,431 (2,112,268) (3,125,477)
Cash and cash equivalents, beginning of Year - 2,167,699 5,293,176
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR 55,431 55,431 2,167,699
============ ============ ============
INCOME TAXES PAID - - -
============ ============ ============
INTEREST PAID - - -
============ ============ ============
The accompanying notes are an integral part of these financial statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statement of Changes in Stockholders' Equity
For the years ended November 30, 2009 and 2008 and the period from inception
(March 1, 2005) to November 30, 2009.
(Amounts expressed in US Dollars)
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 6,923 157,797 (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)
---------- ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements.
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
1. BASIS OF PRESENTATION
The financial statements which include the accounts of Security Devices
International Inc. (the "Company") were prepared in accordance with US
GAAP. The Company was incorporated under the laws of the state of
placeStateDelaware on March 1, 2005.
2. NATURE OF OPERATIONS AND GOING CONCERN
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 standard 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 an arm's
length. 2nd generations were the wired electric charge solutions. 3rd
generations are the wireless electric bullets.
The Company's financial statements are presented on a going concern basis,
which contemplates the realization of assets and satisfaction of
liabilities in the normal course of business. The Company has no source for
operating revenue and expects to incur expenses before establishing
operating revenue. The Company has a need for additional working capital to
fund its operating expenses and for the economic production of LEKTROX,
which is currently being evaluated by the US Military. The Company's future
success is dependent upon its continued ability to raise sufficient capital
to fund operating expenses and the economic production of LEKTROX. This
raises substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from this uncertainty. In order to finance the continued
development, the Company is working towards to raising of appropriate
capital in the near future. During the year ended November 30, 2009, the
Company was able to raise $197,000 through issue of common shares and
warrants. The Company further raised an additional $377,500 through the
issue of common shares subsequent to the year (see note 13-subsequent
events)
The Company has incurred a loss of $ 2,974,467 during the year ended
November 30, 2009 primarily due to its research and development activities.
At November 30, 2009, the Company had an accumulated deficit during the
development stage of $14,053,688 which includes a non- cash stock based
compensation expense of $4,905,419 and compensation expense for warrants
for $361,317.
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Use of Estimates
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of
America. As the precise determination of assets and liabilities, and
correspondingly revenues and expenses, depends on future events, the
preparation of financial statements for any period necessarily
involves the use of estimates. Actual amounts may differ from these
estimates. Significant estimates include accruals, valuation allowance
for deferred tax assets, estimates for calculation of stock based
compensation and estimating the useful life of its plant and
equipment.
b) Income Taxes
Deferred tax assets and liabilities are recorded for differences
between the financial statement and tax basis of the assets and
liabilities that will result in taxable or deductible amounts in the
future based on enacted tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is recorded for
the amount of income tax payable or refundable for the period
increased or decreased by the change in deferred tax assets and
liabilities during the period.
c) Revenue Recognition
The Company's revenue recognition policies are expected to follow
common practice in the manufacturing industry, where in the Company
will recognize revenue when delivery of its products manufactured
has occurred, persuasive evidence of an agreement exists, the price
is fixed or determinable, collect ability is reasonably assured and
product cannot be returned for refund.
d) Earnings (Loss) Per Share
Basic loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the year. Diluted
loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding plus common stock
equivalents (if dilutive) related to stock options and warrants for
each year. There were no common equivalent shares outstanding at
November 30, 2009 and 2008 that have been included in dilutive loss
per share calculation as the effects would have been anti-dilutive.
At November 30, 2009, there were 3,768,000 options and 1,105,000
warrants outstanding, which were convertible into equal number of
common shares of the Company. At November 30, 2008, there were
3,768,000 options and 423,950 warrants outstanding, which were
convertible into equal number of common shares of the Company.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
e) Fair Values
The Company carries cash and cash equivalents and accounts payable
and accrued liabilities at historical costs since their respective
estimated fair values approximate carrying values due to their
current nature.
f) Research and Product Development
Research and Product Development costs, other than capital
expenditures but including acquired research and product development
costs, are charged against income in the period incurred.
