UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended February 28, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _______
Commission File Number: None
Security Devices International, Inc.
-----------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware Applied For
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2171 Avenue Rd., Suite 103
Toronto, Ontario Canada M5M 4B4
-------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (416) 787-1871
N/A
----------------------------------------------------------------------
Former name, former address, and former
fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 14,447,050 shares outstanding
as of April 6, 2009.
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2009
(Amounts expressed in US Dollars)
(Unaudited)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
FEBRUARY 28, 2009
(Amounts expressed in US Dollars)
(Unaudited)
TABLE OF CONTENTS
Page No
Interim Balance Sheets as at February 28, 2009 and November 30, 2008 1
Interim Statement of Operations for the three months ended
February 28, 2009 and February 29, 2008 2
Interim Statement of Cash Flows for the three months ended
February 28, 2009 and February 29, 2008 3
Interim Statements of changes in Stockholders' Equity for the
three months ended February 28, 2009 and for the period from
inception (March 1, 2005) to November 30, 2008 4
Condensed Notes to Interim Financial Statements 5-8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Balance Sheets
As at February 28, 2009 and November 30, 2008
(Amounts expressed in US Dollars)
February 28, November 30,
2009 2008
(unaudited) (audited)
ASSETS $ $
CURRENT
Cash and cash equivalents 1,520,349 2,167,699
Prepaid expenses and other 35,079 45,984
------------- -------------
Total Current Assets 1,555,428 2,213,683
Plant and Equipment, net (Note 4) 26,914 25,450
------------- -------------
TOTAL ASSETS 1,582,342 2,239,133
------------- -------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 256,180 219,081
------------- -------------
Total Current Liabilities 256,180 219,081
------------- -------------
Related Party Transactions (note 7)
Commitments (note 8)
STOCKHOLDERS' EQUITY
Capital Stock (Note 5) 14,447 14,447
Additional Paid-In Capital 13,199,514 13,084,826
Deficit Accumulated During the Development Stage (11,887,799) (11,079,221)
------------- -------------
Total Stockholders' Equity 1,326,162 2,020,052
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,582,342 2,239,133
------------- -------------
See condensed notes to the interim financial statements.
1
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Operations
For the Three Months Ended February 28, 2009 and February 29, 2008
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
For the For the
quarter quarter
Cumulative ended ended
since inception February 28, February 29,
(March 1, 2005) 2009 2008
$ $ $
OPERATING EXPENSES:
Research and Product
Development Cost 5,051,436 536,393 562,009
Amortization 13,227 1,978 1,937
General and Administration 7,090,971 273,261 448,187
------------- ------------- -------------
TOTAL OPERATING EXPENSES 12,155,634 811,632 1,012,133
------------- ------------- -------------
LOSS FROM OPERATIONS (12,155,634) (811,632) (1,012,133)
Other Income-Interest 267,835 3,054 28,216
------------- ------------- -------------
LOSS BEFORE INCOME TAXES (11,887,799) (808,578) (983,917)
Income taxes - - -
------------- ------------- -------------
NET LOSS (11,887,799) (808,578) (983,917)
------------- ------------- -------------
Loss per share - basic
and diluted (0.06) (0.07)
------------- -------------
Weighted average common
shares outstanding 14,447,050 14,330,050
------------- -------------
See condensed notes to the interim financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statement of Cash Flows
For the Three Months Ended February 28, 2009 and February 29, 2008
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
For the For the
quarter quarter
Cumulative ended ended
since inception February 28, February 29,
(March 1, 2005) 2009 2008
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (11,887,799) (808,578) (983,917)
Items not requiring an outlay of cash:
Issue of shares for professional
services 154,000 - -
Stock based compensation (included
in general and administration
expenses) 4,842,117 114,688 324,891
Compensation expense for warrants
issued
(Included in general and
administration expenses) 357,094 - -
Loss on cancellation of
common stock 34,400 - -
Amortization 13,227 1,978 1,937
Changes in non-cash working capital:
Prepaid expenses and other (35,079) 10,905 15,885
Accounts payable and accrued
liabilities 256,180 37,099 116,356
------------- ------------- -------------
NET CASH USED IN OPERATING
ACTIVITIES (6,265,860) (643,908) (524,848)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (40,141) (3,442) (2,792)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (40,141) (3,442) (2,792)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of
common shares 7,769,650 - -
Cancellation of common stock (50,000) - -
Exercise of stock options 106,700 - -
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 7,826,350 - -
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS FOR THE
PERIOD 1,520,349 (647,350) (527,640)
Cash and cash equivalents,
beginning of period - 2,167,699 5,293,175
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD 1,520,349 1,520,349 4,765,535
============= ============= =============
INCOME TAXES PAID - - -
============= ============= =============
INTEREST PAID - - -
============= ============= =============
The accompanying condensed notes are an integral part of these interim financial
statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statement of Changes in Stockholders' Equity
Three months ended February 28, 2009 and for Period from Inception (March 1,
2005) to November 30, 2008.
