Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended August 31, 2010
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _______
Commission File Number: None
Security Devices International, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware Applied For
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2171 Avenue Rd., Suite 103
Toronto, Ontario Canada M5M 4B4
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (905) 334-6655
N/A
----------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant 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 [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 19,203,050 shares outstanding
as of August 31, 2010.
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
AUGUST 31, 2010
(Amounts expressed in US Dollars)
(Unaudited)
TABLE OF CONTENTS
Page No
Interim Balance Sheets as at August 31, 2010 and November 30, 2009 1
Interim Statement of Operations for the nine months and three months
ended August 31, 2010 and August 31, 2009 and the period from
Inception (March 1, 2005) to August 31, 2010 2
Interim Statement of Cash Flows for the nine months ended August 31,
2010 and August 31, 2009 3
Interim Statements of changes in Stockholders' Equity for the nine
months ended August 31, 2010 and for the period from inception
(March 1, 2005) to November 30, 2009 4
Condensed Notes to Interim Financial Statements 5-15
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM BALANCE SHEETS
As at August 31, 2010 and November 30, 2009
(Amounts expressed in US Dollars)
August 31, November 30,
2010 2009
---- ----
(unaudited) (audited)
ASSETS $ $
CURRENT
Cash 245,355 55,431
Prepaid expenses and other 63,980 31,172
---------- ---------
Total Current Assets 309,335 86,603
Plant and Equipment, net (Note 4) 23,192 29,924
---------- ---------
TOTAL ASSETS 332,527 116,527
---------- ---------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 1,022,032 691,729
Advances from a non-related party (note 9) - -
Due to related parties (note 7) 37,489 -
---------- ---------
Total Current Liabilities 1,059,521 691,729
---------- ---------
Going Concern (note 2)
Related Party Transactions (note 7)
Commitments (note 8)
Subsequent events (note 10)
STOCKHOLDERS' DEFICIT
Capital Stock (Note 5)
Preferred stock, $0.001 par value, 5,000,000
shares authorized, Nil issued and outstanding
(2009 - nil)
Common stock, $0.001 par value 50,000,000
shares authorized, 19,203,050 issued and
outstanding (2009-15,235,050) 19,203 15,235
Additional Paid-In Capital 14,938,770 13,463,251
Deficit Accumulated During the Development Stage (15,684,967) (14,053,688)
------------ ------------
Total Stockholders' Deficit (726,994) (575,202)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 332,527 116,527
----------- -----------
See condensed notes to the interim financial statements.
1
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
STATEMENTS OF OPERATIONS
For the Nine Months and Three Months Ended August 31, 2010 and August 31,
2009 and the Period from inception (March 1, 2005) to August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited- Prepared by Management)
For the For the For the For the
nine months nine months three months three months
Cumulative ended ended ended ended
Since August 31, August 31, August 31, August 31,
inception 2010 2009 2010 2009
$ $ $ $
---------------------------------------------------------------------------
OPERATING EXPENSES:
Research and Product
Development Cost 7,223,959 677,686 1,728,121 246,465 575,445
Amortization 27,329 6,732 6,452 2,244 2,310
General and administration
(note 6) 8,706,273 946,861 721,885 514,458 274,114
------------ ----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 15,957,561 1,631,279 2,456,458 763,167 851,869
------------ ----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (15,957,561) (1,631,279) (2,456,458) (763,167) (851,869)
Other Income-Interest 272,594 - 3,054 - -
------------ ----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (15,684,967) (1,631,279) (2,453,404) (763,167) (851,869)
Income taxes - - - - -
------------ ----------- ----------- ----------- -----------
NET LOSS (15,684,967) (1,631,279) (2,453,404) (763,167) (851,869)
------------ ----------- ----------- ----------- -----------
Loss per share - basic and
diluted (0.10) (0.17) (0.04) (0.06)
----------- ----------- ----------- -----------
Weighted average common shares
outstanding 17,131,532 14,484,437 18,454,137 14,558,398
----------- ----------- ----------- -----------
See condensed notes to the interim financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM STATEMENT OF CASH FLOWS For the Nine Months
Ended August 31, 2010 and August 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
For the For the
nine months nine months
Cumulative ended ended
since inception August 31, August 31,
(March 1, 2005) 2010 2009
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (15,684,967) (1,631,279) (2,453,404)
Items not requiring an outlay of cash:
Issue of shares for professional services 154,000 - -
Stock based compensation (included in
