SECURITY DEVICES INTERNATIONAL, INC.
Condensed
Interim Consolidated Balance Sheets
As at August 31, 2019 and
November 30, 2018
(Amounts expressed in US Dollars) (Unaudited)
|
|
August 31,
|
|
|
November 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
ASSETS
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
1,881,377
|
|
|
1,182,387
|
|
Accounts receivable
|
|
112,140
|
|
|
18,914
|
|
Inventory (Note 10)
|
|
666,912
|
|
|
129,121
|
|
Deferred cost (Note 14)
|
|
55,862
|
|
|
-
|
|
Prepaid expenses and other receivables
(Note 13)
|
|
793,420
|
|
|
901,247
|
|
|
|
|
|
|
|
|
Total Current Assets
|
|
3,509,711
|
|
|
2,231,669
|
|
Patent rights (Note 12)
|
|
100,835
|
|
|
106,334
|
|
Deposit for equipment (Note 3)
|
|
227,781
|
|
|
205,664
|
|
Property and equipment (Note 3)
|
|
274,109
|
|
|
113,418
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
4,112,436
|
|
|
2,657,085
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts payable and accrued liabilities (Note 6)
|
|
862,400
|
|
|
397,309
|
|
Deferred revenue
|
|
13,320
|
|
|
-
|
|
Secured convertible debentures (Note 9)
|
|
-
|
|
|
978,361
|
|
Convertible notes (Note 9)
|
|
1,924,957
|
|
|
-
|
|
Derivative liabilities (Note 9)
|
|
214,200
|
|
|
957,301
|
|
Total Current Liabilities
|
|
3,014,877
|
|
|
2,332,971
|
|
Long term convertible notes (Note 9)
|
|
1,277,676
|
|
|
167,077
|
|
Total Liabilities
|
|
4,292,553
|
|
|
2,500,048
|
|
Going Concern (Note 2)
|
|
|
|
|
|
|
Related Party Transactions (Note 6)
|
|
|
|
|
|
|
Commitments (Notes 7 and 9)
|
|
|
|
|
|
|
Subsequent Events (Note 15)
|
|
|
|
|
|
|
STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
Capital stock (Note 4)
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 5,000,000 shares
authorized, Nil issued and outstanding (November 30, 2018 - nil).
Common stock, $0.001 par value 300,000,000 shares authorized,
104,021,837 issued and outstanding (November 30, 2018: 101,976,900)
|
|
104,022
|
|
|
101,977
|
|
Additional paid-in capital
|
|
35,752,050
|
|
|
33,341,695
|
|
Shares to be issued (Note 6)
|
|
20,000
|
|
|
-
|
|
Accumulated deficit
|
|
(35,941,684
|
)
|
|
(33,252,338
|
)
|
Accumulated other comprehensive loss
|
|
(114,505
|
)
|
|
(34,297
|
)
|
|
|
|
|
|
|
|
Total Stockholders' (Deficiency) Equity
|
|
(180,117
|
)
|
|
157,037
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
|
|
4,112,436
|
|
|
2,657,085
|
|
See accompanying notes to the condensed interim consolidated
financial statements.
1
SECURITY DEVICES INTERNATIONAL, INC.
