UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended May 31, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _____ to _______
Commission File Number: None
Security Devices International, Inc.
---------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware Applied For
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2171 Avenue Rd., Suite 103
Toronto, Ontario Canada M5M 4B4
----------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (416) 787-1871
N/A
----------------------------------------------------------------------
Former name, former address, and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer", "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Larger accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 14,447,050 shares outstanding
as of May 31, 2009.
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
MAY 31, 2009
(Amounts expressed in US Dollars)
(Unaudited)
TABLE OF CONTENTS
Page No
Interim Balance Sheets as at May 31, 2009 and November 30, 2008 1
Interim Statement of Operations for the six months and three months
ended May 31, 2009 and May 31, 2008 and the period from Inception
(March 1, 2005) to May 31, 2009 2
Interim Statement of Cash Flows for the six months ended May 31, 2009
and May 31, 2008 3
Interim Statements of changes in Stockholders' Equity for the six
months ended May 31, 2009 and for the period from inception
(March 1, 2005) to November 30, 2008 4
Condensed Notes to Interim Financial Statements 5-9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Balance Sheets
As at May 31, 2009 and November 30, 2008
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
May 31, November 30,
2009 2008
(unaudited) (audited)
ASSETS $ $
CURRENT
Cash and cash equivalents 700,516 2,167,699
Prepaid expenses and other 30,317 45,984
------------ ------------
Total Current Assets 730,833 2,213,683
Plant and Equipment, net (Note 4) 24,750 25,450
------------ ------------
TOTAL ASSETS 755,583 2,239,133
------------ ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 222,378 219,081
------------ ------------
Total Current Liabilities 222,378 219,081
------------ ------------
Related Party Transactions (note 7)
Commitments (note 8)
STOCKHOLDERS' EQUITY
Capital Stock (Note 5) 14,447 14,447
Additional Paid-In Capital 13,199,514 13,084,826
Deficit Accumulated During the Development Stage (12,680,756) (11,079,221)
------------ ------------
Total Stockholders' Equity 533,205 2,020,052
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 755,583 2,239,133
------------ ------------
See condensed notes to the interim financial statements.
1
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Operations
For the Six Months and Three Months Ended May 31, 2009 and May 31, 2008 and the
Period from inception (March 1, 2005) to May 31, 2009
(Amounts expressed in US Dollars)
(Unaudited- Prepared by Management)
For the For the For the For the
six months six months three months three months
Cumulative ended ended ended ended
Since May 31, May 31, May 31, May 31,
inception 2009 2008 2009 2008
$ $ $ $ $
---------------------------------------------------------------
OPERATING EXPENSES:
Research and Product
Development Cost 5,667,719 1,152,676 1,291,074 616,283 729,065
Amortization 15,391 4,142 3,943 2,164 2,006
General and administration
(note 6) 7,265,481 447,771 1,521,690 174,510 1,073,503
------------ ------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSES 12,948,591 1,604,589 2,816,707 792,957 1,804,574
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (12,948,591) (1,604,589) (2,816,707) (792,957) (1,804,574)
Other Income-Interest 267,835 3,054 42,202 - 13,986
------------ ------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (12,680,756) (1,601,535) (2,774,505) (792,957) (1,790,588)
Income taxes - - - - -
------------ ------------ ------------ ------------ ------------
NET LOSS (12,680,756) (1,601,535) (2,774,505) (792,957) (1,790,588)
------------ ------------ ------------ ------------ ------------
Loss per share - basic
and diluted (0.11) (0.19) (0.06) (0.13)
------------ ------------ ------------ ------------
Weighted average common
shares outstanding 14,447,050 14,330,050 14,447,050 14,330,050
------------ ------------ ------------ ------------
See condensed notes to the interim financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statement of Cash Flows
For the Six Months Ended May 31, 2009 and May 31, 2008 and the Period from
Inception (March 1, 2005) to May 31, 2009 (Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
For the For the
six months six months
Cumulative ended ended
since inception May 31, May 31,
(March 1, 2005) 2009 2008
