10QSB 1 aug06form10qsb10-06.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 31, 2006 or [ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 Commission file No. 0-33259 SECURITY DEVICES INTERNATIONAL INC. ------------------------------------------ (Exact name of registrant as specified in its charter) Delaware Applied For (State of incorporation) (I.R.S. Employer Identification Number) 464 Old Orchard Grove Toronto, Ontario Canada M5M 2G4 ------------------------------------------------------ (Address of Principal Executive Office) Zip Code (647) 388-1117 -------------------------------------- (Registrant's telephone number, including area code) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the proceeding 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 shell company (as defined in Rule 12b-2 of the Exchange Act): Yes No X ------------ -------- As of October 9, 2006, the Company had 10,214,880 issued and outstanding shares of common stock. SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) INTERIM FINANCIAL STATEMENTS AUGUST 31, 2006 (Amounts expressed in US Dollars) (Unaudited) SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) INTERIM FINANCIAL STATEMENTS AUGUST 31, 2006 (Amounts expressed in US Dollars) (Unaudited) TABLE OF CONTENTS Page No ------- Interim Balance Sheets as of August 31, 2006 and November 30, 2005 1 Interim Statement of Operations for the nine months and three months ended August 31, 2006 and August 31, 2005. 2 Interim Statement of Cash Flows for the nine months ended August 31, 2006 and August 31, 2005. 3 Interim Statement of Changes in Stockholders' Equity (Deficiency) for the nine months ended August 31, 2006 and nine months (since inception) ended November 30, 2005. 4 Condensed Notes to Interim Financial Statements 5-7 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Interim Balance Sheets As at August 31, 2006 and November 30, 2005 (Amounts expressed in US Dollars) (Unaudited) ASSETS August 31, November 30, 2006 2005 ---------- ------------ CURRENT ASSETS Cash 254,405 126 ========= ======== LIABILITIES August 31, November 30, 2006 2005 ---------- ------------ CURRENT LIABILITIES Accounts payable and accrued liabilities 9,160 16,076 Loans from Directors/Shareholders (note 5) 8,787 8,029 --------- --------- 17,947 24,105 --------- --------- STOCKHOLDERS' EQUITY (DEFICIENCY) CAPITAL STOCK (note 4) 10,215 6,923 ADDITIONAL PAID-IN CAPITAL 708,905 157,797 DEFICIT, ACCUMULATED DURING THE DEVELOPMENT STAGE (482,662) (188,699) --------- --------- 236,458 (23,979) --------- --------- 254,405 126 ========= ========= See condensed notes to the interim financial statements 1 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Interim Statement of Operations For the nine months and three months ended August 31, 2006 and August 31, 2005 (Amounts expressed in US Dollars) (Unaudited) 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 2006 2005 2006 2005 --------- ----------- ----------- ------------ ------------ $ $ $ $ $ RESEARCH AND PRODUCT DEVELOPMENT COST 298,200 218,200 70,000 128,025 37,000 OTHER OPERATING EXPENSES General and administration 49,546 28,071 17,229 13,603 13,168 Legal and accounting 60,916 38,942 898 12,825 210 Consulting and professional 74,000 8,750 65,250 - - --------- ----------- ----------- ------------ ------------ TOTAL EXPENSES 482,662 293,963 153,377 154,453 50,378 --------- ----------- ----------- ------------ ------------ LOSS BEFORE INCOME TAXES (482,662) (293,963) (153,377) (154,453) (50,378) Income taxes - - - - - --------- ----------- ----------- ------------ ------------ NET LOSS (482,662) (293,963) (153,377) (154,453) (50,378) --------- ----------- ----------- ------------ ------------ Loss per share - basic and diluted (0.04) (0.02) (0.02) (0.01) ----------- ----------- ------------ ------------ Weighted average common shares outstanding 7,989,179 6,771,360 8,367,054 6,962,010 ----------- ----------- ------------ ------------
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, 2006 and August 31, 2005 (Amounts expressed in US Dollars) (Unaudited) For the For the nine months nine months Cumulative ended ended since August 31, August 31, inception 2006 2005 ---------- ----------- ----------- $ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period (482,662) (293,963) (153,377) Items not requiring an outlay of cash: Issue of shares for professional services 74,000 8,750 65,250 Increase/(Decrease) in accounts payable and accrued liabilities 9,160 (6,916) (3,791) ---------- ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (399,502) (292,129) (91,918) CASH FLOWS FROM INVESTING ACTIVITIES -- -- -- ---------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES -- -- -- ---------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Increase in loans from directors/shareholders 8,787 758 150 Proceeds from issuance of common shares 645,120 545,650 99,470 NET CASH PROVIDED BY FINANCING ACTIVITIES 653,907 546,408 99,620 ---------- ----------- ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS FOR THE PERIOD 254,405 254,279 7,702 Cash and cash equivalents, beginning of period -- 126 - ---------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD 254,405 254,405 7,702 ========== =========== =========== 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 (Deficiency) For the nine months ended August 31, 2006 and nine months (since inception) ended November 30, 2005 (Amounts expressed in US Dollars) (Unaudited) 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) --------- ------ ----------- ------------ ----- 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 Net loss for the period -- -- -- (293,963) (293,963) --------- ------ ----------- ----------- -------- Balance as of August 31, 2006 10,214,880 10,215 708,905 (482,662) 236,458 =========== ======= =========== ============ =======
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, 2006 (Amounts expressed in US Dollars) (Unaudited) 1. BASIS OF PRESENTATION The accompanying unaudited interim 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, 2006. Interim financial statements should be read in conjunction with the Company's audited financial statements for the nine-month period ended November 30, 2005. The financial statements include the accounts of Security Devices International Inc. (the "Company"). The Company was incorporated on March 1, 2005. The first period for financial statements of the Company commenced March 1, 2005 and ended November 30, 2005. 2. NATURE OF OPERATIONS AND GOING CONCERN The Company was incorporated under the laws of the state of Delaware on March 1, 2005. The company plans to develop and market a wireless, non-lethal weapon for use in law enforcement, defense and personal security. The company's product in the making is similar to the widely used Stun Gun, except that it can effectively incapacitate offenders from a distance as far as 30 meters without a trail of wires leading back to the launcher. The company has not commenced operations. It has no source for 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 to continue to develop and be able to profitably market its product. There is no guarantee that such capital will be available on acceptable terms, if at all. 3. 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. 5 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Condensed Notes to Interim Financial Statements August 31, 2006 (Amounts expressed in US Dollars) (Unaudited) 4. ISSUANCE OF COMMON SHARES a) Changes to Issued Share Capital i) On December 31, 2005 the Company authorized the issuance of 486,000 common shares for cash for a total consideration of $48,600. ii) On January 31, 2006 the Company authorized the issuance of 470,000 common shares for cash for a total consideration of $ 47,000. iii) On March 8, 2006 the Company authorized the issuance of 286,000 common shares for cash @ $0.175 per share for a total consideration of $50,050. On the same day, the Company authorized the issuance of 50,000 shares to a consultant for the services rendered as finder's fees. These services were valued @$0.175 per common share and expensed as consulting fees in the amount of $8,750. iv) By means of a prospectus dated May 5, 2006 the Company offered to the public up to 2,000,000 shares of its common stock at a price of $0.20 per share. The Company closed the offering on July 31, 2006 after receiving consideration of $400,000 and issued 2,000,000 common shares in August, 2006. b) Purchase Warrants During the current quarter no warrants were issued. 6 SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Condensed Notes to Interim Financial Statements August 31, 2006 (Amounts expressed in US Dollars) (Unaudited) 5. RELATED PARTY TRANSACTIONS During the nine month period ended May 31, 2006 no director was paid any compensation in cash. All out of pocket expenses of directors/promoters were expensed. The Directors made advances to the Company to meet the operating expenses. These advances of $8,787 as on August 31, 2006 are unsecured and bear interest at 4% p.a. Further, a Company Director has charged the Company a total amount of $2,250 for providing office space for the nine month period ended August 31, 2006. The Company's officers and directors have agreed to serve without compensation until commercial sales begin. The Company has agreed to pay a director a royalty equal to 3.5% of the Company's sales 6. LISTING OF COMMON STOCK The common stock of the Company was listed for trading on the OTC Bulletin Board under the symbol "SDEV" effective August 28, 2006. 