general and administration expenses) 5,131,606 226,187 177,990
Compensation expense for warrants issued
(Included in general and administration
expenses) 361,317 - 4,223
Loss on cancellation of common stock 34,400 - -
Amortization 27,329 6,732 6,452
Changes in non-cash working capital:
Prepaid expenses and other (63,980) (32,808) 15,104
Due to related parties 37,489 37,489 -
Accounts payable and accrued liabilities 1,022,032 330,303 218,895
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (8,980,774) (1,063,376) (2,030,740)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (50,521) - (12,903)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (50,521) - (12,903)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common shares 8,794,150 827,500 197,000
Stock subscriptions received 415,000 415,000 -
Cancellation of common stock (50,000) - -
Advances (repayments) from a non related party - -
Exercise of stock options 117,500 10,800 -
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 9,276,650 1,253,300 197,000
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH FOR THE PERIOD 245,355 189,924 (1,846,643)
Cash, beginning of period - 55,431 2,167,699
------------ ------------ ------------
CASH, END OF PERIOD 245,355 245,355 321,056
============ ============ ============
INCOME TAXES PAID - - -
============ ============ ============
INTEREST PAID - - -
============ ============ ============
See condensed notes to the interim financial statements
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Nine
months ended August 31, 2010 and for Period from Inception (March 1, 2005) to
November 30, 2009.
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
Number of Common Additional Deficit
Common Shares Paid-in Accumulated During
Shares amount Capital Development Stage Total
------------ -------- ----------- ------------------- -----
$ $ $ $
Balance as of March 1, 2005 - - - - -
Issuance of Common shares
for professional services 6,525,000 6,525 58,725 - 65,250
Issuance of common shares for cash 397,880 398 99,072 99,470
Net loss for the period - - - (188,699) (188,699)
------------ -------- ----------- ------------- -----------
Balance as of November 30, 2005 6,922,880 6,923 157,797 (188,699) (23,979)
------------ -------- ----------- ------------- -----------
Issuance of common shares for cash 956,000 956 94,644 - 95,600
Issuance of common shares for cash 286,000 286 49,764 - 50,050
Issuance of common shares to
consultant for services 50,000 50 8,700 - 8,750
Issuance of common shares for cash 2,000,000 2,000 398,000 - 400,000
Exercise of stock options 950,000 950 94,050 - 95,000
Issuance of common shares for cash
(net of agent commission) 200,000 200 179,785 - 179,985
Stock subscriptions received 1,165,500 - 1,165,500
Stock based compensation - - 1,049,940 - 1,049,940
Net loss for the year -- - -- (1,660,799) (1,660,799)
------------ -------- ----------- ------------- -----------
Balance as of November 30, 2006 11,364,880 11,365 3,198,180 (1,849,498) 1,360,047
Issuance of common shares for stock
Subscriptions received in prior year 1,165,500 1,165 (1,165) - -
Issuance of common shares for cash 1,170,670 1,171 1,169,499 1,170,670
Issuance of common shares for cash
and services 50,000 50 154,950 155,000
Issuance of common shares for cash
(net of expenses) 2,139,000 2,139 4,531,236 4,533,375
Cancellation of stock (1,560,000) (1,560) (14,040) (15,600)
Stock based compensation 2,446,433 2,446,433
Issue of warrants 357,094 357,094
Net loss for the year - - - (4,827,937) (4,827,937)
------------ -------- ----------- ------------- -----------
Balance as of November 30, 2007 14,330,050 14,330 11,842,187 (6,677,435) 5,179,082
Exercise of stock options 117,000 117 11,583 11,700
Stock based compensation - - 1,231,056 - 1,231,056
Net loss for the year - - - (4,401,786) (4,401,786)
------------ -------- ----------- ------------- -----------
Balance as of November 30, 2008 14,447,050 14,447 13,084,826 (11,079,221) 2,020,052
Issuance of common shares for cash 788,000 788 196,212 197,000
Stock based compensation - - 177,990 - 177,990
Compensation expense for warrants 4,223 4,223
Net loss for the year - - - (2,974,467) (2,974,467)
------------ -------- ----------- ------------- -----------
Balance as of November 30, 2009 15,235,050 15,235 13,463,251 (14,053,688) (575,202)
Issuance of common shares for cash 3,968,000 3,968 834,332 838,300
Stock subscriptions received 415,000 415,000
Stock based compensation 226,187
226,187
Net loss for the period (1,631,279) (1,631,279)
------------ -------- ----------- ------------- -----------
Balance as of August 31, 2010 19,203,050 19,203 14,938,770 (15,684,967) (726,994)
See condensed notes to the interim financial statements
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore
do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows
in conformity with U.S. generally accepted accounting principles (GAAP);
however, such information reflects all adjustments (consisting solely of
normal recurring adjustments), which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods.
