Byrna Technologies Inc.

10-Q 1 form10q.htm FORM 10-Q Security Devices International, Inc. - Form 10-Q - Filed by newsfilecorp.com

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 29, 2012

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _ to _

Commission File Number: 333-132456

SECURITY DEVICES INTERNATIONAL, INC. (Exact Name of Registrant as Specified in its Charter)

Delaware	71-1050654
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1101 Pennsylvania Ave., NW, 6th Floor Washington, DC 20004 (Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number including area code: 202-538-1677

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 (§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 [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]

As of April 12, 2012, the Company had 26,828,050 issued and outstanding shares of common stock

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise)

INTERIM FINANCIAL STATEMENTS

FEBRUARY 29, 2012

(Amounts expressed in US Dollars)

(Unaudited)

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise)

INTERIM FINANCIAL STATEMENTS

FEBRUARY 29, 2012

(Amounts expressed in US Dollars) (Unaudited)

TABLE OF CONTENTS

	Page No
Interim
Balance Sheets as at February 29, 2012 and November 30, 2011	1
Interim
Statements of Operations and Comprehensive loss for the three months ended
February 29, 2012 and February 28, 2011 and the period from inception
(March 1, 2005) to February 29, 2012	2
Interim
Statements of Cash Flows for the three months ended February 29, 2012 and
February 28, 2011and the period from inception (March 1, 2005) to February
29, 2012	3
Interim
Statements of Changes in Stockholders Deficit for the three months ended
February 29, 2012 and the period from inception (March 1, 2005) to
November 30, 2011	4
Condensed
Notes to Interim Financial Statements	5-16

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Interim Balance Sheets As at February 29, 2012 and November 30, 2011 (Amounts expressed in US Dollars)

	February 29 — 2012		November 30, — 2011
	(unaudited)		(audited)
	$		$
ASSETS
CURRENT
Cash	557,260		114,835
Deferred financing
costs (Note 10)	2,150		10,916
Prepaid expenses and other receivables
(Note 11)	130,010		107,704
Total Current Assets	689,420		233,455
Plant and Equipment (Note 4)	21,209		18,414
TOTAL ASSETS	710,629		251,869
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities	232,720		568,995
Current portion of Convertible Debentures (Note 10)	143,799		135,998
Total Current Liabilities	376,519		704,993
Convertible Debentures (Note 10)	1,508,053		731,828
Total Liabilities	1,884,572		1,436,821
Going Concern (Note 2)
Related Party Transactions (Note 8)
Commitments (Note 9)
Subsequent Events (Note 12)
STOCKHOLDERS' DEFICIT
Capital Stock (Note 5)
Preferred stock, $0.001 par value, 5,000,000 shares authorized,
Nil issued and outstanding (2010 - nil) Common stock, $0.001 par value, 50,000,000 shares authorized, 26,828,050 issued and outstanding (2010 -25,878,050)	26,828		26,828
Additional Paid-In Capital	16,327,868		16,064,428
Deficit Accumulated During the Development Stage	(17,528,639	)	(17,276,208	)
Total Stockholders' Deficit	(1,173,943	)	(1,184,952	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	710,629		251,869

See condensed notes to the interim financial statements.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Interim Statements of Operations and Comprehensive loss For the Three Months Ended February 29, 2012 and February 28, 2011 and the Period from Inception (March 1, 2005) to February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

	Cumulative		For the — quarter		For the — quarter
	since inception		ended		ended
	(March 1, 2005)		February 29,		February 28,
			2012		2011
	$		$		$
EXPENSES:
Research and Product
Development cost (recovery) (note 12 (b))	7,473,781		(215,143	)	159,809
Amortization	42,643		2,284		2,696
General and administration	10,170,430		421,189		166,872
TOTAL OPERATING EXPENSES	17,686,854		208,330		329,377
LOSS FROM OPERATIONS	(17,686,854	)	(208,330	)	(329,377	)
Other expense-Interest	(114,379	)	(44,101	)	-
Other Income-Interest	272,594		-		-
LOSS BEFORE INCOME TAXES	(17,528,639	)	(252,431	)	(329,377	)
Income taxes	-		-		-
NET LOSS AND COMPREHENSIVE LOSS	(17,528,639	)	(252,431	)	(329,377	)
Loss per share basic and diluted			(0.01	)	(0.01	)
Weighted average common shares outstanding			26,828,050		25,878,050

See condensed notes to the interim financial statements.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Statements of Cash Flows For the Three Months Ended February 29, 2012 and February 28, 2011 and the Period from Inception (March 1, 2005) to February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