Condensed
Interim Consolidated Statements of Operations and Comprehensive
Loss
For the Nine Months and Three Months Ended August 31, 2019 and
2018
(Amounts expressed in US Dollars) (Unaudited)
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
|
nine
|
|
|
nine
|
|
|
three
|
|
|
three
|
|
|
|
months
|
|
|
months
|
|
|
months
|
|
|
months
|
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
ended
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SALES
|
|
423,977
|
|
|
220,115
|
|
|
307,101
|
|
|
53,257
|
|
COST OF SALES
|
|
(328,512
|
)
|
|
(148,515
|
)
|
|
(247,679
|
)
|
|
(29,302
|
)
|
GROSS PROFIT
|
|
95,465
|
|
|
71,600
|
|
|
59,422
|
|
|
23,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation (Note 3)
|
|
24,869
|
|
|
12,138
|
|
|
7,848
|
|
|
5,379
|
|
Amortization of patent rights (Note 12)
|
|
5,499
|
|
|
1,833
|
|
|
1,833
|
|
|
1,833
|
|
Foreign currency translation (gain) loss
|
|
(15,372
|
)
|
|
(17,498
|
)
|
|
349
|
|
|
(5,898
|
)
|
Selling, general and administration
|
|
2,582,406
|
|
|
1,091,424
|
|
|
755,545
|
|
|
385,556
|
|
TOTAL OPERATING EXPENSES
|
|
2,597,402
|
|
|
1,087,897
|
|
|
765,575
|
|
|
386,870
|
|
LOSS FROM OPERATIONS
|
|
(2,501,937
|
)
|
|
(1,016,297
|
)
|
|
(706,153
|
)
|
|
(362,915
|
)
|
Accretion (Note 9)
|
|
(672,517
|
)
|
|
(88,102
|
)
|
|
(367,457
|
)
|
|
(29,991
|
)
|
Change in fair value of derivative
liabilities (Note 9)
|
|
742,106
|
|
|
245,852
|
|
|
96,339
|
|
|
307,201
|
|
Other expense- interest (Note 9)
|
|
(256,998
|
)
|
|
(100,125
|
)
|
|
(109,572
|
)
|
|
(32,946
|
)
|
LOSS BEFORE INCOME TAXES
|
|
(2,689,346
|
)
|
|
(958,672
|
)
|
|
(1,086,843
|
)
|
|
(118,651
|
)
|
Income taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
NET LOSS
|
|
(2,689,346
|
)
|
|
(958,672
|
)
|
|
(1,086,843
|
)
|
|
(118,651
|
)
|
Foreign exchange translation adjustment for the period
|
|
(80,208
|
)
|
|
(7,175
|
)
|
|
(52,089
|
)
|
|
(4,922
|
)
|
COMPREHENSIVE LOSS
|
|
(2,769,554
|
)
|
|
(965,847
|
)
|
|
(1,138,932
|
)
|
|
(123,573
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
(0.026
|
)
|
|
(0.010
|
)
|
|
(0.010
|
)
|
|
(0.001
|
)
|
Weighted average number of common shares outstanding
|
|
103,386,825
|
|
|
93,559,755
|
|
|
104,071,705
|
|
|
94,357,643
|
|
See accompanying notes to the condensed interim consolidated
financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
Condensed
Interim Consolidated Statements of Cash Flows
For the Nine Months
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
|
|
For the nine
|
|
|
For the nine
|
|
|
|
months ended
|
|
|
months ended
|
|
|
|
August 31, 2019
|
|
|
August 31, 2018
|
|
|
|
$
|
|
|
$
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss for the period
|
|
(2,689,346
|
)
|
|
(958,672
|
)
|
Items not involving cash:
|
|
|
|
|
|
|
Stock-based compensation expense (included in selling,
general and administration expenses)
|
|
191,532
|
|
|
45,387
|
|
Accretion
|
|
672,517
|
|
|
88,102
|
|
Foreign currency translation gain
|
|
(15,372
|
)
|
|
(17,498
|
)
|
Change in fair value of derivative
liabilities
|
|
(742,106
|
)
|
|
(245,852
|
)
|
Issue of common shares for services
|
|
314,339
|
|
|
212,500
|
|
Cancellation of shares for services
|
|
(19,998
|
)
|
|
-
|
|
Shares to be issued for services
|
|
20,000
|
|
|
-
|
|
Issue of convertible debentures for
services
|
|
112,500
|
|
|
-
|
|
Depreciation
|
|
24,869
|
|
|
12,138
|
|
Amortization of patent rights
|
|
5,499
|
|
|
1,833
|
|
Changes in non-cash working capital:
|
|
|
|
|
|
|
Accounts receivable
|
|
(97,072
|
)
|
|
1,252
|
|
Prepaid expenses and other receivables
|
|
103,670
|
|
|
(98,296
|
)
|
Deferred revenue
|
|
13,320
|
|
|
-
|
|
Deferred costs
|
|
(55,862
|
)
|
|
-
|
|
Inventory
|
|
(559,197
|
)
|
|
(2,435
|
)
|
Accounts payable and accrued liabilities
|
|
476,225
|
|
|
(96,455
|
)
|
NET CASH USED IN OPERATING ACTIVITIES
|
|
(2,244,482
|
)
|
|
(1,057,996
|
)
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
Purchase of patents
|
|
-
|
|
|
(110,000
|
)
|
Deposit for equipment
|
|
(22,117
|
)
|
|
(180,000
|
)
|
Purchase of property and equipment
|
|
(185,560
|
)
|
|
(98,349
|
)
|
NET CASH USED IN INVESTING ACTIVITIES
|
|
(207,677
|
)
|
|
(388,349
|
)
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds from convertible debentures
|
|
4,250,265
|
|
|
-
|
|
Repayment of secured convertible debentures
|
|
(1,035,930
|
)
|
|
-
|
|
Repayment of unsecured convertible debentures
|
|
-
|
|
|
(40,357
|
)
|
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES
|
|
3,214,335
|
|
|
(40,357
|
)
|
Effects of foreign currency exchange rate changes
|
|
(63,186
|
)
|
|
(4,440
|
)
|
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS FOR THE PERIOD