g) Stock-Based Compensation
All awards granted to employees and non-employees after November 30,
2005 are valued at fair value by using the Black-Scholes option
pricing model and recognized on a straight line basis over the
service periods of each award. The Company accounts for equity
instruments issued in exchange for the receipt of goods or services
from other than employees using the estimated fair market value of
the consideration received or the estimated fair value of the equity
instruments issued, whichever is more reliably measurable. The value
of equity instruments issued for consideration other than employee
services is determined on the earlier of a performance commitment or
completion of performance by the provider of goods or services. As of
November 30, 2009 there was $nil of unrecognized expense related to
non-vested stock-based compensation arrangements granted. The total
stock-based compensation expense relating to all employees and non
employees for the years ended November 30, 2009 and 2008 was $177,990
and $1,231,056 respectively
h) Foreign Currency
The Company maintains its books, records and banking transactions
in U.S. dollars which is its functional and reporting currency.
i) Comprehensive loss
Comprehensive loss includes all changes in equity (net assets) during
a period from non-owner sources. Examples of items to be included in
comprehensive loss, which are excluded from net loss, include foreign
currency translation adjustments and unrealized gains and losses on
available-for-sale securities.
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
j) Impairment of Long-lived Assets
Long-lived assets to be held and used are analyzed for impairment
whenever events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. The Company evaluates at
each balance sheet date whether events and circumstances have
occurred that indicate possible impairment. If there are indications
of impairment, the Company uses future undiscounted cash flows of the
related asset or asset grouping over the remaining life in measuring
whether the assets are recoverable. In the event such cash flows are
not expected to be sufficient to recover the recorded asset values,
the assets are written down to their estimated fair value. Long-lived
assets to be disposed of are reported at the lower of carrying amount
or fair value of asset less cost to sell.
k) Asset Retirement Obligation
Asset retirement obligations are recorded as a liability in the
period in which the company incurs the obligation.
l) Concentration of Credit Risk
The Company does not have significant off-balance sheet risk or
credit concentration.
m) Cash and Cash Equivalents
Cash consists of cash and cash equivalents, which are short-term,
highly liquid investments with original terms to maturity of 90 days
or less.
n) Intellectual Property with Respect to Pending Patent Applications
Four patent applications, one for the electrical mechanism and the
other three for the mechanical mechanism of the LEKTROX, have been
filed by the Company with the U.S. Patent Office. Expenditures for
patent applications as a result of research activity are not
capitalized due to the uncertain value of the benefits that may
accrue.
o) Plant and Equipment
Plant and equipment are recorded at cost less accumulated
depreciation. Depreciation is provided commencing in the month
following acquisition using the following annual rate and method:
Computer equipment 30% declining balance method
Furniture and fixtures 30% declining balance method
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
p) Recent Accounting Pronouncements
FASB ASC TOPIC 805 - "Business Combinations." The objective of this
topic is to enhance the information that an entity provides in its
financial reports about a business combination and its effects. The
Topic mandates: (i) how the acquirer recognizes and measures the assets
acquired, liabilities assumed and any non-controlling interest in the
acquiree; (ii) what information to disclose in its financial reports
and; (iii) recognition and measurement criteria for goodwill acquired.
This Topic is effective for any acquisitions made on or after December
15, 2008. The adoption of this Topic did not have a material impact on
the Company's financial statements and disclosures.
FASB ASC TOPIC 810 - "Noncontrolling Interests." The objective of this
Topic is to improve the relevance, comparability, and transparency of
the financial information that a reporting entity provides in its
consolidated financial statements by establishing accounting and
reporting standards that require: (i) the ownership interests in
subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of
financial position within equity, but separate from the parent's equity;
(ii) the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and presented
on the face of the consolidated statement of income; (iii) changes in a
parent's ownership interest while the parent retains its controlling
financial interest in its subsidiary be accounted for consistently; (iv)
when a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair value.
The gain or loss on the deconsolidation of the subsidiary is measured
using the fair value of any noncontrolling equity investment rather than
the carrying amount of that retained investment and; (v) entities
provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the
non-controlling owners. This Topic is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after
December 15, 2008. Earlier adoption is prohibited. The adoption of this
Topic is not expected to have a material impact on the Company's
financial statements and disclosures.
FASB ASC TOPIC 815 - "Derivatives and Hedging." The use and complexity
of derivative instruments and hedging activities have increased
significantly over the past several years. This Topic requires enhanced
disclosures about an entity's derivative and hedging activities and
thereby improves the transparency of financial reporting. This Topic is
effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application
encouraged. The adoption of this Topic is not expected to have a
material impact on the Company's financial statements and disclosures.