			For the		For the
			three months		three months
	Cumulative		ended		ended
	since inception		February 29,		February 28,
	(March 1, 2005)		2012		2011
	$		$		$
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period	(17,528,639	)	(252,431	)	(329,377	)
Items not requiring an outlay of cash:
Issue of shares for services	584,500		-		-
Stock based compensation for options and warrants (included in general and administration expenses)	5,769,846		213,440		-
Recovery of accounts payable	(215,143	)	(215,143	)
Loss on cancellation of common stock	34,400		-		-
Amortization of plant and
equipment	42,643		2,284		2,696
Amortization of debt discount	27,824		9,026		-
Amortization of deferred
financing cost	33,010		8,766		-
Changes in non-cash working capital:
Prepaid expenses and other
receivables	(130,010	)	(22,306	)	21,466
Accounts payable and accrued liabilities*	412,703		(121,132	)	(20,543	)
NET CASH USED IN
OPERATING ACTIVITIES	(10,968,866	)	(377,496	)	(325,758	)
CASH FLOWS FROM
INVESTING ACTIVITIES
Acquisition of Plant and
Equipment	(63,852	)	(5,079	)	-
NET CASH
USED IN INVESTING ACTIVITIES	(63,852	)	(5,079	)	-
CASH
FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common shares	9,819,150		-		150,000
Proceeds from convertible debentures	1,703,328		825,000		-
Cancellation of common stock	(50,000	)	-		-
Exercise of stock options	117,500		-		-
NET CASH
PROVIDED BY FINANCING ACTIVITIES	11,589,978		825,000		150,000
NET
INCREASE (DECREASE) IN CASH
FOR THE
PERIOD	557,260		442,425		(175,758	)
Cash, beginning of period	-		114,835		247,328
CASH, END OF PERIOD	557,260		557,260		71,570
SUPPLEMENTAL DISCLOSURE
OF CASH FLOWS:
INCOME TAXES PAID	-		-		-
INTEREST PAID	-		-		-

Excludes the credit of $35,160 to accrued liability resulting from deferred financing (a non cash item)

See condensed notes to the interim financial statements.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Statement of Changes in Stockholders Deficit For the period from inception (March 1, 2005) to February 29, 2012. (Amounts expressed in US Dollars) (Unaudited)

	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	8,143,000		8,143		1,665,157				1,673,300
Issuance of common shares for services	2,500,000		2,500		428,000				430,500
Stock subscriptions received					30,000				30,000
Stock based compensation					289,670				289,670
Net loss for the year							(2,320,962	)	(2,320,962	)
Balance as of November 30, 2010	25,878,050		25,878		15,876,078		(16,374,650	)	(472,694	)
Issuance of common shares for
cash	800,000		800		159,200				160,000
Common shares issued for stock subscriptions
received in prior year	150,000		150		(150	)
Beneficial conversion feature
on Convertible debt					29,300				29,300
Net loss for the year							(901,558	)	(901,558	)
Balance as of November 30,
2011	26,828,050		26,828		16,064,428		(17,276,208	)	(1,184,952	)
Beneficial conversion feature on Convertible
debt					50,000				50,000
Stock based compensation					213,440				213,440
Net loss for the period							(252,431	)	(252,431	)
Balance as of February 29,
2012	26,828,050		26,828		16,327,868		(17,528,639	)	(1,173,943	)

See condensed notes to the interim financial statements.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

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
managements discussion and analysis of financial condition and results of
operations contained in the Companys annual report on Form 10-K for the
year ended November 30, 2011. 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 February 29, 2012 and November 30, 2011, the
results of its operations for the three-month periods ended February 29,
2012 and February 28, 2011, and its cash flows for the three-month periods
ended February 29, 2012 and February 28, 2011. In addition, some of the
Companys 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
three-month period ended February 29, 2012 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
	The Company is a defence technology
corporation specializing in the development of innovative next generation
less-than-lethal security solutions that do not require the use of deadly
force. SDI has implemented manufacturing partnerships to assist in the
deployment of their patent pending family of products. These products
consist of; the Blunt Impact Projectile 40mm (BIP40), and the Wireless
Electric Projectile 40mm (WEP40).
	These financial statements have been prepared in
accordance with generally accepted accounting principles applicable to a
going concern, which assumes that the Company will be able to meet its
obligations and continue its operations for its next fiscal year. At
February 29, 2012, the Company has no source of operating cash flows, has
not achieved profitable operations, and has accumulated losses of
$17,528,639 since inception and expects to incur further losses in the
development of its business. These factors cast substantial doubt about
the Companys ability to continue as a going concern. The Company has a
need for additional working capital to launch its blunt impact and
electric 40mm round products, meet its ongoing levels of corporate
overhead, and discharge its liabilities as they come
due.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