|
|
698,990
|
|
|
(1,491,142
|
)
|
Cash and cash equivalents, beginning of period
|
|
1,182,387
|
|
|
1,965,043
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
1,881,377
|
|
|
473,901
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
|
|
|
|
|
|
|
INCOME TAXES PAID
|
|
-
|
|
|
-
|
|
INTEREST PAID
|
|
67,007
|
|
|
67,179
|
|
See accompanying notes to the condensed interim consolidated
financial statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
Condensed
Interim Consolidated Statement of Changes in Stockholders (Deficiency)
Equity
For the Nine Months Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Number of
|
|
|
Common
|
|
|
Additional
|
|
|
Shares
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Common
|
|
|
Shares
|
|
|
Paid-in
|
|
|
to be
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Issued
|
|
|
Deficit
|
|
|
Loss
|
|
|
Total
|
|
|
|
#
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30,
2017
|
|
93,014,134
|
|
|
93,014
|
|
|
31,365,097
|
|
|
-
|
|
|
(31,098,864
|
)
|
|
(32,624
|
)
|
|
326,623
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
45,387
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,387
|
|
Issue of common shares for services
|
|
1,479,954
|
|
|
1,480
|
|
|
211,020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
212,500
|
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(958,672
|
)
|
|
-
|
|
|
(958,672
|
)
|
Foreign currency translation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(7,175
|
)
|
|
(7,175
|
)
|
Balance as of August 31, 2018
|
|
94,494,088
|
|
|
94,494
|
|
|
31,621,504
|
|
|
-
|
|
|
(32,057,536
|
)
|
|
(39,799
|
)
|
|
(381,337
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of November 30, 2018
|
|
101,976,900
|
|
|
101,977
|
|
|
33,341,695
|
|
|
-
|
|
|
(33,252,338
|
)
|
|
(34,297
|
)
|
|
157,037
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
191,532
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
191,532
|
|
Shares issued for services
|
|
2,179,875
|
|
|
2,180
|
|
|
312,159
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
314,339
|
|
Cancellation of shares
|
|
(134,938
|
)
|
|
(135
|
)
|
|
(19,861
|
)
|
|
|
|
|
|
|
|
|
|
|
(19,996
|
)
|
Shares to be issued
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
Issuance of warrants
|
|
-
|
|
|
-
|
|
|
1,926,525
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,926,525
|
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,689,346
|
)
|
|
-
|
|
|
(2,689,346
|
)
|
Foreign currency translation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(80,208
|
)
|
|
(80,208
|
)
|
Balance as of August 31, 2019
|
|
104,021,837
|
|
|
104,022
|
|
|
35,752,050
|
|
|
20,000
|
|
|
(35,941,684
|
)
|
|
(114,505
|
)
|
|
(180,117
|
)
|
See accompanying notes to the condensed interim consolidated
financial statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
1.
|
BASIS OF PRESENTATION
|
|
|
|
The accompanying unaudited condensed interim consolidated
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 accounting principles
generally accepted in the United States of America (GAAP); however, such
information reflects all adjustments (consisting solely of normal
recurring adjustments), which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods.
|
|
|
|
The unaudited condensed interim consolidated 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 Security
Devices International Inc.s (SDI or the Company) annual report on
Form 10-K for the year ended November 30, 2018. In the opinion of
management, the accompanying unaudited condensed interim consolidated
financial statements reflect all adjustments of a normal recurring nature
considered necessary to fairly state the financial position of the Company
at August 31, 2019 and November 30, 2018, the results of its operations
for the nine and three month periods ended August 31, 2019 and August 31,
2018, and its cash flows for the nine month periods ended August 31, 2019
and August 31, 2018. The results of operations for the nine and
three-month periods ended August 31, 2019 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. On February 3, 2014, the Company
incorporated a wholly owned subsidiary in Canada, Security Devices
International Canada Corp. On March 1, 2018, the Company acquired all the
shares of a company in South Africa, Byrna South Africa (Pty) Ltd. The
condensed unaudited interim consolidated financial statements for the
period ended August 31, 2019 include the accounts of Security Devices
International, Inc., and its subsidiaries Security Devices International
Canada Corp. and Byrna South Africa (Pty) Ltd. All material inter-company
accounts and transactions have been eliminated.