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
Number of Common Additional
Common Shares Paid-in Deficit
Shares amount Capital accumulated Total
--------- ------ ---------- ----------- -----
$ $ $ $
Balance as of March 1, 2005 - - - - -
Issuance of Common shares
for professional services 6,525,000 6,525 58,725 - 65,250
Issuance of common shares
for cash 397,880 398 99,072 99,470
Net loss for the period - - - (188,699) (188,699)
------------ ----------- ---------- ---------- ----------
Balance as of
November 30, 2005
(audited) 6,922,880 6,923 157,797 (188,699) (23,979)
Issuance of common shares
for cash 956,000 956 94,644 - 95,600
Issuance of common shares
for cash 286,000 286 49,764 - 50,050
Issuance of common shares
to consultant for services 50,000 50 8,700 - 8,750
Issuance of common shares
for cash 2,000,000 2,000 398,000 - 400,000
Exercise of stock options 950,000 950 94,050 - 95,000
Issuance of common shares
for cash (net of agent
commission) 200,000 200 179,785 - 179,985
Stock subscriptions
received 1,165,500 - 1,165,500
Stock based compensation - - 1,049,940 - 1,049,940
Net loss for the year - - - (1,660,799) (1,660,799)
------------ ----------- ---------- ---------- ----------
Balance as of
November 30, 2006
(audited) 11,364,880 11,365 3,198,180 (1,849,498) 1,360,047
Issuance of common shares
for stock
Subscriptions received in
prior year 1,165,500 1,165 (1,165) - -
Issuance of common shares
for cash 1,170,670 1,171 1,169,499 1,170,670
Issuance of common shares
for cash and services 50,000 50 154,950 155,000
Issuance of common shares
for cash (net of expenses) 2,139,000 2,139 4,531,236 4,533,375
Cancellation of stock (1,560,000) (1,560) (14,040) (15,600)
Stock based compensation 2,446,433 2,446,433
Issue of warrants 357,094 357,094
Net loss for the year
ended November 30, 2007 - - - (4,827,937) (4,827,937)
------------ ----------- ---------- ---------- ----------
Balance as of
November 30, 2007
(audited) 14,330,050 14,330 11,842,187 (6,677,435) 5,179,082
Exercise of stock options 117,000 117 11,583 11,700
Stock based compensation - - 1,231,056 - 1,231,056
Net loss for the period - - - (4,401,786) (4,401,786)
Balance as of
November 30, 2008
(audited) 14,447,050 14,447 13,084,826 (11,079,221) 2,020,052
Stock based compensation - - 114,688 - 114,688
Net loss for the period - - - (808,578) (808,578)
Balance as of
February 28, 2009 (unaudited) 14,447,050 14,447 13,199,514 (11,887,799) 1,326,162
------------ ----------- ---------- ---------- ----------
The accompanying notes are an integral part of these interim financial
statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of all recurring accruals)
considered necessary for fair presentation have been included. Operating
results for the interim period are not necessarily indicative of the
results that may be expected for the year ended November 30, 2009.
Interim financial statements should be read in conjunction with the
company's annual audited financial statements for the year ended
November 30, 2008.
The Company was incorporated under the laws of the state of Delaware on
March 1, 2005. The interim financial statements include the accounts of
Security Devices International Inc. (the "Company").
2. NATURE OF OPERATIONS
The Company is currently in the advanced stages of developing LEKTROX, a
unique line of wireless electric ammunition for use in military,
homeland security, law enforcement, and professional and home security
scenarios. LEKTROX has been specially designed for use with standards
issue riot guns, M203 grenade launchers and regular 12-guage shotguns.
This will allow military, law enforcement agencies etc. to quickly
deploy LEKTROX without the need for lengthy, complex training methods or
significant functional adjustments to vehicles or personal equipment.
Simplicity of use is also a key benefit for the home security market
where most users have little or no specialized training. LEKTROX is a
3rd generation electric solution. First generation solutions were
electric batons and hand-held stun guns which had a range of arm's
length. 2nd generations were the wired electric charge solutions. 3rd
generations are the wireless electric bullets. Currently, there is still
no 3rd generation wireless electric bullet on the market.