The condensed financial statements should be read in conjunction with the
financial statements and Notes thereto together with management's
discussion and analysis of financial condition and results of operations
contained in the Company's annual report on Form 10-K for the year ended
November 30, 2009. In the opinion of management, the accompanying
condensed financial statements reflect all adjustments of a normal
recurring nature considered necessary to fairly state the financial
position of the Company at August 31, 2010, the results of its operations
for the nine -and three-month periods ended August 31, 2010 and August
31, 2009, and its cash flows for the nine -month periods ended August 31,
2010 and August 31, 2009. In addition, some of the Company's statements
in this quarterly report on Form 10-Q may be considered forward-looking
and involve risks and uncertainties that could significantly impact
expected results. The results of operations for the nine -month period
ended August 31, 2010 are not necessarily indicative of results to be
expected for the full year.
The Company was incorporated under the laws of the state of Delaware on
March 1, 2005.
2. NATURE OF OPERATIONS AND GOING CONCERN
Nature of Operations:
The Company is a defense technology corporation specializing in the
development of innovative next generation solutions for security situations
that do not require the use of lethal force or ammunition. The Company is
currently in the advanced stages of developing and deploying their patent
pending LEKTROX family of products. These products consist of; the Wireless
Electric Projectile 40mm (WEP40), and the Blunt Impact Projectile 40mm
(BIP40).
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
2. NATURE OF OPERATIONS AND GOING CONCERN-Cont'd
Going Concern:
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 its LEKTROX
products. 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 raising of
appropriate capital in the near future. During the year ended November 30,
2009, the Company raised $197,000 through issue of common shares and
warrants. The Company further raised an additional $357,500 net through the
issue of common shares during the quarter ended February 28, 2010 and an
additional $60,800 during the quarter ended May 31, 2010. The Company
raised an additional $835,000 during the quarter ended August 31, 2010.
The Company has incurred a loss of $ 1,631,279 during the nine month
period ended August 31, 2010 primarily due to its research and
development activities and non-cash stock based compensation expense for
$226,187. At August 31, 2010, the Company had an accumulated deficit
during the development stage of $15,684,967 which includes a non-cash
stock based compensation expense of $5,131,606 and compensation expense
for warrants for $361,317.
3. RESEARCH AND PRODUCT DEVELOPMENT
Research and Product Development costs are charged against income in the
period incurred.