FASB ASC TOPIC 944 - "Financial Services - Insurance." Diversity exists
in practice in accounting for financial guarantee insurance contracts by
insurance enterprises. That diversity results in inconsistencies in the
recognition and measurement of claim liabilities because of differing
views about when a loss has been incurred. This Topic requires that an
insurance enterprise recognize a claim liability prior to an event of
default (insured event) when there is
10
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
p) Recent Accounting Pronouncements Cont'd
evidence that credit deterioration has occurred in an insured financial
obligation. This Topic is effective for financial statements issued for
fiscal years beginning after December 15, 2008 and all interim periods
within those fiscal years, except for some disclosures about the
insurance enterprise's risk-management activities. The adoption of this
Topic is not expected to have a material impact on the Company's
financial statements and disclosures.
FASB ASC TOPIC 855 - "Subsequent Events." In May 2009, the FASB issued
Topic 855, which establish general standards of accounting and
disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. In
particular, this Topic sets forth : (i) the period after the balance
sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or
disclosure in the financial statements, (ii) the circumstances under
which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, (iii) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. This Topic should be applied to
the accounting and disclosure of subsequent events. This Topic does not
apply to subsequent events or transactions that are within the scope of
other applicable accounting standards that provide different guidance on
the accounting treatment for subsequent events or transactions. This
Topic was effective for interim and annual periods ending after June 15,
2009, which was October 31, 2009 for the Company. The adoption of this
Topic did not have a material impact on the Company's financial
statements and disclosures.
FASB ASC TOPIC 105 - "The FASB Accounting Standard Codification and the
Hierarchy of Generally Accepted Accounting Principles." In June 2009,
the FASB issued Topic 105, which became the source of authoritative GAAP
recognized by the FASB to be applied by nongovernmental entities. Rules
and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC
registrants. On the effective date of this Topic, the Codification will
supersede all then-existing non-SEC accounting and reporting standards.
All other non-SEC accounting literature not included in the Codification
will become non-authoritative. This Topic identifies the sources of
accounting principles and the framework for selecting the principles
used in preparing the financial statements of nongovernmental entities
that are presented in conformity with GAAP and arranged these sources of
GAAP in a hierarchy for users to apply accordingly. This Topic is
effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The adoption of this topic did not have
a material impact on the Company's disclosure of the financial
statements.
11
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
p) Recent Accounting Pronouncements Cont'd
FASB ASC TOPIC 320 - "Recognition and Presentation of
Other-Than-Temporary Impairments." In April 2009, the FASB issued Topic
320 amends the other-than-temporary impairment guidance in GAAP for debt
securities to make the guidance more operational and to improve the
presentation and disclosure of other-than-temporary impairments on debt
and equity securities in the financial statements. This Topic does not
amend existing recognition and measurement guidance related to
other-than-temporary impairments of equity securities. The Topic is
effective for interim and annual reporting periods ending after June 15,
2009, with early adoption permitted for periods ending after March 15,
2009. Earlier adoption for periods ending before March 15, 2009, is not
permitted. This Topic does not require disclosures for earlier periods
presented for comparative purposes at initial adoption. In periods after
initial adoption, this Topic requires comparative disclosures only for
periods ending after initial adoption. The adoption of this Topic did
not have a material impact on the Company's financial statements and
disclosures.
FASB ASC TOPIC 860 - "Accounting for Transfer of Financial Assets and
Extinguishment of Liabilities." In June 2009, the FASB issued additional
guidance under Topic 860 which improves the relevance, representational
faithfulness, and comparability of the information that a reporting
entity provides in its financial statements about a transfer of
financial assets; the effects of a transfer on its financial position,
financial performance, and cash flows; and a transferor's continuing
involvement, if any, in transferred financial assets. This additional
guidance requires that a transferor recognize and initially measure at
fair value all assets obtained (including a transferor's beneficial
interest) and liabilities incurred as a result of a transfer of
financial assets accounted for as a sale. Enhanced disclosures are
required to provide financial statement users with greater transparency
about transfers of financial assets and a transferor's continuing
involvement with transferred financial assets. This additional guidance
must be applied as of the beginning of each reporting entity's first
annual reporting period that begins after November 15, 2009, for interim
periods within that first annual reporting period and for interim and
annual reporting periods thereafter. Earlier application is prohibited.
This additional guidance must be applied to transfers occurring on or
after the effective date. The adoption of this Topic is not expected to
have a material impact on the Company's financial statements and
disclosures.