| 2. |
| --- |
| 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 $1,673,300 net through the issue of 8,143,000 common
shares and also received $30,000 subscription for 150,000 shares pending
allotment during the year ended November 30, 2010. The Company further
raised an additional $160,000 through the issuance 800,000 common shares
during the year ended November 30, 2011 and also allotted 150,000 shares
relating to subscriptions received in 2010.The company raised an
additional $878,328 by issue of Convertible Debentures during the year
ended November 30, 2011 and in addition raised $825,000 by issue of
Convertible Debentures during the three month period ended February 29,
2012. |
| While the Company has been successful in securing
financings in the past, there is no assurance that it will be able to do
so in the future. Accordingly, these financial statements do not give
effect to adjustments, if any, that would be necessary should the Company
be unable to continue as a going concern |
| At February 29, 2012, the Company had an accumulated
deficit during the development stage of $17,528,639 which includes a non-
cash stock based compensation expense of $5,769,846 for issue of options
and warrants. |

| 3. |
| --- |
| Research and Product Development costs, including
acquired research and product development costs, are charged against
income in the period incurred. |

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

| 4. |
| --- |
| 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
Leasehold Improvements		straight line over period of
lease

	February 29, 2012	Accumulated		Accumulated
	Cost	Amortization	Cost	Amortization
	$	$	$	$
Computer equipment	37,573	25,708	35,211	24,873
Furniture and fixtures	18,027	11,310	15,310	10,985
Leasehold Improvements	8,252	5,625	8,252	4,501
	63,852	42,643	58,773	40,359
Net carrying amount	$	21,209	$ 18,414
Amortization expense	$	2,284(3 months)	$ 10,786(12 months)

CAPITAL STOCK

| a) |
| --- |
| 50,000,000 Common shares, $0.001 par
value And 5,000,000 Preferred shares, $0.001
par value |

The Companys 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 SDIs common stock.

b)
26,828,050 Common shares

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

CAPITAL STOCK-Contd

c) Changes to Issued Share Capital

Year ended November 30, 2011

During the year the Company issued 800,000 shares of common stock to private investors at a price of $0.20 per share. In addition, the Company allotted 150,000 common shares to a subscriber who had subscribed for common shares at $0.20 per share in the prior year. 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.

Three months ended February 29, 2012

The Company did not issue any shares during this period.

| 6. |
| --- |
| Effective October 30, 2006 the Company adopted the
following stock option and stock bonus plans. |
| Incentive Stock Option Plan . The Companys
Incentive Stock Option Plan authorizes the issuance of shares of its
Common Stock to persons that exercise options granted pursuant to the
Plan. Only employees may be granted options pursuant to the Incentive
Stock Option Plan. The option exercise price is determined by its
directors but cannot be less than the market price of its common stock on
the date the option is granted. The Company has reserved 1,000,000 common
shares under this plan. No options have been issued under this plan as at
February 29, 2012. |
| Non-Qualified Stock Option Plan . SDIs
Non-Qualified Stock Option Plan authorizes the issuance of shares of its
Common Stock to persons that exercise options granted pursuant to the
Plans. SDIs employees, directors, officers, consultants and advisors are
eligible to be granted options pursuant to the Plans, provided however
that bona fide services must be rendered by such consultants or advisors
and such services must not be in connection with the offer or sale of
securities in a capital-raising transaction. By a resolution of the Board
of Directors, the Company amended this plan to increase the number of
common shares available under this plan from 2,250,000 to 4,500,000
effective October 10, 2007. The Company further amended its Non-Qualified
Stock Option Plan to increase the number of Common Shares available under
this plan to 5,000,000 and filed an S-8 registration statement on April
10, 2008. |