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
4. PLANT AND EQUIPMENT, NET
Plant and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided commencing in the month following acquisition
using the following annual rate and method:
Computer equipment 30% declining balance method
Furniture and Fixtures 30% declining balance method
August 31, 2010 November 30, 2009
------------------------ ---------------------
Accumulated Accumulated
Cost Amortization Cost Amortization
$ $ $ $
-----------------------------------------------
Computer equipment 35,211 18,860 35,211 14,113
Furniture and fixtures 15,310 8,469 15,310 6,484
------ ------ ------ ------
50,521 27,329 50,521 20,597
------ ------ ------ ------
Net carrying amount $23,192 $29,924
------- -------
5. CAPITAL STOCK
a) Authorized
50,000,000 Common shares, $0.001 par value
And
5,000,000 Preferred shares, $0.001 par value
The Company's Articles of Incorporation authorize its Board of Directors
to issue up to 5,000,000 shares of preferred stock. The provisions in the
Articles of Incorporation relating to the preferred stock allow the
directors to issue preferred stock with multiple votes per share and
dividend rights which would have priority over any dividends paid with
respect to the holders of SDI's common stock.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
5. CAPITAL STOCK-Cont'd
b) Issued
19,203,050 Common shares
c) Changes to Issued Share Capital
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
Nine month period ended August 31, 2010
On January 4, 2010 the Company completed the placement for 1,510,000
common shares to private investors. The shares were sold at a price of
$0.25 per common share for a total consideration of $377,500. The Company
paid $20,000 as finder's fees. The shares of common stock are restricted
securities, as that term is defined in Rule 144 of the Securities and
Exchange Commission. The Company relied upon the exemption provided by
Section 4(2) of the Securities Act of 1933 in this connection.
In April, 2010 the Company received subscription for 250,000 common
shares at a price of $0.20 per common share from a private investor. The
Company has not issued shares as of August 31, 2010.
In May, 2010, the Company received $10,800 being the exercise of options
to acquire 108,000 common shares at an exercise price of $0.10 per common
share. The Company issued 108,000 common shares during the quarter ended
August 31, 2010.
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
5. CAPITAL STOCK -Cont'd
On June 1, 2010 the Company sold 1,000,000 shares of common stock to a
private investor at a price of $0.20 per share. The shares of common stock
are restricted securities, as that term is defined in Rule 144 of the
Securities and Exchange Commission. The Company relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 in connection with
the sale of these securities.
In June 9, 2010 the Company sold 650,000 shares of common stock to two
private investors at a price of $0.20 per share. The Company relied upon
the exemption provided by Section 4(2) of the Securities Act of 1933 in
connection with the sale of these shares. The shares sold are restricted
securities, as that term is defined in Rule 144 of the Securities and
Exchange Commission.
On August 31, 2010 the Company sold 700,000 shares of common stock to a
private investor at a price of $0.20 per share. The shares of common stock
are restricted securities, as that term is defined in Rule 144 of the
Securities and Exchange Commission. The Company relied upon the exemption
provided by Section 4(2) of the Securities Act of 1933 in connection with
the sale of these securities.
6. STOCK BASED COMPENSATION
On December 4, 2009, the Company approved the reduction of the exercise
price of 300,000 outstanding options which had earlier been issued at a
price of $0.50 to a new option price of $0.25 per share, with all other
terms of the original grant remaining the same. The Company expensed this
additional non-cash stock based compensation expense relating to this
modification for $6,534. The fair value of each option used for the
purpose of estimating the stock compensation is calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 173.24%
Exercise price $0.25
Increase in fair value due to reduction in
exercise price of options $ 0.02
Market price of Company's common stock on
date of reduction in exercise price $ 0.25
Stock-based compensation cost expensed $6,534
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
6. STOCK BASED COMPENSATION-Cont'd
On December 4, 2009, the Company approved the extension of the expiration
of 2,900,000 outstanding options from their initial expiry date ranging
from November 2011 to April 2013 to a new expiration date of June 30,
2014 with all other terms of the original grant remaining the same. The
Company expensed this additional non-cash stock based compensation
expense relating to this modification for $63,282. The fair value of each
option used for the purpose of estimating the stock compensation is
calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 173.24%
Stock-based compensation cost expensed $ 63,282
On January 4, 2010, the board of directors granted options to a director
to acquire 100,000 common shares at an exercise price of $0.25 per share.
All of these options vested immediately and have an expiry of five years.