FASB ASC TOPIC 810 - "Consolidation of Variables Interest and Special
Purpose Entities." In June 2009, the FASB issued Topic 810, which
requires an enterprise to perform an analysis to determine whether the
enterprise's variable interest or interests give it a controlling
financial interest in a variable interest entity. This analysis
identifies the primary beneficiary of a variable interest entity as the
enterprise that has both of the following characteristics: (i) The power
to direct the activities of a variable interest entity that most
significantly impact the entity's economic performance and (ii) The
obligation to absorb losses of the entity that could potentially be
significant to the variable interest entity or the right to receive
benefits from the entity that could potentially be significant to the
variable interest entity. Additionally, an enterprise is required to
assess whether it has an implicit financial responsibility to ensure
that
12
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
p) Recent Accounting Pronouncements Cont'd
a variable interest entity operates as designed when determining whether
it has the power to direct the activities of the variable interest
entity that most significantly impact the entity's economic performance.
This Topic requires ongoing reassessments of whether an enterprise is
the primary beneficiary of a variable interest entity and eliminate the
quantitative approach previously required for determining the primary
beneficiary of a variable interest entity, which was based on
determining which enterprise absorbs the majority of the entity's
expected losses, receives a majority of the entity's expected residual
returns, or both. This Topic is effective as of the beginning of each
reporting entity's first annual reporting period that begins after
November 15, 2009, for interim periods within that first annual
reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. The adoption of this
Topic is not expected to have a material impact on the Company's
financial statements and disclosures.
FASB ASC TOPIC 820 - "Fair Value measurement and Disclosures", an
Accounting Standard Update. In September 2009, the FASB issued this
Update to amendments to Subtopic 82010, "Fair Value Measurements and
Disclosures". Overall, for the fair value measurement of investments in
certain entities that calculates net asset value per share (or its
equivalent). The amendments in this Update permit, as a practical
expedient, a reporting entity to measure the fair value of an investment
that is within the scope of the amendments in this Update on the basis
of the net asset value per share of the investment (or its equivalent)
if the net asset value of the investment (or its equivalent) is
calculated in a manner consistent with the measurement principles of
Topic 946 as of the reporting entity's measurement date, including
measurement of all or substantially all of the underlying investments of
the investee in accordance with Topic 820. The amendments in this Update
also require disclosures by major category of investment about the
attributes of investments within the scope of the amendments in this
Update, such as the nature of any restrictions on the investor's ability
to redeem its investments at the measurement date, any unfunded
commitment, and the investment strategies of the investees. The major
category of investment is required to be determined on the basis of the
nature and risks of the investment in a manner consistent with the
guidance for major security types in GAAP on investments in debt and
equity securities in paragraph 320-10-50-lB. The disclosures are
required for all investments within the scope of the amendments in this
Update regardless of whether the fair value of the investment is
measured using the practical expedient. The amendments in this Update
apply to all reporting entities that hold an investment that is required
or permitted to be measured or disclosed at fair value on a recurring or
non recurring basis and, as of the reporting entity's measurement date,
if the investment meets certain criteria The amendments in this Update
are effective for the interim and annual periods ending after December
15, 2009. Early application is permitted in financial statements for
earlier interim and annual periods that have not been issued. The
adoption of this Update is not expected to have a material impact on the
Company's financial statements and disclosures.
13
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
p) Recent Accounting Pronouncements Cont'd
FASB ASC TOPIC 740 - "Income Taxes", an Accounting Standard Update. In
September 2009, the FASB issued this Update to address the need for
additional implementation guidance on accounting for uncertainty in
income taxes. For entities that are currently applying the standards for
accounting for uncertainty in income taxes, the guidance and disclosure
amendments are effective for financial statements issued for interim and
annual periods ending after September 15, 2009. The adoption of this
Update did not have a material impact on the Company's financial
statements and disclosures.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2009 2008
----- ----
Accounts payable and accrued liabilities
are comprised of the following:
Trade payables $ 658,932 $ 2,950
Accrued liabilities 32,797 216,131
----------- ----------
$ 691,729 $ 219,081
----------- ----------
Accrued liabilities relate primarily to audit, legal and accounting
expenses (2008: research and development, audit, legal and accounting
expenses)
5. CAPITAL STOCK
a) Authorized
50,000,000 Common shares, $0.001 par value
And
5,000,000 Preferred shares, $0.001 par value
The Company's Articles of Incorporation authorize its Board of Directors
to issue up to 5,000,000 shares of preferred stock. The provisions in
the Articles of Incorporation relating to the preferred stock allow the
directors to issue preferred stock with multiple votes per share and
dividend rights which would have priority over any dividends paid with
respect to the holders of SDI's common stock.
b) Issued
15,235,050 Common shares (2008: 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.