|
|
|
2.
|
NATURE OF OPERATIONS AND GOING CONCERN
|
|
|
|
The Company is a less-lethal defense technology company,
specializing in innovative next generation solutions for security
situations that do not require the use of lethal force. SDI has
implemented manufacturing partnerships to assist in the deployment of
their patented and patent pending family of 40mm and .68 caliber products.
These products consist of the current manufacture of Blunt Impact
Projectile 40mm (BIP) line of products, a line of 12 gauge less-lethal
products, and a .68 caliber handheld personal security device called the
Byrna.
|
|
|
|
These condensed unaudited interim consolidated 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.
|
|
|
|
The Companys activities are subject to risk and
uncertainties including:
|
|
|
|
The Company has not earned adequate revenue and has used
cash in its operations. Therefore, the Company will need additional
financing to continue its operations if it is unable to generate
substantial revenue growth.
|
5
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
2.
|
NATURE OF OPERATIONS AND GOING CONCERN-Contd
|
|
|
|
The Company has incurred a cumulative loss of $35,941,684
from inception to August 31, 2019. The Company has funded operations
through the issuance of capital stock, warrants, convertible
debentures and convertible notes. The Company has started to generate revenue from operations.
However, it still expects to incur significant losses before becoming
profitable. The Companys future success is dependent upon its ability to
raise sufficient capital or generate adequate revenue, to cover its
ongoing operating expenses, and also to continue to develop and be able to
profitably market its products. There can be no assurance that such
revenue will be generated or financing will be available at all or on favorable terms. These factors raise substantial doubt about the ability
of the Company to continue as a going concern. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty; such adjustments could be material.
|
|
|
3.
|
PROPERTY AND EQUIPMENT
|
|
|
|
Property 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 and Software
|
30%
|
declining balance method
|
|
Furniture and Fixtures
|
30%
|
declining balance method
|
|
Leasehold Improvements
|
|
straight line over period of
lease
|
|
Moulds
|
20%
|
straight line over 5 years
|
|
|
|
August 31, 2019
|
|
|
November 30, 2018
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Cost
|
|
|
Amortization
|
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Computer equipment and
software
|
|
81,893
|
|
|
51,469
|
|
|
77,382
|
|
|
46,837
|
|
|
Furniture and fixtures
|
|
22,722
|
|
|
20,519
|
|
|
20,998
|
|
|
18,763
|
|
|
Leasehold improvements
|
|
26,471
|
|
|
26,471
|
|
|
26,471
|
|
|
26,471
|
|
|
Moulds
|
|
470,922
|
|
|
229,440
|
|
|
291,599
|
|
|
210,961
|
|
|
|
|
602,008
|
|
|
327,899
|
|
|
416,450
|
|
|
303,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount
|
|
|
|
$
|
274,109
|
|
|
|
|
$
|
113,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for
nine- month period
|
$
|
24,869
|
|
|
(August 31, 2019
|
)
|
$
|
12,138
|
|
|
(August 31, 2018
|
)
|
As of August 31, 2019, the Company has
deposits of $227,781 (November 30, 2018 - $205,664) with vendors primarily for
supply of moulds and equipment. As of August 31, 2019, the vendors had not
completed the supply of these moulds and equipment.
6
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
300,000,000* Common shares, $0.001 par
value
And
5,000,000 Preferred shares, $0.001 par
value
* On October 6, 2017, the Company
filed with the Secretary of the State of Delaware a certificate of amendment
(the Amendment) to the Companys certificate of incorporation. The Amendment
increased the number of authorized shares of the Companys common stock, par
value $0.001, from 100,000,000 to 200,000,000 common shares.
* On March 21, 2019, the Company filed
with the Secretary of the State of Delaware a certificate of amendment (the
Amendment) to the Companys certificate of incorporation. The Amendment
increased the number of authorized shares of the Companys common stock, par
value $0.001, from 200,000,000 to 300,000,000 common shares.
The Companys Articles of
Incorporation authorize its Board of Directors to issue up to 5,000,000 shares
of preferred stock having par value of $0.001. 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.