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (12,680,756) (1,601,535) (2,774,505)
------------- ------------- -------------
Items not requiring an outlay of cash:
Issue of shares for professional services 154,000 - -
Stock based compensation (included in
general and administration expenses) 4,842,117 114,688 1,231,056
Compensation expense for warrants issued
(Included in general and administration expenses) 357,094 - -
Loss on cancellation of common stock 34,400 - -
Amortization 15,391 4,142 3,943
Changes in non-cash working capital:
Prepaid expenses and other (30,317) 15,667 6,952
Accounts payable and accrued liabilities 222,378 3,297 113,023
------------- ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (7,085,693) (1,463,741) (1,419,531)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (40,141) (3,442) (2,793)
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (40,141) (3,442) (2,793)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common shares 7,769,650 - -
Cancellation of common stock (50,000) - -
Exercise of stock options 106,700 - -
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,826,350 - -
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FOR THE PERIOD 700,516 (1,467,183) (1,422,324)
Cash and cash equivalents, beginning of period - 2,167,699 5,293,176
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 700,516 700,516 3,870,852
============= ============= =============
INCOME TAXES PAID - - -
============= ============= =============
INTEREST PAID - - -
============= ============= =============
See condensed notes to the interim financial statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statement of Changes in Stockholders' Equity
Six months ended May 31, 2009 and for Period from Inception (March 1, 2005) to
May 31, 2009. (Amounts expressed in US Dollars) (Unaudited-Prepared by
Management)
Number of Common Additional
Common Shares Paid-in Deficit
Shares amount Capital accumulated Total
--------- ------ ----------- ----------- -----
$ $ $ $
Balance as of March 1, 2005 - - - - -
Issuance of Common shares
for professional services 6,525,000 6,525 58,725 - 65,250
Issuance of common shares
for cash 397,880 398 99,072 99,470
Net loss for the period - - - (188,699) (188,699)
----------- -------- ---------- ---------- ----------
Balance as of
November 30, 2005
(audited) 6,922,880 6,923 157,797 (188,699) (23,979)
Issuance of common shares
for cash 956,000 956 94,644 - 95,600
Issuance of common shares
for cash 286,000 286 49,764 - 50,050
Issuance of common shares
to consultant for services 50,000 50 8,700 - 8,750
Issuance of common shares
for cash 2,000,000 2,000 398,000 - 400,000
Exercise of stock options 950,000 950 94,050 - 95,000
Issuance of common shares
for cash (net of agent
commission) 200,000 200 179,785 - 179,985
Stock subscriptions received 1,165,500 - 1,165,500
Stock based compensation - - 1,049,940 - 1,049,940
Net loss for the year - - - (1,660,799) (1,660,799)
----------- -------- ---------- ---------- ----------
Balance as of
November 30, 2006
(audited) 11,364,880 11,365 3,198,180 (1,849,498) 1,360,047
Issuance of common shares
for stock
Subscriptions received
in prior year 1,165,500 1,165 (1,165) - -
Issuance of common shares
for cash 1,170,670 1,171 1,169,499 1,170,670
Issuance of common shares
for cash and services 50,000 50 154,950 155,000
Issuance of common shares
for cash (net of expenses) 2,139,000 2,139 4,531,236 4,533,375
Cancellation of stock (1,560,000) (1,560) (14,040) (15,600)
Stock based compensation 2,446,433 2,446,433
Issue of warrants 357,094 357,094
Net loss for the year
ended November 30, 2007 - - - (4,827,937) (4,827,937)
----------- -------- ---------- ---------- ----------
Balance as of
November 30, 2007(audited) 14,330,050 14,330 11,842,187 (6,677,435) 5,179,082
Exercise of stock options 117,000 117 11,583 11,700
Stock based compensation - - 1,231,056 - 1,231,056
Net loss for the period - - - (4,401,786) (4,401,786)
Balance as of November
30, 2008(audited) 14,447,050 14,447 13,084,826 (11,079,221) 2,020,052
Stock based compensation - - 114,688 - 114,688
Net loss for the period - - - (1,601,535) (1,601,535)
----------- -------- ---------- ---------- ----------
Balance as of
May 31, 2009
(unaudited) 14,447,050 14,447 13,199,514 (12,680,756) 533,205
----------- -------- ---------- ---------- ----------
See condensed notes to the interim financial statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of all recurring accruals)
considered necessary for fair presentation have been included. Operating
results for the interim period are not necessarily indicative of the
results that may be expected for the year ended November 30, 2009.