14
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
Year ended November 30, 2009
----------------------------
On August 19, 2009 the Company sold 788,000 units to a group of private
investors. Each unit consisted of one share of common stock and one
warrant. Each warrant allows the holder to purchase one share of the
Company's common stock at a price of $0.50 per share at any time prior
to June 15, 2010. The shares were sold at a price of $0.25 per unit. The
shares of common stock are, and any shares issuable upon the exercise of
warrants will be, restricted securities, as that term is defined in Rule
144 of the Securities and Exchange Commission. The Company relied upon
the exemption provided by Section 4(2) of the Securities Act of 1933 in
connection
6. STOCK BASED COMPENSATION
Effective October 30, 2006 the Company adopted the following stock
option and stock bonus plans.
Incentive Stock Option Plan. The Company's Incentive Stock Option Plan
authorizes the issuance of shares of its Common Stock to persons that
exercise options granted pursuant to the Plan. Only employees may be
granted options pursuant to the Incentive Stock Option Plan. The option
exercise price is determined by its directors but cannot be less than
the market price of its common stock on the date the option is granted.
The Company has reserved 1,000,000 common shares under this plan. No
options have been issued under this plan as at November 30, 2009.
Non-Qualified Stock Option Plan. SDI's Non-Qualified Stock Option Plan
authorizes the issuance of shares of its Common Stock to persons that
exercise options granted pursuant to the Plans. SDI's employees,
directors, officers, consultants and advisors are eligible to be
granted options pursuant to the Plans, provided however that bona fide
services must be rendered by such consultants or advisors and such
services must not be in connection with the offer or sale of securities
in a capital-raising transaction. By a resolution of the Board of
Directors, the Company amended this plan to increase the number of
common shares available under this plan from 2,250,000 to 4,500,000
effective dateMonth10Day10Year2007October 10, 2007. The Company further
amended its Non-Qualified Stock Option Plan to increase the number of
Common Shares available under this plan to 5,000,000 and filed an S-8
registration statement on April 10, 2008.
Stock Bonus Plan. SDI's Stock Bonus Plan allows for the issuance of
shares of common stock to its employees, directors, officers,
consultants and advisors. However bona fide services must be rendered
by the consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. The Company has reserved 150,000 common shares under this
plan. No options have been issued under this plan as at November 30,
2009.
15
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
Year ended November 30, 2008
----------------------------
Effective January 24, 2008 the board of directors granted the following
options under its Non-Qualified Stock Option Plan:
1. Options to one director to acquire 108,000 common shares. The
exercise price was set at $0.10 per share.
2. Options to one director to acquire 117,000 common shares. The
exercise price was set at $0.10 per share.
All of the above options vest immediately and have an expiry date of
January 24, 2013. Stock based compensation cost of $324,891 has been
expensed to general and administration expense.
Effective April 11, 2008 the board of directors granted the following
options under its Non-Qualified Stock Option Plan:
1. Options to two consultants to each acquire 300,000 common shares
for a total of 600,000 common shares. The exercise price was set
at $1.50 per share.
2. Options to one consultant to acquire 150,000 common shares. The
exercise price was set at $1.50 per share
All of the above options vest immediately and have an expiry date of
April 11, 2013. Stock based compensation cost of $850,067 has been
expensed to general and administration expense.
Effective May 21, 2008, the board of directors granted options to an
Investor Relation consultant to acquire 50,000 common shares at an
exercise price of $2.25 per share. All of these options vested
immediately and have an expiry of May 21, 2010. Stock based compensation
cost of $56,098 has been expensed to general and administration expense.
Year ended November 30, 2009
----------------------------
On December 17, 2008, the Company approved the reduction of the exercise
price of 2,940,000 outstanding options which had earlier been issued at
prices ranging from $1.00 to $3.60 to a new option price of $0.50 per
share, with all other terms of the original grant remaining the same.
The Company expensed this additional non-cash stock based compensation
expense relating to this modification for $114,688. This reduction in
exercise price relates to a total of 1,150,000 options in total issued
to the Company's three directors; 300,000 options in total issued to the
Company's officer and the balance total of 1,490,000 unexercised options
issued in the past to various consultants.
16
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
On June 17, 2009, the Company approved the reduction of the exercise
price of 2,700,000 outstanding options which had on December 17, 2008
been reduced to an option price of $0.50 per share, to a new option
price of $0.25 per share, with all other terms of the original grant
remaining the same. The Company expensed this additional non-cash stock
based compensation expense relating to this modification for $63,302.