104,021,837 common shares (November
30, 2018: 101,976,900 common shares)
7
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
|
c)
|
Changes to Issued Share Capital
|
Nine months ended August 31,
2019
In January 2019, the Company made a
share issuance to Paul Jensen (Jensen) pursuant to his employment agreement.
The Company issued 134,938 common shares at a price of $0.1482 per share to
satisfy the payment of $20,000, due January 15, 2019.
In January 2019, the Company made a
share issuance to Bryan Ganz (Ganz) pursuant to a consulting agreement. The
Company issued 500,000 common shares at a price of $0.1482 for a total
consideration of $74,100, due December 15, 2018.
In January 2019, the Company made a
share issuance to a corporation owned and controlled by Dean Thrasher
(Thrasher), executive chairman of the Company, pursuant to a consulting
agreement. The Company issued 180,000 common shares at a price of $0.1482 for a
total consideration of $26,676 due January 15, 2019.
In January 2019, the Company made a
share issuance to Lisa Wager (Wager), the Chief Legal Officer (CLO),
pursuant to a consulting agreement. The Company issued 166,666 common shares at
a price of $0.1482 for a total consideration of $24,700, due January 15,
2019.
In January 2019, the Company made a
share issuance to a consultant in South Africa, pursuant to a consulting
agreement. The Company issued 134,938 common shares at a price of $0.1482 per
share to satisfy the payment of $19,998 due January 15, 2019. These shares were
cancelled in June 2019, and the Company subsequently paid the consultant $19,998
in cash.
On April 1, 2019, the Company made a
share issuance to Ganz, pursuant to a consulting agreement. The Company issued
333,333 common shares at a price of $0.14 per share to satisfy payment for
$46,665, due April 15, 2019.
On April 1, 2019, the Company made a
share issuance to Wager for services, pursuant to board resolution. The Company
issued 250,000 common shares at a price of $0.14 per share to satisfy payment
for $35,000, due April 15, 2019.
On April 1, 2019, the Company made a
share issuance to a corporation owned and controlled by Thrasher, pursuant to a
consulting agreement. The Company issued 180,000 common shares at a price of
$0.14 for a total consideration of $25,200, due April 15, 2019.
On May 22, 2019, the Company made a
share issuance to a consultant pursuant to a consulting agreement for services.
The Company issued 300,000 common shares at a price of $0.14 per share for a
total consideration of $42,000.
8
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
4.
|
CAPITAL STOCK-Contd
|
|
|
|
Year ended November 30, 2018
|
|
|
|
In March 2018, the Company made a share issuance to
Northeast Industrial Partners (NEIP) pursuant to a consulting agreement.
SDI issued 507,550 common shares at a price of $0.1231 per share to
satisfy the payment of $62,500 due in December 2017.
|
|
|
|
In March 2018, the Company made a share issuance to
Jensen pursuant to his employment agreement. SDI issued 339,370 common
shares at a price of $0.1473 per share to satisfy the payment of $50,000,
due January 15, 2018.
|
|
|
|
In May 2018, the Company made a share issuance to Jensen
pursuant to his employment agreement. SDI issued 334,154 common shares at
a price of $0.1496 per share to satisfy the payment of $50,000, due April
15, 2018.
|
|
|
|
In July 2018, the Company made a share issuance to Jensen
pursuant to his employment agreement. SDI issued 298,880 common shares at
a price of $0.1673 per share to satisfy the payment of $50,000, due July
15, 2018.
|
|
|
|
In November 2018, the Company made a share issuance to
Jensen pursuant to his employment agreement. SDI issued 136,146 common
shares at a price of $0.1469 per share to satisfy the payment of $20,000,
due October 15, 2018.
|
|
|
|
In November 2018, the Company made a share issuance to
Ganz pursuant to a consulting agreement. SDI issued 500,000 common shares
at a price of $0.1451 per share for a total consideration of $72,573 to
satisfy the payment for services for the fiscal third quarter.
|
|
|
|
In November 2018, the Company made a share issuance to a
corporation owned by Thrasher under the consulting agreement. SDI issued
180,000 common shares at a price of $0.1533 per share for a total
consideration of $27,600 due September 15, 2018.