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

| 6. |
| --- |
| Stock Bonus Plan . SDIs Stock Bonus Plan allows
for the issuance of shares of common stock to its employees, directors,
officers, consultants and advisors. However bona fide services must be
rendered by the consultants or advisors and such services must not be in
connection with the offer or sale of securities in a capital-raising
transaction. The Company has reserved 150,000 common shares under this
plan. No options have been issued under this plan as at February 29,
2012. |
| Year ended November 30, 2011 |
| The Company did not issue any options during the year
ended November 30, 2011. |
| Three months ended February 29, 2012 |
| On January 4, 2012, the board of directors granted
options to three directors to acquire a total of 775,000 common shares,
one officer to acquire 20,000 common shares and two consultants to acquire
a total of 110,000 common shares. All these 905,000 options were issued at
an exercise price of $0.13 per share and vest immediately with an expiry
term of four years. 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
Expected dividends	0%
Forfeiture rate	0%
Volatility	206.87%
Market price of Companys common stock on
date
of grant of options	$ 0.13
Stock-based compensation cost	$ 113,292

As of February 29, 2012 there was $Nil of unrecognized expense related to non-vested stock-based compensation arrangements granted.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

| 7. |
| --- |
| Year ended November 30, 2011 |
| The Company did not issue any stock purchase warrants
during the year ended November 30, 2011. |
| Three months ended February 29, 2012 |
| On January 4, 2012, the board of directors issued
warrants to a corporation in which the Chief Operating officer has an
interest in, to acquire a total of 800,000 common shares. These warrants
were issued at an exercise price of $0.13 per share with an expiry term of
four years. The Company will expense stock based compensation cost of
$100,148 for the quarter ending February 29, 2012. The fair value of each
warrant used for the purpose of estimating the compensation expense is
calculated using the Black-Scholes option pricing model with the following
weighted average assumptions: |

Risk free rate
Expected dividends	0%
Forfeiture rate	0%
Volatility	206.87%
Market price of Companys common stock on
date
of grant of options	$ 0.13
Compensation expense	$ 100,148

| 8. |
| --- |
| The following transactions are in the normal course of
operations and are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties. |
| Three months ended February 29, 2012 |
| The directors were compensated as per their consulting
agreements with the Company. The Company expensed a total of $54,000 as
Management fee for payment to its three directors and expensed a total of
$1,200 as automobile allowance. |
| On January 4, 2012, the board of directors granted
options to three directors to acquire a total of 775,000 common shares and
one officer to acquire 20,000 common shares. All these 795,000 options
were issued at an exercise price of $0.13 per share and vest immediately
with an expiry term of four years. The Company expensed stock based
compensation cost of $99,522 for these options. |
| The Company expensed $5,000 for services provided by the
CFO of the Company and $30,000 for services provided by a corporation in
which the Chief Operating Officer has an interest. |

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

| 8. |
| --- |
| Three months ended February 28, 2011 |
| The Company expensed a total of $25,000 as Management fee
for payment to its two directors for the three month period. |
| The Company expensed $3,500 for services provided by the
CFO of the Company and $24,000 for services provided by COO of the
Company. |

| 9. |
| --- |
| a) Consulting agreements: |
| Effective January 1, 2012, the directors of the Company
executed consulting agreement with the Company on the following terms:
Agreement with a director to pay compensation for $5,000 per month. The
agreement expires April 30, 2012. |
| Agreement with a director to pay compensation for $7,000
per month. The agreement expires December 31, 2012. |
| Agreement with the Chief Executive Officer to pay
compensation for $12,000 per month plus a car allowance for $600 per
month. The agreement expires December 31, 2016. The monthly remuneration
will increase with accomplishment of milestones. |
| Effective December 1, 2011, SDI executed an agreement
with a corporation in which the Chief Operating Officer has an interest
in, for a period of ten months which expires September 30, 2012 for
services rendered. The total consulting fees is estimated at $200,000 for
the ten month period. The corporation may also accept common shares at
$0.25 per common share in lieu of cash. |

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

COMMITMENTS -Contd

b) The Company has commitments for leasing office premises in Oakville, Ontario, Canada to September 30, 2012 at a monthly rent (excluding proportionate realty and maintenance costs and taxes) of Canadian $2,500 per month.

c) The Company has issued a purchase order to an outside supplier for acquisition of injection moulds for their BIP40 ammunition round for a total consideration of $123,675. The Company has advanced $87,146 up to the February 29, 2012.