Interim financial statements should be read in conjunction with the
company's annual audited financial statements for the year ended
November 30, 2008.
The Company was incorporated under the laws of the state of Delaware on
March 1, 2005. The interim financial statements include the accounts of
Security Devices International Inc. (the "Company").
2. NATURE OF OPERATIONS
The Company has completed the development of a fully operational 40MM
long range LEKTROX, a unique line of wireless electric ammunition for
use in military, homeland security, law enforcement, and professional
and home security scenarios and the Company is now planning for a
production line. LEKTROX has been specially designed for use with
standards issue riot guns and M203 grenade launchers. This will allow
military, law enforcement agencies etc. to quickly deploy LEKTROX
without the need for lengthy, complex training methods or significant
functional adjustments to vehicles or personal equipment. Simplicity of
use is also a key benefit for the home security market where most users
have little or no specialized training. LEKTROX is a 3rd generation
electric solution. First generation solutions were electric batons and
hand-held stun guns which had a range of arm's length. 2nd generations
were the wired electric charge solutions. 3rd generations are the
wireless electric bullets.
The Company is in the development stage and has not yet realized
revenues from its planned operations. The Company has incurred a loss of
$ 1,601,535 during the six month period ended May 31, 2009. At May 31,
2009, the Company had an accumulated deficit during the development
stage of $12,680,756 which includes a non- cash stock based compensation
expense of $4,842,117. During the first quarter of 2007, the company
raised $1,170,670 through issue of common stock. During the second
quarter of 2007, the Company raised an additional $4,688,375 (net of
expenses of $279,375) through the issue of Common stock. Further, during
the last quarter of 2008, the Company received $11,700 due to the
exercise of stock options. The Company did not raise any funds during
the six months ended May 31, 2009.
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
2. NATURE OF OPERATIONS-Cont'd
The Company has a working capital of $ 508,455 and stockholders' equity
of 533,205 as at May 31, 2009. Management's plan is to continue raising
additional funds through future equity or debt financing until it
achieves profitable operations.
3. RESEARCH AND PRODUCT DEVELOPMENT
Research and Product Development costs, including acquired research and
product development costs, are charged against income in the period
acquired or incurred.
4. PLANT AND EQUIPMENT, NET
Plant and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided commencing in the month following acquisition
using the following annual rate and method:
Computer equipment 30% declining balance method
Furniture and Fixtures 30% declining balance method
Nov. 30,
May 31, 2009 Accumulated 2008 Accumulated
Cost Amortization Cost Amortization
$ $ $ $
------------ ------------ --------- -----------
Computer equipment 25,750 10,610 22,958 8,102
Furniture and fixtures 14,391 4,781 13,741 3,147
------ ------ ------ -----
40,141 15,391 36,699 11,249
------ ------ ------ -----
Net carrying amount $24,750 $25,450
------- -------
5. CAPITAL STOCK
a) Authorized
50,000,000 Common shares, $0.001 par value
And
5,000,000 Preferred shares, $0.001 par value
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
5. CAPITAL STOCK-Cont'd
The Company's Articles of Incorporation authorize its Board of Directors
to issue up to 5,000,000 shares of preferred stock. The provisions in
the Articles of Incorporation relating to the preferred stock allow the
directors to issue preferred stock with multiple votes per share and
dividend rights which would have priority over any dividends paid with
respect to the holders of SDI's common stock.
b) Issued
14,447,050 Common shares
c) Changes to Issued Share Capital
Year ended November 30, 2008
The Company received $11,700 and issued 117,000 common shares on
exercise of stock options by a director of the Company.