This reduction in exercise price relates to a total of 1,150,000 options
in total issued to the Company's three directors; 300,000 options in
total issued to the Company's officer and the balance total of 1,250,000
unexercised options issued in the past to various consultants.
For the year ended November 30, 2009 the Company has recognized in its
financial statements additional stock-based compensation costs as per
the following details. The fair value of each option used for the
purpose of estimating the stock compensation is calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
December 17, 2008:
-----------------
Risk free rate 2.95%
Expected dividends 0%
Forfeiture rate 0%
Exercise price $0.50
Volatility 137.12%
Increase in fair value due to reduction in
exercise price of options $0.03-$0.09
Market price of Company's common stock on date
of reduction in exercise price $0.32
Stock-based compensation cost expensed $114,688
Unexpended stock-based compensation deferred
over to next period $Nil
June 17, 2009:
-------------
Risk free rate 2.95%
Expected dividends 0%
Forfeiture rate 0%
Exercise price $0.25
Volatility 125.79%
Increase in fair value due to reduction in
exercise price of options $0.02-$0.03
Market price of Company's common stock on date of
reduction in exercise price $0.25
Stock-based compensation cost expensed $63,302
Unexpended stock-based compensation deferred over to
next period $Nil
As of November 30, 2009 there was $Nil of unrecognized
expense related to non-vested stock-based compensation
arrangements granted.
17
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
The following table summarizes the options outstanding under its
Non-Qualified Stock Option Plan:
Number of shares
-------------------------
2009 2008
---- ----
Outstanding, beginning of year 3,768,000 2,890,000
Granted - 1,025,000
Expired - -
Exercised - (117,000)
Cancelled - (30,000)
------------- -------------
Outstanding, end of year 3,768,000 3,768,000
------------- -------------
Exercisable, end of year 3,768,000 3,768,000
------------- -------------
Option price Number of shares
Expiry date per share 2009 2008
----------- --------- ---- ----
January 31, 2010 $1.20 120,000 120,000
May 21, 2010 $0.50 50,000 -
May 21, 2010 $2.25 50,000
October 29, 2011 $0.25 300,000 300,000
October 29, 2011 $0.50 300,000 300,000
November 14, 2011 $0.25 100,000 -
November 14, 2011 $1.00 - 100,000
January 7, 2012 $0.25 125,000 -
January 7, 2012 $1.50 - 125,000
January 29, 2012 $0.50 40,000 -
January 29, 2012 $3.60 40,000
April 23, 2012 $0.25 300,000 -
April 23, 2012 $2.75 - 300,000
October 12, 2012 $0.25 1,575,000 -
October 12, 2012 $1.20 1,575,000
January 24, 2013 $0.10 108,000 108,000
April 11, 2013 $1.50 - 750,000
April 11, 2013 $0.50 150,000
April 11, 2013 $0.25 600,000 -
--------- ---------
TOTAL 3,768,000 3,768,000
--------- ---------
Weighted average exercise price:
Options outstanding at end of year $ 0.29 1.27
Options granted during the year $ - 1.23
--------- ---------
Options exercised during the year $ - 0.10
--------- ---------
Options cancelled during the year $ - 1.20
--------- ---------
18
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION-Cont'd
The weighted average remaining contractual term of the total
outstanding, and the total exercisable options under the Non-Qualified
Stock Option Plan were as follows:
2009 2008
------------------
(Years) (Years)
Total outstanding options 2.7 3.7
Total exercisable options 2.7 3.7
7. STOCK PURCHASE WARRANTS
Year ended November 30, 2008
----------------------------
The Company did not issue any warrants during the year ended
November 30, 2008
Year ended November 30, 2009
----------------------------
On August 19, 2009 the Company sold 788,000 units to a group of private
investors. Each unit consisted of one share of common stock and one
warrant. Each warrant allows the holder to purchase one share of the
Company's common stock at a price of $0.50 per share at any time prior
to June 15, 2010.