CONVERTIBLE DEBENTURES AND DEFERRED FINANCING COSTS

The carrying values of the Companys convertible debentures consist of the following as of February 29, 2012:

| $100,000 face value convertible debenture
due March 23, 2012 (Convertible Debenture 1) | $ 98,157 | |
| --- | --- | --- |
| $46,500 face value convertible debenture due April 14, 2012
(Convertible Debenture 3) | 45,642 | |
| $731,828 face value convertible debenture
due June 30, 2014 (Convertible Debenture 2) | 731,828 | |
| $585,000 face value convertible debenture due January 16,
2015 (Convertible Debenture 4) | 585,000 | |
| $240,000 face value convertible debenture
due January 16, 2015 (Convertible Debenture 5) | 191,225 | |
| Total | $ 1,651,852 | |
| Current portion | $ (143,799 | ) |
| | $ 1,508,053 | |

$100,000 Face Value Convertible Debenture

On March 23, 2011, the Company issued a $100,000 face value Convertible Debenture, due March 23, 2012 (Convertible Debenture 1), to an investor (Investor) for net proceeds of $100,000. The debenture accrues interest at 10% per annum. Both principal and interest are payable at maturity. However, the principal amount, plus accrued interest, may be converted into common stock at the option of the Investor at any time during the term to maturity at a conversion price of $0.20 per share, subject to adjustment solely for capital reorganization events. The debenture also embodies certain traditional default provisions that are linked to credit or interest risks, such as bankruptcy proceedings, liquidation events and corporate existence. In the event the Company enters into a Subsequent Financing (an offering of no less than $3,000,000) that occurs prior to the Maturity Date, the debenture will automatically convert at a conversion price per share equal to $0.20 (subject to adjustment for stock splits, recapitalizations or similar events) immediately prior to the closing of the Financing. In addition to any principal payment made at maturity or any prepayment of principal, the Company is required to issue as an additional capital payment common stock equal to 20% of the principal amount paid or payable divided by the then applicable Conversion price.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

CONVERTIBLE DEBENTURES AND DEFERRED FINANCING COSTS-Contd

$46,500 Face Value Convertible Debenture

On April 14, 2011, the Company issued a $46,500 face value Convertible debenture, due April 14, 2012 (Convertible Debenture 3), to an investor (Investor) for net proceeds of $46,500. The Debenture accrues interest at 10% per annum. Both principal and interest are payable at maturity. However, the principal amount, plus accrued interest, may be converted into common stock at the option of the Investor at any time during the term to maturity at a conversion price of $0.20 per share, subject to adjustment solely for capital reorganization events. The debenture also embodies certain traditional default provisions that are linked to credit or interest risks, such as bankruptcy proceedings, liquidation events and corporate existence. In the event the Company enters into a Subsequent Financing (an offering of no less than $3,000,000) that occurs prior to the Maturity Date, the debenture will automatically convert at a conversion price per share equal to $0.20 (subject to adjustment for stock splits, recapitalizations or similar events) immediately prior to the closing of the Financing. In addition to any principal payment made at maturity or any prepayment of principal, the Company is required to issue as an additional capital payment common stock equal to 20% of the principal amount paid or payable divided by the then applicable Conversion price.

$731,828 Face Value Convertible Debenture

During the year ended November 30, 2011 the Company issued $731,828 face value Convertible debentures, due June 30 2014 (Convertible Debentures 2), to various investors (Investors) for net proceeds of $731,828. The Debenture accrues interest at 8% per annum. The principal is payable at maturity whereas the interest is payable annually in arrears on each anniversary of the issuance date. The principal may be converted in multiples of $1,000 into common stock at the option of the Investor at any time during the term to maturity. The conversion prices are (i) $0.30 on or before the first anniversary of the debenture; (ii) $0.35 on or before the second anniversary of the debenture; and (iii) $0.40 after the second anniversary of the issuance of the debenture and maturity. The conversion prices are subject to adjustment solely for capital reorganization events.

The debenture provides down-round protection to the Investor in the event the Company issues rights, options or warrants to all or substantially all the holders of the Common Shares pursuant to which those holders are entitled to subscribe for, purchase or otherwise acquire Common Shares or Convertible Securities within a period of 45 days from the date of issue (the Rights Period) at a price, or at a conversion price, of less than 90% of the Current Market Price at the record date for such distribution (any such issuance being a Rights Offering and Common Shares that may be acquired in exercise of the Rights Offering, or upon conversion of the Convertible Securities offered by the Rights Offering, being the Offered Shares). The debenture also embodies certain traditional default provisions that are linked to credit or interest risks, such as bankruptcy proceedings, liquidation events and corporate existence. In the event of a reorganization, consolidation, merger, or a sale of all or substantially all of the assets, the Company has the option to redeem the debenture at (i) $1,250 per $1,000 of Principal Sum, if occurring on or before the first anniversary of issuance; (ii) $1,125 per $1,000 of Principal Sum if occurring after the first anniversary and prior to the second anniversary of issuance; and (iii) $1,050 per $1,000 of Principal Sum if occurring after the second anniversary of issuance and prior to the end of the term.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