The Company expensed stock based compensation cost of $23,677. The fair
value of each option used for the purpose of estimating the stock
compensation is calculated using the Black-Scholes option pricing model
with the following weighted average assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 170.69%
Market price of Company's common stock on date
of grant of options $0.25
Stock-based compensation cost expensed $23,677
10
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
6. STOCK BASED COMPENSATION-Cont'd
On May 20, 2010, the Company approved the extension of the expiration of
50,000 outstanding options from their initial expiry date from May 21,
2010 to a new expiration date of June 30, 2014 and a reduction in the
exercise price of the options from $0.50 to $0.25 with all other terms of
the original grant remaining the same. The Company expensed this
additional non-cash stock based compensation expense relating to this
modification for $13,326. The fair value of each option used for the
purpose of estimating the stock compensation is calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 166.16%
Stock-based compensation cost expensed $13,326
On June 15, 2010, the board of directors granted options to a director to
acquire 350,000 common shares, two directors to acquire 50,000 common
shares each and to a consultant to acquire 35,000 common shares. All
these 485,000 options were issued at an exercise price of $0.20 per share
and vest immediately with an expiry term of five years. The Company
expensed stock based compensation cost of $119,368. The fair value of
each option used for the purpose of estimating the stock compensation is
calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
Risk free rate 2.61%
Expected dividends 0%
Forfeiture rate 0%
Volatility 164.99%
Market price of Company's common stock on date
of grant of options $ 0.26
Stock-based compensation cost expensed $119,368
As of August 31, 2010 there was $Nil of unrecognized expense related to
non-vested stock-based compensation arrangements granted.
11
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
7. RELATED PARTY TRANSACTIONS
a) A Company Director has charged the Company a total amount of $1,500
for providing office space during the nine month period ended August
31, 2010.
The directors were compensated from January 1, 2010 as per their
consulting agreements with the Company. During the quarter ended
February 28, 2010, one director was paid $21,500 as consulting fee
and $3,000 as automobile allowance; one director was paid $17,750 as
consulting fee and $2,000 as automobile allowance; one director was
paid $16,500 as consulting fee and $2,000 as automobile allowance.
During the quarter ended May 31, 2010, the Company expensed $58,500
being remuneration for directors, including a director who resigned
May 30, 2010. During the quarter ended August 31, 2010, the Company
expensed $39,000 being remuneration for directors. As of August 31,
2010, $37,489 was owed to the existing directors.
c) On December 4, 2009 the board of directors approved extension of the
expiration of outstanding options from their initial expiry date to a
new expiration date of June 30, 2014 with all other terms of the
original grant remaining the same.
1. Extension of the expiration of 1,150,000 outstanding options
already issued to three directors from their initial expiry date
to a new expiration date of June 30, 2014;
2. Extension of the expiration of 300,000 outstanding options
already issued to an officer from their initial expiry date to a
new expiration date of June 30, 2014.
Stock based compensation cost relating to the extension in the expiry
date of the outstanding options issued to three directors and an officer,
as above, amounting to $30,213 has been expensed to general and
administration expense.
12
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
7. RELATED PARTY TRANSACTIONS-Cont'd
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. The Company expensed stock based compensation
cost of $23,677.
e) On June 15, 2010, the board of directors granted options to a
director to acquire 350,000 common shares and to two directors to
acquire 50,000 common shares each. All these 450,000 options were
issued at an exercise price of $0.20 per share and vest immediately
with an expiry term of five years. The Company expensed stock based
compensation cost of $110,754 for these 450,000 options.
8. COMMITMENTS
a) On January 1, 2010, the Company's directors renewed consulting
agreements with the Company's officers on the following terms:
Monthly
Consulting Fees for Expiration of
February through Consulting
Name December 2010 Agreement
---- ------------------- -------------
Boaz Dor $6,500 12-31-2010
Gregory Sullivan $6,500 12-31-2010
b) On November 30, 2009, the Company entered into a Memorandum of
Understanding ("MOU") with its research and development service
contractor ("the contractor"). This MOU covers various alternatives to
the Company to settle the liability to the contractor in the amount of
$658,932 as at November 30, 2009. Should the Company become insolvent,
or is unable to continue operations, or is unable to pay the contractor
pursuant to the MOU, then it will grant the contractor an exclusive,
irrevocable, worldwide, assignable, sub licensable, perpetual license to
further develop and to market the Company's electric bullet and BIP
technology. The Company will negotiate a royalty in the event of
granting such rights to the contractor.