The Company is in the development stage and has not yet realized
revenues from its planned operations. The Company has incurred a loss of
$ 808,578 during the three month period ended February 28, 2009. At
February 28, 2009, the Company had an accumulated deficit during the
development stage of $11,887,799 which includes a non- cash stock based
compensation expense of $4,842,117. During the first quarter of 2007,
the company raised $1,170,670 through issue of common stock. During the
second quarter of 2007, the Company raised an additional $4,688,375 (net
of expenses of $279,375) through the issue of Common stock. Further,
during the last quarter of 2008, the Company received $11,700 due to the
exercise of stock options. The Company did not raise any funds during
the three months ended February 28, 2009.
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
2. NATURE OF OPERATIONS - Cont'd
The Company has a working capital of $ 1,299,248 and stockholders'
equity of 1,326,162 as at February 28, 2009. Management's plan is to
continue raising additional funds through future equity or debt
financing until it achieves profitable operations.
3. RESEARCH AND PRODUCT DEVELOPMENT
Research and Product Development costs, including acquired research and
product development costs, are charged against income in the period
incurred.
4. PLANT AND EQUIPMENT, NET
Plant and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided commencing in the month following acquisition
using the following annual rate and method:
Computer equipment 30% declining balance method
Furniture and Fixtures 30% declining balance method
Feb 28, 2009 Nov 30, 2008
Accumulated Accumulated
Cost Amortization Cost Amortization
$ $ $ $
---------------------------------------------------------
Computer equipment 25,750 9,286 22,958 8,102
Furniture and fixtures 14,391 3,941 13,741 3,147
------ ----- ------ -----
40,141 13,227 36,699 11,249
------ ------ ------ ------
Net carrying amount $26,914 $25,450
------- -------
5. CAPITAL STOCK
a) Authorized
50,000,000 Common shares, $0.001 par value
And
5,000,000 Preferred shares, $0.001 par value
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
5. CAPITAL STOCK - Cont'd
The Company's Articles of Incorporation authorize its Board of Directors
to issue up to 5,000,000 shares of preferred stock. The provisions in
the Articles of Incorporation relating to the preferred stock allow the
directors to issue preferred stock with multiple votes per share and
dividend rights which would have priority over any dividends paid with
respect to the holders of SDI's common stock.
b) Issued
14,447,050 Common shares
c) Changes to Issued Share Capital
Year ended November 30, 2008
----------------------------
The Company received $11,700 and issued 117,000 common shares on
exercise of stock options by a director of the Company.
Three month period ended February 28, 2009
------------------------------------------
The Company did not issue any common shares during the three month
period ended February 28, 2009.
6. STOCK BASED COMPENSATION
Per SEC Staff Accounting Bulletin 107, Topic 14.F, "Classification of
Compensation Expense Associated with Share-Based Payment Arrangements"
stock based compensation expense is being presented in the same lines as
cash compensation paid.
On December 17, 2008, the Company approved the reduction of the exercise
price of 2,940,000 outstanding options which had earlier been issued at
prices ranging from $1.00 to $3.60 to a new option price of $0.50 per
share, with all other terms of the original grant remaining the same.
The Company expensed this additional non-cash stock based compensation
expense relating to this modification for $114,688. This reduction in
exercise price relates to a total of 1,150,000 options in total issued
to the Company's three directors; 300,000 options in total issued to the
Company's officer and the balance total of 1,490,000 unexercised options
issued in the past to various consultants.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
6. STOCK BASED COMPENSATION - Cont'd
For the three month period ended February 28, 2009, the Company has
recognized in the financial statements, additional stock-based
compensation costs as per the following details. The fair value of each
option used for the purpose of estimating the stock compensation is
calculated using the Black-Scholes option pricing model with the
following weighted average assumptions:
Risk free rate 2.95% Expected dividends 0% Forfeiture rate 0% Exercise
price $0.50 Increase in fair value due to reduction in exercise price of
options $0.03-$0.09 Market price of Company's common stock on date of
reduction in exercise price $0.32 Stock-based compensation cost
expensed $114,688 Unexpended stock-based compensation deferred over to
next period$Nil
As of February 28, 2008 there was $Nil of unrecognized expense related
to non-vested stock-based compensation arrangements granted.