CONVERTIBLE DEBENTURES AND DEFERRED FINANCING COSTS-Contd

$585,000 Face Value Convertible Debenture

During the quarter ended February 29, 2012 the Company issued $585,000 face value Convertible debentures, due January 16, 2012 (Convertible Debentures 4), to various investors (Investors) for net proceeds of $585,000. The Debenture accrues interest at 8% per annum. The principal is payable at maturity whereas the interest is payable annually in arrears on each anniversary of the issuance date. The principal may be converted in multiples of $1,000 into common stock at the option of the Investor at any time during the term to maturity. The conversion prices are (i) $0.30 on or before the first anniversary of the debenture; (ii) $0.35 on or before the second anniversary of the debenture; and (iii) $0.40 after the second anniversary of the issuance of the debenture and maturity. The conversion prices are subject to adjustment solely for capital reorganization events.

$240,000 Face Value Convertible Debenture

During the quarter ended February 29, 2012 the Company issued $240,000 face value Convertible debentures, due January 16, 2012 (Convertible Debentures 5), to various investors (Investors) for net proceeds of $240,000. The Debenture accrues interest at 8% per annum. The principal is payable at maturity whereas the interest is payable annually in arrears on each anniversary of the issuance date. The principal may be converted in multiples of $1,000 into common stock at the option of the Investor at any time during the term to maturity. The conversion prices are (i) $0.30 on or before the first anniversary of the debenture; (ii) $0.35 on or before the second anniversary of the debenture; and (iii) $0.40 after the second anniversary of the issuance of the debenture and maturity. The conversion prices are subject to adjustment solely for capital reorganization events.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

CONVERTIBLE DEBENTURES AND DEFERRED FINANCING COSTS-Contd

The debenture also embodies certain traditional default provisions that are linked to credit or interest risks, such as bankruptcy proceedings, liquidation events and corporate existence. In the event of a reorganization, consolidation, merger, or a sale of all or substantially all of the assets, the Company has the option to redeem the debenture at (i) $1,250 per $1,000 of Principal Sum, if occurring on or before the first anniversary of issuance; (ii) $1,125 per $1,000 of Principal Sum if occurring after the first anniversary and prior to the second anniversary of issuance; and (iii) $1,050 per $1,000 of Principal Sum if occurring after the second anniversary of issuance and prior to the end of the term.

Accounting for the Financings:

The Company has evaluated the terms and conditions of the convertible debentures under the guidance of ASC 815, Derivatives and Hedging. The conversion features meet the definition of conventional convertible for purposes of applying the conventional convertible exemption. The definition of conventional contemplates a limitation on the number of shares issuable under the arrangement. In the case of Convertible Debenture 1 and Convertible Debenture 3, the instrument is convertible into a fixed number of shares and there are no down round protection features contained in the contracts. In the case of Convertible Debentures 2, 4 and 5 the instrument is convertible into a fixed number of shares. Although this instrument contains a down-round protection feature, it was determined to be insignificant and did not preclude characterization as conventional convertible. Since the Convertible Debentures achieved the conventional convertible exemption, the Company was required to consider whether the hybrid contracts embody a beneficial conversion feature. In the case of Convertible Debenture 1, 3 and 5 the calculation of the effective conversion amount resulted in a beneficial conversion feature. However, in the case of Convertible Debentures 2 and 4 the calculation of the effective conversion amount did not result in a beneficial conversion feature. At inception, the Company recorded a beneficial conversion feature for Convertible Debenture 1, 3 and 5 as a component of stockholders equity.

The automatic conversion provision embedded in Convertible Debenture 1 and 3 and the optional redemption feature embedded in Convertible Debentures 2, 4 and 5 were not considered clearly and closely related to the host debt instrument. The Company analyzed the down-round protection feature, which expires 45 days from the inception date of the financing. The Company determined that there were no contemplated financings during this time period that would trigger the down-round protection feature. Given the features short-term nature and the unlikelihood of a triggering event occurring, the down-round protection feature was deemed immaterial at inception and thus does not require bifurcation and liability classification.

The purchase price allocation for Convertible Debenture 1, 3 and 5 resulted in a debt discount of $20,000, $9,300 and $50,000 respectively. The discount on the debenture will be amortized through periodic charges to interest expense over the term of the debenture using the effective interest method. Amortization of debt discount amounted to $9,026 during the three month period ended February 29, 2012.