Six month period ended May 31, 2009
The Company did not issue any common shares during the six month period
ended May 31, 2009.
6. STOCK BASED COMPENSATION
Per SEC Staff Accounting Bulletin 107, Topic 14.F, "Classification of
Compensation Expense Associated with Share-Based Payment Arrangements"
stock based compensation expense is being presented in the same lines as
cash compensation paid.
On December 17, 2008, the Company approved the reduction of the exercise
price of 2,940,000 outstanding options which had earlier been issued at
prices ranging from $1.00 to $3.60 to a new option price of $0.50 per
share, with all other terms of the original grant remaining the same.
The Company expensed this additional non-cash stock based compensation
expense relating to this modification for $114,688. This reduction in
exercise price relates to a total of 1,150,000 options in total issued
to the Company's three directors; 300,000 options in total issued to the
Company's officer and the balance total of 1,490,000 unexercised options
issued in the past to various consultants.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
6. STOCK BASED COMPENSATION-Cont'd
For the six month period ended May 31, 2009, the Company has recognized
in the financial statements, additional stock-based compensation costs
as per the following details. The fair value of each option used for the
purpose of estimating the stock compensation is calculated using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Risk free rate 2.95% Expected dividends 0% Forfeiture rate 0% Exercise
price $0.50 Increase in fair value due to reduction in exercise price of
options $0.03-$0.09 Market price of Company's common stock on date of
reduction in exercise price $0.32 Stock-based compensation cost
expensed $114,688 Unexpended stock-based compensation deferred over to
next period$Nil
As of May 31, 2009 there was $Nil of unrecognized expense related to
non-vested stock-based compensation arrangements granted.
7. RELATED PARTY TRANSACTIONS
a) A Company Director has charged the Company a total amount of $3,000
for providing office space during the six month period ended May 31,
2009.
b) The directors were compensated from January 1, 2009 as per their
consulting agreements with the Company. One director was paid $50,000
as consulting fee and $7,500 as automobile allowance; one director
was paid $31,250 as consulting fee and $5,000 as automobile
allowance; one director was paid $15,625 as consulting fee and $5,000
as automobile allowance.
c) On December 17, 2008 the board of directors approved the reduction in
the exercise price of the following options under its Non-Qualified
Stock Option Plan:
1. Reduction in the exercise price of the options already issued to
three directors to acquire 1,150,000 common shares from exercise
price of $1.20 to a new exercise price of $0.50 per share.
2. Reduction in the exercise price of the options already issued to
an officer to acquire 125,000 common shares from exercise price
of $1.25 to a new exercise price of $0.50 per share and reduction
in the exercise price to acquire 175,000 common shares from $1.20
to a new exercise price of $0.50 per share.
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2009
(Amounts expressed in US Dollars)
(Unaudited-Prepared by Management)
7. RELATED PARTY TRANSACTIONS-Cont'd
Stock based compensation cost relating to the reduction in the exercise
price of the options issued to directors and officers, as above,
amounting to $46,660 has been expensed to general and administration
expense.
8. COMMITMENTS
On February 4, 2009 the Company's directors approved consulting
agreements with three of the Company's officers. The consulting
agreements, which are effective retroactive to January 1, 2009, provide
that the officers will consult with the Company in the areas of
corporate operations and product development. The terms of the
consulting agreements are shown below. The consulting agreements
terminate on December 31, 2009.
Monthly
Monthly Automobile
Name of Officer Consulting Fee Allowance
--------------- -------------- ----------
Sheldon Kales $10,000 $1,500
Boaz Dor $ 6,250 $1,000
Greg Sullivan $ 3,125 $1,000
9. SUBSEQUENT EVENTS
On June 17, 2009, the Company approved the reduction of the exercise
price of 2,700,000 outstanding options which had on December 17, 2008 been
reduced to an option price of $0.50 per share, to a new option price of
$0.25 per share, with all other terms of the original grant remaining the
same. The Company will expense this additional non-cash stock based
compensation expense relating to this modification for $63,302 in the
third quarter of 2009.