13
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
8. COMMITMENTS-Cont'd
c) Effective June 1, 2010, the Company entered into a "Consulting and
Professional Services Agreement" with a consulting company for a term
of five months. The consultant is to provide various managerial, legal
and investor relation services. The total fees for the services agreed
are $360,000. The consultant has agreed to accept 1,800,000 common
shares of the Company at $0.20 per share in lieu of fees. The Company
has expensed $216,000 to general and administrative expense for the
quarter ended August 31, 2010.
d) Effective July 1, 2010, the Company has availed the services of a
consultant providing consulting, corporate strategy and Investor
relations for a term of three months at CAD $10,000 per month plus
taxes. The Company has expensed $21,689 to general and administrative
expense for the quarter ended August 31, 2010.
e) As of August 31, 2010 the Company received $415,000 being
subscriptions for 2,075,000 common shares pending allotment.
Subsequent to the quarter, the Company allotted 1,500,000 shares
(refer to note 10)
9. ADVANCE FROM A NON RELATED PARTY
The Company received an interest-free advance of $50,000 which is unsecured
and payable on demand. This advance was repaid in full during the quarter
ended August 31, 2010.
10. SUBSEQUENT EVENTS
On September 22, 2010 the Company issued 2,250,000 shares of common stock
to 10 private investors at a price of $0.20 per share. This includes eight
subscribers for 1,500,000 shares subscribed during the quarter ended August
31, 2010.
On September 30, 2010, the board of directors granted options to two
directors to acquire 50,000 common shares each. All these 100,000 options
were issued at an exercise price of $0.20 per share and vest immediately
with an expiry term of five years. The Company will expense stock based
compensation cost of $25,271 during the quarter ended November 30, 2010.
14
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
August 31, 2010
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
10. SUBSEQUENT EVENTS- Cont'd
The Company has initiated cancellation of various options to directors,
officers and consultants and the issue of common shares and /or warrants in
lieu thereof. As of October 15, 2010, the Company is awaiting the acceptance
for such offer for cancellation/ modification from some directors, officers
and consultants.
The Company appointed Mr. Dean Thrasher as its "Chief Operating Officer",
Mr. Thrasher is also a director and officer with the consulting company
refernced to in Note 8(c).
The Company appointed Beard Winter LLP, Barristers and Solicitors, as their
Canadian legal counsel.
The Company approved a resolution for the appointment of the audit committee
and the following three individuals were appointed as audit committee
members:
Gregory Sullivan, CEO
Harry Walters, Director
Patrick Bryan, Director
15
Management's Discussion and Analysis of Financial Condition and Results of
Operation
SDI is a defense technology corporation specializing in the development of
innovative next generation solutions for security situations that do not require
the use of lethal force or ammunition. SDI is currently in the advanced stages
of developing and deploying their patent pending LEKTROX family of products.
These products consist of; the Wireless Electric Projectile 40mm (WEP40), and
the Blunt Impact Projectile 40mm (BIP40). The WEP40 when deployed emits a
Wireless Electro-Muscular Disruption Technology that incapacitates the targeted
individual. The BIP40 is a non-electrical ammunition round that will stop an
individual with targeted accuracy. Market sectors for these products include;
the military, army, navy, air force, peacekeeping, homeland security, and law
enforcement professionals. SDI's products were designed for a standard 40mm
ammunition casing, for use with standard issue weapons such as riot guns and
M203 grenade launchers.
SDI was incorporated on March 1, 2005 and for the period from inception to
August 31, 2010 has not generated any revenue.
During the three and nine months ended August 31, 2010:
o Research and Product Development expenses were lower since the
development of the Company's products was nearing completion.
o General and administrative expenses were comparable with the prior
periods.