SECURITY DEVICES INTERNATIONAL, INC. (A Development Stage Enterprise) Notes to Financial Statements February 29, 2012 (Amounts expressed in US Dollars) (Unaudited)

CONVERTIBLE DEBENTURES AND DEFERRED FINANCING COSTS-Contd

The Company is required to issue common stock as an additional capital payment to any principal payment made on the Convertible Debenture 1 and Convertible Debenture 3. The Company has recorded this commitment as a liability in the amount of $35,160. The offsetting charge is to deferred financing costs. The deferred financing costs will be amortized through periodic charges to interest expense over the term of the debenture using the straight-line method. Amortization of deferred financing costs amounted to $8,766 during the three month period ended February 29, 2012. Unamortized deferred financing costs as at February 29, 2012 is $2,150 (November 30, 2011- $10,916)

PREPAID EXPENSES AND OTHER RECEIVABLES

Included in prepaid expenses and other receivables is an amount of $87,146 advanced to a supplier as a deposit for purchase of injection molds for their BIP40 ammunition rounds.

SUBSEQUENT EVENTS

a) Convertible Debentures

The Company issued $45,000 face value Convertible debentures, due January 16, 2015, to various investors (Investors) for net proceeds of $45,000. The Debenture accrues interest at 8% per annum. The principal is payable at maturity whereas the interest is payable annually in arrears on each anniversary of the issuance date. The principal may be converted in multiples of $1,000 into common stock at the option of the Investor at any time during the term to maturity. The conversion prices are (i) $0.30 on or before the first anniversary of the debenture; (ii) $0.35 on or before the second anniversary of the debenture; and (iii) $0.40 after the second anniversary of the issuance of the debenture and maturity. The conversion prices are subject to adjustment solely for capital reorganization events.

b) Settlement of Accounts Payable

On November 30, 2009, the Company entered into a Memorandum of Understanding (MOU) with its former research and development services contractor Elad Engineering Ltd. (Elad) to settle their liability. On March 13, 2012, the Company entered into a definitive agreement with Elad to settle the accounts payable. Elad had previously performed services for the development of a less-than-lethal-electric-projectile and blunt impact projectile. At the date of the settlement agreement, the Company owed Elad $315,143.The Company and Elad agreed to irrevocably waive and release each other from any claim, demand or action in connection with services provided, upon payment of $100,000 by the Company to Elad no later than March 20, 2012. In addition, all of the issued and outstanding stock options for common shares in the Companys capital stock previously issued to the principals of Elad are to be converted into warrants on terms identical to the terms of the existing stock options.

The $100,000 payment was made on March 20, 2012.

Since the terms of the settlement agreement was agreed upon in principle as at February 29, 2102, the Company recorded the reduction of the payable in the amount of $215,143 as recovery of research and development product development cost.

PART I

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATION

SDI is a less-than-lethal defense technology company, 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 deploying their patent pending family of products. These products consist of; the Blunt Impact Projectile 40mm (BIP40), and the Wireless Electric Projectile 40mm (WEP40). The market sectors for these products include; the military, army, navy, air force, marines, peacekeeping, homeland security, and law enforcement professionals. SDIs products were designed for use in existing 40mm grenade launchers, and standard issue riot guns.

The BIP40 is a direct impact less-than-lethal ammunition round. Developed to respond to the increasing demand for security solutions in circumstances that do not require lethal force to control. Patented technologies allow for operational effectiveness at distances of up to 262 feet (80m), while still enhancing target safety if engaged from close range.

The BIP40 operates with smokeless powder as a propellant, ensuring consistent velocity and accuracy at long distances. The head of the round has a collapsible nose that absorbs the kinetic energy upon impact. The Company holds a global patent for the collapsible nose.

Designed to supersede previous blunt impact solutions such as foam, baton, sponge rounds, and rubber bullets, the BIP40s technology enables the projectile to engage the target with higher kinetic energy while meeting official, military standard requirements.

The WEP40 is an electric ammunition round that was developed to answer the growing need for an effective, extended range incapacitation solution for situations that do not require the use of lethal force to control. Incorporating SDIs patented and patent-pending technologies allows for this ammunition round to deliver operational success at distances up to feet 160 feet (50m).

The market sectors for these products include; the military, army, navy, air force, marines, peacekeeping, homeland security, and special law enforcement professionals. The WEP40 when deployed emits a Wireless Electro Neuro-Muscular Disruption Technology that incapacitates the targeted individual. The Companys products were designed for a standard 40mm ammunition casing, for use with standard issue weapons such as riot guns and M203 grenade launchers.