Number of
Warrants Exercise Expiry
Granted Prices Date
$
Outstanding at -
November 30, 2006 and
average exercise price - -
Granted in year 2007 17,000 0.5 5/31/2017
Granted in year 2007 250,000 0.5 10/5/2014
Granted in year 2007 50,000 0.5 10/5/2014
Granted in year 2007 106,950 2.81 4/25/2009
Exercised - -
Forfeited - -
Cancelled - -
------------------------------
Outstanding at 423,950 1.08
November 30, 2007 and
average exercise price
Granted in year 2008 - -
Exercised - -
Forfeited - -
Cancelled - -
------------------------------
Outstanding at 423,950 1.08
November 30, 2008 and
average exercise price
Granted in year 2009 788,000 0.5 6/15/2010
Exercised - -
Forfeited/Expired (106,950) (2.81)
Cancelled - -
------------------------------
Exercisable at November 30, 2009 1,105,000 0.70
Exercisable at November 30, 2008 423,950 1.08
19
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
7. STOCK PURCHASE WARRANTS-Cont'd
The weighted average remaining contractual term of the total
outstanding, and the total exercisable warrants were as follows:
2009 2008
-----------------
(Years) (Years)
Total outstanding options 1.8 4.7
Total exercisable options 1.8 4.7
8. RELATED PARTY TRANSACTIONS
The following transactions are in the normal course of operations and
are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
Year ended November 30, 2009:
a) A Company Director has charged the Company a total amount of $6,000
for providing office space during the year ended November 30, 2009.
b) The directors were compensated from January 1, 2009 as per their
consulting agreements with the Company. One director was paid
$110,000 as consulting fee and $16,500 as automobile allowance; one
director was paid $68,750 as consulting fee and $11,000 as
automobile allowance; one director was paid $40,000 as consulting
fee and $11,000 as automobile allowance.
c) On December 17, 2008 the board of directors approved the reduction
in the exercise price of the following options under its
Non-Qualified Stock Option Plan:
1. Reduction in the exercise price of the options already issued to
three directors to acquire 1,150,000 common shares from exercise
price of $1.20 to a new exercise price of $0.50 per share.
2. Reduction in the exercise price of the options already issued to
an officer to acquire 125,000 common shares from exercise price
of $1.25 to a new exercise price of $0.50 per share and reduction
in the exercise price to acquire 175,000 common shares from $1.20
to a new exercise price of $0.50 per share.
Stock based compensation cost relating to the reduction in the
exercise price of the options issued to directors and officers, as
above, amounting to $46,660 has been expensed to general and
administration expense.
20
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
8. RELATED PARTY TRANSACTIONS-Cont'd
d) On June 17, 2009 the board of directors approved the reduction in the
exercise price of the following options under its Non-Qualified Stock
Option Plan:
1. Reduction in the exercise price of the options already issued to
three directors to acquire 1,150,000 common shares from reduced
exercise price of $0.50 to a new exercise price of $0.25 per
share.
2. Reduction in the exercise price of the options already issued to
an officer to acquire 125,000 common shares from reduced exercise
price of $0.50 to a new exercise price of $0.25 per share and
further reduction in the exercise price to acquire 175,000 common
shares from $0.50 to a new exercise price of $0.25 per share.
Stock based compensation cost relating to the reduction in the exercise
price of the options issued to directors and officers, as above,
amounting to $34,322 has been expensed to general and administration
expense.
e) On June 17, 2009, the Company further approved the reduction of the
exercise price of 317,000 outstanding warrants which had earlier been
issued to directors at $0.50 per share to a new exercise price of
$0.25 per share, with all other terms of the original issue remaining
the same. The Company expensed this additional non-cash compensation
expense relating to this modification for $ 4,223.
f) The Company expensed $ 21,300 being cost for services rendered by the
CFO for the year ended November 30, 2009.
Year ended November 30, 2008
----------------------------
Effective January 24, 2008 the board of directors granted the following
options under its Non-Qualified Stock Option Plan:
3. Options to one director to acquire 108,000 common shares. The
exercise price was set at $0.10 per share.
4. Options to one director to acquire 117,000 common shares. The
exercise price was set at $0.10 per share.
All of the above options vest immediately and have an expiry date of
January 24, 2013. Stock based compensation cost of $324,891 has been
expensed to general and administration expense.
A Director has charged the Company a total amount of $6,000 for
providing office space during the year ended November 30, 2008.
The Company expensed $ 20,850 being cost for services rendered by the
CFO for the year ended November 30, 2008.