During the period from inception (March 1, 2005) through August 31, 2010
SDI's operations used $8,980,774 in cash. During this period SDI:
o purchased $50,521 of equipment;
o raised $9,159,150 (net) from the sale of shares of its common
stock;
o raised $117,500 from two of its officers and directors and
a former officer and director upon the exercise of options to
purchase 1,175,000 shares of common stock; and
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.
On January 4, 2010 SDI sold 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.
In April, 2010 SDI received a subscription from a private investor for the
sale of 250,000 common shares at a price of $0.20 per share.
In May, 2010, SDI received $10,800 from the exercise of options to acquire
108,000 common shares at a price of $0.10 per share.
16
On May 30, 2010 Sheldon Kales resigned as a director of SDI and as SDI's
Principal Executive Officer.
On May 30, 2010 Gregory Sullivan was appointed as SDI's President and
Principal Executive Officer.
On June 8, 2010 Harry Walters and Patrick Bryan were appointed directors
of SDI.
On June 1, 2010 SDI sold 1,000,000 shares of common stock to a private
investor at a price of $0.20 per share.
During the three months ended August 31, 2010 SDI sold 1,500,000 shares of
its common stock to a group of private investors at a price of $0.20 per share.
SDI anticipates that its capital requirements for the twelve-month period
ending August 31, 2011 will be:
Development and Preproduction costs $2,250,000
General and Administrative Expenses 750,000
------------
Total $3,000,000
============
Other than the foregoing, SDI did not have any material future contractual
obligations or off balance sheet arrangements as of August 31, 2010.
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.
PART II
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January 2010 SDI sold, in a private offering, 1,510,000 shares of its
common stock at a price of $0.25 per share. SDI paid $20,000 as finder's fees in
connection with the sale of these shares.
In April, 2010 SDI received a subscription from a private investor for the
sale of 250,000 common shares at a price of $0.20 per share.
In May, 2010, SDI received $10,800 from the exercise of options to acquire
108,000 common shares at a price of $0.10 per share.
During the three months ended August 31, 2010 SDI sold 1,500,000 shares of
its common stock to a group of private investors at a price of $0.20 per share.
SDI relied upon the exemption provided by Section 4(2) of the Securities
Act of 1933 in connection with the sale of these securities. The investor which
17
acquired the shares was sophisticated and was provided with full information
regarding SDI. There was no general solicitation in connection with the offer or
sale of the securities. The investor which acquired these securities acquired
them for its own account. The certificate representing these securities bears a
restricted legend providing that they cannot be sold except pursuant to an
effective registration statement or an exemption from registration. No
commission or other form of remuneration was given to any person in connection
with the sale of these securities.
Item 4. Controls and Procedures.
(a) SDI maintains a system of controls and procedures designed to ensure
that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded,
processed, summarized and reported, within time periods specified in the SEC's
rules and forms and to ensure that information required to be disclosed by SDI
in the reports that it files or submits under the 1934 Act, is accumulated and
communicated to SDI's management, including its Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. As of August 31, 2010, SDI's Principal Executive Officer
and Principal Financial Officer evaluated the effectiveness of the design and
operation of SDI's disclosure controls and procedures. Based on that evaluation,
SDI's Principal Executive Officer and Principal Financial Officer concluded that
SDI's disclosure controls and procedures were effective.
(b) Changes in Internal Controls. There were no changes in SDI's internal
control over financial reporting during the quarter ended August 31, 2010, that
materially affected, or are reasonably likely to materially affect, its internal
control over financial reporting.
Item 6. Exhibits
Exhibits
10.1 Agreement with Level 4 Capital Corp.
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 for Gregory Sullivan.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 for Rakesh Malhotra.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 for Gregory Sullivan and Rakesh Malhotra.
18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURITY DEVICES INTERNATIONAL, INC.
Date: October 15, 2010
By: /s/ Gregory Sullivan
-----------------------------------
Gregory Sullivan, President and Principal
Executive Officer
Date: October 15, 2010
By: /s/ Rakesh Malhotra
-----------------------------------
Rakesh Malhotra, Principal Financial and
Accounting Officer
1