SDI continued to work with their injection-molding supplier in the first quarter, to complete production molds for the BIP round. The Companys molds at the end of the quarter were approximately 85 percent complete.

The Company attended the Marine West Show at Camp Pendleton in San Diego during the quarter. The Marine West tradeshow showcases the latest technology and prototypes aimed at preparing today's Marines for the opportunities and challenges of the 21st century. SDI received positive interest from several groups that attended the show.

The Company completed further live test firing this quarter at a facility in Florida, owned by their distribution channel partner previously announced. Additional testing was performed at a facility outside of Boston, MA as well.

SDI signed a 5 year non-exclusive teaming and marketing agreement with Chemring Ordnance Inc. (Chemring) of Perry, Florida, a division of Chemring Group PLC of the United Kingdom.

The agreement enables SDI to market their unique 40mm less-lethal ammunition to a global marketplace through strong existing distribution channels formed by Chemring and the Chemring Group PLC. SDIs ammunition rounds will be branded under the Chemring label.

Chemring will play an important role in the manufacture and production process of SDIs first to market blunt impact less-lethal round, as well as market in-roads to government agencies and other defense technology companies, globally.

During the three months ended February 29, 2012, the Company issued convertible notes for borrowings in the principal amount of $825,000.

Subsequent to February 29, 2012, the Company raised an additional $45,000 by issuance of convertible debentures due January 16, 2015.

SDI was incorporated on March 1, 2005 and for the period from inception to February 29, 2012 has not generated any revenue.

During the period from inception (March 1, 2005) through February 29, 2012, SDIs operations used $10,968,866 in cash. During this period SDI purchased $63,852 of equipment and raised $11,589,978 from financing activities.

SDI anticipates that its capital requirements for the twelve-month period ending February 28, 2013 will be:

Development and Production costs	$
General and Administrative Expenses	$ 435,000
Total	$ 545,000

On March 13, 2012, Security Devices International Inc. (the Company) entered into a definitive agreement with Elad Engineering Ltd. (Elad). Elad has performed over the past several years, research and development services for the Company in the lessthan-lethal ammunitions sector, for the development of a less-than-lethal-electric-projectile and later on, a blunt impact projectile (Prior Services). The Company had debt owing to Elad in excess for $300,000 for past services as of the date of the definitive agreement. Both parties agreed to irrevocably waive and release the other from any claim, demand or action in connection with its engagement with the other party for Prior Services subject to payment of $100,000 by the Company to Elad no later than March 20, 2012, and the balance owing by the Company to Elad to be forgiven and waived by Elad. The company completed the final payment of $100,000 by the due date, and negotiated and extinguished its debt payable. In addition, the Company has executed as part of this agreement with Elad, a full waiver and release, which includes confidentiality and non-compete clauses for the Companys products.

Further, as per terms of the agreement, the carriage of existing patent applications being prosecuted on the Companys behalf by Elad are to be transferred to the Companys patent counsel in the United States as soon as possible following the debt retirement on March 20, 2012. In addition, all of the issued and outstanding stock options for common shares in the Companys capital stock previously issued to Elad, Ilan Shalev and Haim Danon (being principals of Elad) are to be converted into warrants on terms identical to the terms of the existing stock options in the Company. The Company may retain future services of Elad for ongoing maintenance of existing projects created through Prior Services, to be discussed under separate letter form to the agreement.

SDI did not have any material future contractual obligations or off balance sheet arrangements as of February 29, 2012.

SDI does not have any commitments or arrangements from any persons to provide SDI with any additional capital it may need. Without additional capital SDI will not be able to fund its anticipated capital requirements outlined above.

Item 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 SECs 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 SDIs management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of February 29, 2012, SDIs Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the design and operation of SDIs disclosure controls and procedures. Based on that evaluation, SDIs Principal Executive Officer and Principal Financial Officer concluded that SDIs disclosure controls and procedures were effective.

(b) Changes in Internal Controls . There were no changes in SDIs internal control over financial reporting during the quarter ended February 29, 2012 that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

PART II

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 6. Exhibits

Exhibits
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.

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.


Date: April 15, 2012
By: /s/ Gregory
Sullivan
Gregory Sullivan, President and
Principal Executive Officer
Date: April 15, 2012
By: /s/ Rakesh Malhotra
Rakesh Malhotra, Principal
Financial and Accounting Officer

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