On June 17, 2009, the Company further approved the reduction of the
exercise price of 317,000 outstanding warrants which had earlier been
issued at $0.50 per share to a new exercise price of $0.25 per share, with
all other terms of the original issue remaining the same. The Company will
expense this additional non-cash compensation expense relating to this
modification for $4,223 in the third quarter of 2009.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Securities Devices International, Inc. was incorporated on March 1, 2005
and for the period from inception to May 31, 2009 has not yet generated any
revenue. SDI is a defense technology company which is developing LEKTROX, a
unique line of wireless electric ammunition for use in military, homeland
security, law enforcement, and professional and home security situations.
During the year ended November 30, 2008, and the six months ended May 31,
2009, substantially all of SDI's cash expenses were related to the development
of its LEKTROX technology.
During the six months ended May 31, 2009:
o general and administrative expenses decreased primarily due to a
decline in stock based compensation. General and administrative
expenses included charges of $114,688, which did not require the use
of cash, associated with lowering the exercise price of certain
options granted to SDI's officers, directors and consultants .
o Research and Product Development expenses were lower by $138,398 as
compared to the same period ended May 31, 2008 since the development
of the Company's products were nearing completion.
During the period from inception (March 1, 2005) through May 31, 2009
SDI's operations used $(7,085,693) in cash. During this period SDI:
o purchased $40,141 of equipment;
o raised $7,719,650 from the sale of shares of its common stock; and
o raised $106,700 from three of its officers and directors upon the
exercise of options to purchase 1,067,000 shares of common stock.
As of May 31, 2009 SDI had:
Developed a fully operational Long Range LEKTROX (40MM) and the
Company is now planning for a production line.
SDI anticipates that its capital requirements for the twelve-month period
ending May 31, 2010 will be:
Development and Preproduction costs $ 900,000
General and Administrative Expenses 350,000
----------
Total $1,250,000
==========
10
SDI expects that it will need to raise approximately $1,000,000 in
additional capital prior to December 31, 2009.
Other than the foregoing, SDI did not have any material future contractual
obligations or off balance sheet arrangements as of May 31, 2009.
SDI does not have any commitments or arrangements from any persons to
provide SDI with any additional capital it may need.
Item 4. Controls and Procedures.
(a) SDI maintains a system of controls and procedures designed to ensure
that information required to be disclosed in reports filed or submitted under
the Securities Exchange Act of 1934, as amended ("1934 Act"), is recorded,
processed, summarized and reported, within time periods specified in the SEC's
rules and forms and to ensure that information required to be disclosed by SDI
in the reports that it files or submits under the 1934 Act, is accumulated and
communicated to SDI's management, including its Principal Executive Officer and
Principal Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. As of May 31, 2009, SDI's Principal Executive Officer and
Principal Financial Officer evaluated the effectiveness of the design and
operation of SDI's disclosure controls and procedures. Based on that evaluation,
the Principal Executive Officer and Principal Financial Officer concluded that
SDI's disclosure controls and procedures were effective.
(b) Changes in Internal Controls. There were no changes in SDI's internal
control over financial reporting during the quarter ended May 31, 2009, that
materially affected, or are reasonably likely to materially affect, its internal
control over financial reporting.
PART II
Item 6. Exhibits
Exhibits
31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for Sheldon Kales.
31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
for Rakesh Malhotra.
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
for Sheldon Kales and Rakesh Malhotra.
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SECURITY DEVICES INTERNATIONAL, INC.
Date: July 8, 2009
By: /s/ Sheldon Kales
-----------------------------------
Sheldon Kales, President and Principal
Executive Officer
Date: July 9, 2009
By: /s/ Rakesh Malhotra
------------------------------------
Rakesh Malhotra, Principal Financial
and Accounting Officer
12