7. INCOME TAXES The Company did not record any recovery for income taxes for the period ended August 31, 2006 as the net loss carry forwards are fully offset by a valuation allowance 8. SUBSEQUENT EVENT By means of a prospectus dated September 7, 2006 a number of shareholders of the Company are offering to sell up to 2,814,880 common shares at a price of $0.20 per share. The Company will not record any proceeds for the sale of the common stock by the selling stockholders. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS Security Devices International was incorporated on March 1, 2005 and as of October 10, 2006 had not generated any revenue. Security Devices is developing a wireless, non-lethal weapon for use in law enforcement, defense and personal security. Known as the W-EMDT Wireless Electro-Muscular Disruption Technology, (previously referred to as the "WERS"), Security Devices' weapon will be similar to the widely used Stun Gun and TASER(R), except that it will be able to effectively incapacitate offenders from a distance as far as 30 meters without a trail of wires leading back to the launcher. The W-EMDT weapon will have a range which is more than four times farther than TASER(R), providing a significant safety advantage for law enforcement officers and security personnel. During the period from inception (March 1, 2005) through August 31, 2006 Security Devices' operations used $(399,502) in cash. During this period, Security Devices borrowed $8,787 (net) from its officers and directors, raised $245,120 from the sale of its common stock in private transactions and raised $400,000 from the public sale of its shares. Security Devices' plan of operation during the twelve months ending August 31, 2007 is as follows: Projected Estimated Activity Completion Date Cost -------- --------------- ----------- Completion of fully operational Long Range W-EMDT prototype (rifle fired) for production 10/06 $177,000 Completion of fully operational Long Range W-EMDT prototype (shotgun fired) for production 2/07 30,000 Design production system for Long Range W-EMDT 2/07 536,000 --------- $743,000 ========= Security Devices plans to develop a Short Range version of the W-EMDT after the development to the Long Range W-EMDT has been completed. However since the development of the Long Range W-EMDT is not complete, Security Devices does not know the time or cost involved in developing the Short Range W-EMDT. Security Devices anticipates that its capital requirements for the twelve months ending August 31, 2007 will be: Research and Development $743,000 General and administrative expenses 70,000 Offering Expenses 30,000 -------- Total $843,000 ======== Security Devices' future plans will be dependent upon the amount of capital Security Devices is able to raise. Security Devices will attempt to raise any additional capital which it may need through the private or public sale of its equity securities or borrowings from third parties. Security Devices does not have any commitments or arrangements from any person to provide Security Devices with any capital. If additional financing is not available when needed, Security Devices may continue to operate in its present mode or Security Devices may need to reduce its level of operations. Controls and Procedures Sheldon Kales, the Company's Chief Executive and Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report, and in his opinion the Company's disclosure controls and procedures are effective to ensure that material information relating to the Company, is made known to him by others within those entities, particularly during the period in which this report is being prepared, so as to allow timely decisions regarding required disclosure. There have been no changes in the Company's internal controls or in other factors that could significantly affect the Company's internal controls. As a result, no corrective actions with regard to significant deficiencies or material weakness in the Company's internal controls were required. PART II 6. EXHIBITS The following exhibits are filed with this report: Number Description 31 Rule 13a-14(a)/15d-14(a) certifications 32 Section 1350 certifications SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized on October 9, 2006. SECURITY DEVICES INTERNATIONAL INC. By /s/ Sheldon Kales ------------------------------------- Sheldon Kales, President and Principal Accounting Officer