21
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
9. 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, 2009 Nov 30, 2008
Accumulated Accumulated
Cost Amortization Cost Amortization
$ $ $ $
Computer equipment 35,211 14,113 22,958 8,102
Furniture and fixtures 15,310 6,484 13,741 3,147
------- ------- ------- --------
50,521 20,597 36,699 11,249
------- ------- ------- --------
Net carrying amount $29,924 $25,450
------- -------
Amortization expense $ 9,348 $ 8,652
------- -------
10. INCOME TAXES
The Company has certain non-capital losses of approximately $8,501,446
(2008: $5,704,969) available, which can be applied against future
taxable income and which expire as follows:
2025 $ 188,494
2026 $ 609,991
2027 $ 1,731,495
2028 $ 3,174,989
2029 $ 2,796,477
$ 8,501,446
Reconciliation of statutory tax rate to the effective income tax rate is
as follows:
Federal statutory income tax rate 35.0 %
Deferred tax asset valuation allowance (35.0)%
--------
Effective rate (0.0)%
========
22
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
10. INCOME TAXES-Cont'd
Deferred tax asset components as of November 30, 2009 and 2008 are as
follows:
2009 2008
Operating losses available to offset future
income-taxes $ 8,501,446 $ 5,704,969
------------- -------------
Expected Income tax recovery at statutory
rate of 35% (2008: 34.0%) ($2,975,506) ($1,939,689)
Valuation Allowance $2,975,506 $1,939,689
------------- -------------
Net deferred tax assets - -
------------- -------------
As the company is in the development stage and has not yet earned any
revenue, it has provided a 100 per cent valuation allowance on the net
deferred tax asset as of November 30, 2009 and 2008.
11. COMMITMENTS
(a) The company has commitments for leasing office premises in
Toronto,Ontario,Canada to November 30, 2010. The annual commitments,
excluding proportionate realty and maintenance costs and taxes are as
follows:
Year ended November 30, 2010 $ 9,812
-------
$9,812
(b) On February 4, 2009 the Company's directors approved consulting
agreements with three of the Company's officers. The consulting
agreement with Greg Sullivan was modified to increase the monthly
consulting fees from $ 3,125 per month to $5,000 per month commencing
September 2009. 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 effective as of
November 30, 2009 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 $ 5,000 $1,000
23
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
11. COMMITMENTS-Cont'd
On January 1, 2010, the Company's directors renewed consulting agreements
with three of the Company's officers on the following terms:
Monthly
Monthly Consulting Fees for Expiration of
Consulting fees February through Car Consulting
Name for January 2009 December 2010 Allowance Agreement
---- ---------------- ------------------- --------- -------------
Sheldon Kales $5,000 $6,500 -- 12-31-2010
Boaz Dor $5,000 $6,500 -- 12-31-2010
Gregory Sullivan $5,000 $6,500 -- 12-31-2010
(c) 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 and rubber bullet technology. The Company will
negotiate a royalty in the event such rights are granted to the
contractor.
12. SEGMENT DISCLOSURES
The Company, after reviewing its reporting systems, has determined that
it has one reportable segment and geographic segment. The Company's
operations are all related to the research and product development for
its wireless electric ammunition. All assets of the business are located
in Canada.
13. SUBSEQUENT EVENTS
The Company has reviewed subsequent events up to February 20, 2010.
Subsequent events are as follows:
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 will expense
this additional non-cash stock based compensation expense relating to
this modification for $6,534 in the first quarter of 2010..
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 will expense this additional non-cash stock based
compensation expense relating to this modification for $106,036 in the
first quarter of 2010.
24
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2009 and 2008
(Amounts expressed in US Dollars)
13. SUBSEQUENT EVENTS-Cont'd
On January 4, 2010, the board of directors granted options to a director
to acquire 100,000 common shares at an exercise price of $0.25 per
share. All of these options vested immediately and have an expiry of
five years. Stock based compensation cost of $23,677 will be expensed in
the first quarter of 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 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 in1933 in this connection.
25
SIGNATURES
In accordance with Section 13 or 15(a) of the Exchange Act, the Registrant
has caused this Report to be signed on its behalf by the undersigned, thereunto
duly authorized on the 28th day of February 2010.
SECURITY DEVICES INTERNATIONAL INC.
February 28, 2010 By /s/ Sheldon Kales
------------------------------------
Sheldon Kales, President and
Principal Executive Officer
February 28, 2010 By /s/ Rakesh Malhotra
------------------------------------
Rakesh Malhotra, Principal Financial
and Accounting Officer
Pursuant to the requirements of the Securities Act of l934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Title Date
/s/ Sheldon Kales
--------------------------
Sheldon Kales Director February 28, 2010
/s/ Boaz Dor
--------------------------
Boaz Dor Director February 28, 2010
/s/ Gregory Sullivan
--------------------------
Gregory Sullivan Director February 28, 2010
SECURITY DEVICES INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
EXHIBITS