7. RELATED PARTY TRANSACTIONS
a) A Company Director has charged the Company a total amount of $1,500
for providing office space during the quarter ended February 29, 2008.
b) The directors were compensated from January 1, 2009 as per their
consulting agreements with the Company. One director was paid $20,000
as consulting fee and $3,000 as automobile allowance; one director was
paid $12,500 as consulting fee and $2,000 as automobile allowance; one
director was paid $6,250 as consulting fee and $2,000 as automobile
allowance.
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
February 28, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
7. RELATED PARTY TRANSACTIONS-Cont'd
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.
8. COMMITMENTS
On February 4, 2009 the Company's directors approved consulting
agreements with three of the Company's officers. The consulting
agreements, which are effective retroactive to January 1, 2009, provide
that the officers will consult with the Company in the areas of
corporate operations and product development. The terms of the
consulting agreements are shown below. The consulting agreements
terminate on December 31, 2009.
Monthly
Monthly Automobile
Name of Officer Consulting Fee Allowance
--------------- -------------- ----------
Sheldon Kales $10,000 $1,500
Boaz Dor $ 6,250 $1,000
Greg Sullivan $ 3,125 $1,000
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Securities Devices International, Inc. was incorporated on March 1, 2005
and as of March 31, 2009 has not yet generated any revenue. SDI is a defense
technology company which is developing LEKTROX, a unique line of wireless
electric ammunition for use in military, homeland security, law enforcement, and
professional and home security situations.
During the year ended November 30, 2008, and the three months ended
February 28, 2009, substantially all of SDI's cash expenses were related to the
development of its LEKTROX technology.
During the three months ended February 28, 2009:
o general and administrative expenses decreased primarily due to a
decline in stock based compensation. General and administrative
expenses included charges of $114,688, which did not require the use
of cash, associated with lowering the exercise price of certain
options granted to SDI's officers, directors and consultants.
o Research and Product Development expenses were approximately the same
as those incurred during the three months ended February 29, 2008.
During the period from inception (March 1, 2005) through February 28, 2009
SDI's operations used $(6,265,860) in cash. During this period SDI:
o purchased $40,141 of equipment;
o raised $7,719,650 from the sale of shares of its common stock; and
o raised $106,700 from three of its officers and directors upon the
exercise of options to purchase 1,067,000 shares of common stock.
As of February 28, 2009 SDI had:
o completed the tooling and moulds for the 40MM LEKTROX;
o developed a fully operational Long Range LEKTROX prototype (37-38MM);
and
o developed a fully operational Long Range LEKTROX prototype (40MM).
During the year ending November 30, 2009 SDI plans to complete the tooling
and moulds for the 37-38MM LEKTROX.
SDI anticipates that its capital requirements for the twelve-month period
ending November 30, 2009 will be:
10
Research and Development $ 1,900,000
General and Administrative Expenses 450,000
--------------
Total $ 2,350,000
============
SDI does not anticipate that it will need to hire any employees prior to
November 30, 2009. SDI expects that it will need to raise approximately
$1,000,000 in additional capital prior to December 31, 2009.
Other than the foregoing, SDI did not have any material future contractual
obligations or off balance sheet arrangements as of February 28, 2009.
SDI does not have any commitments or arrangements from any persons to
provide SDI with any additional capital it may need.
Item 4. Controls and Procedures.
(a) SDI maintains a system of controls and procedures designed to ensure
that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded,
processed, summarized and reported, within time periods specified in the SEC's
rules and forms and to ensure that information required to be disclosed by SDI
in the reports that it files or submits under the 1934 Act, is accumulated and
communicated to SDI's management, including its Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. As of February 28, 2009, SDI's Principal Executive Officer
and Principal Financial Officer evaluated the effectiveness of the design and
operation of SDI's disclosure controls and procedures. Based on that evaluation,
the Principal Executive Officer and Principal Financial Officer concluded that
SDI's disclosure controls and procedures were effective.
(b) Changes in Internal Controls. There were no changes in SDI's internal
control over financial reporting during the quarter ended February 28, 2009,
that materially affected, or are reasonably likely to materially affect, its
internal control over financial reporting.
PART II
Item 6. Exhibits
Exhibits
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 for Sheldon Kales.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 for Rakesh Malhotra.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 for Sheldon Kales and Rakesh Malhotra.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURITY DEVICES INTERNATIONAL, INC.
Date: April 7, 2009
By: /s/ Sheldon Kales
-----------------------------------
Sheldon Kales, President and Principal
Executive Officer
Date: April 8, 2009
By: /s/ Rakesh Malhotra
-----------------------------------
Rakesh Malhotra, Principal Financial
and Accounting Officer