|
|
|
|
In November 2018, the Company made a share issuance of
6,666,666 common shares to FinTekk AP, LLC (FinTekk) at a price of $0.15
per share. The shares are issued pursuant to a debt settlement agreement,
to retire certain debt owing by the Company to FinTekk, in connection with
a sponsorship agreement (the Sponsorship Agreement). The Sponsorship
Agreement details a marketing campaign for the launch of the Companys new
ByrnaTM HD product over the 2018 and 2019 fiscal years. The
Company recognized $750,000 as a prepaid expense as at November 30, 2018
(See note 13).
|
9
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
5.
|
STOCK BASED COMPENSATION AND WARRANTS
|
|
|
|
Effective May 31, 2013, the Company adopted an incentive
stock option plan (the 2013 Stock Option Plan) which replaced the prior
stock option and stock bonus plans, as ratified by the Companys
shareholders at the Companys 2015 annual meeting of shareholders. A
maximum of 9,379,857 common shares were reserved for issuance under the
2013 Stock Option Plan.
|
|
|
|
The Board approved a revised stock option plan (the
Revised Stock Option Plan) and received stockholder approval at the
annual meeting held on December 19, 2017, that increased the number of
shares reserved for issuance under the stock option plan from 9,379,857 to
18,993,274.
|
|
|
|
The material terms of the Revised Stock Option Plan are
as follows:
|
|
|
|
(a) While the shares are listed on the Exchange (as
defined in the Revised Stock Option Plan), options
may be granted to employees, senior officers, directors and consultants of
the Company or a subsidiary of the Company and to corporations wholly
owned by such an employee, senior officer, director or consultant.
|
|
|
|
(b) The maximum number of common shares which can be
issued under the Revised Stock Option Plan is 18,993,274, provided
that, so long as the Company is listed on the Exchange, this maximum will
be reduced to 20% of the issued and outstanding common shares on December
19, 2017.
|
|
|
|
(c) The term of any option granted under the Revised
Stock Option Plan will be fixed by the board of directors at the time such
option is granted, provided that options will not be permitted to exceed a
term of ten years.
|
|
|
|
(d) The exercise price of any options granted under the
Revised Stock Option Plan will be determined by the board of directors, in
its sole discretion, but shall not be less than the closing price of the
shares on the stock exchange on the day preceding the day on which the
directors grant such options.
|
|
|
|
(e) While the shares are listed on the Exchange, options
will be non-assignable and non-transferable.
|
|
|
|
(f) So long as the shares are listed on the Exchange,
options on no more than 2% of the issued shares may be granted to any one
consultant, or in aggregate to all persons performing investor relations
activities, in any 12- month period.
|
|
|
|
(g) If the option holder ceases to be someone eligible to
receive a grant of options under the Revised Stock Option Plan, then that
holders existing options shall expire on the earlier of (i) the expiry
date fixed at the time of the option grant, and (ii) ninety days after the
date that the option holder ceases to be eligible to receive a grant of
options under the Revised Stock Option Plan.
|
10
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
5.
|
STOCK BASED COMPENSATION AND WARRANTS-Contd
|
|
|
|
Year ended November 30, 2018
|
|
|
|
Warrants
|
|
|
|
On October 22, 2018, the Company entered into a
securities purchase agreement with several accredited investors to sell
$1,275,000 of units at a price of $1,000 per unit, consisting of (i)
$1,000 10% interest convertible promissory note, convertible into the
Companys common stock at a conversion price of $0.15 per share and (ii)
four thousand warrants each exercisable for one share of common stock at
an exercise price of $0.25 per share on or before the five year
anniversary of the issuance. The Company issued 5,100,000 warrants. The
relative grant date fair value of these warrants was estimated at $524,089
using the Binomial lattice option pricing model and reflected in
additional paid-in capital, with the following
assumptions:
|
|
Risk free rate
|
|
3.05%
|
|
|
Expected dividends
|
|
0%
|
|
|
Expected volatility
|
|
159%
|
|
|
Expected life
|
|
5 years
|
|
|
Market price of the Companys common stock
on date of grant of warrants
|
$
|
0.14
|
|
Stock Options
On March 27, 2017, the board of
directors granted options to Dean Thrasher to acquire a total of 1,150,000
common shares. These options were issued at an exercise price of CAD $0.13
($0.10) per share and vest thirty-three and one-third (33 1/3) percent every six
months commencing January 1, 2017, with an expiry term of five years. The
Company expensed stock-based compensation expense of $39,046 regarding the
vesting of options during the year ended November 30, 2018, leaving a balance of
$nil as unvested stock- based compensation expense.
On April 13, 2018, the board of
directors granted 1,500,000 options for shares of the Companys common stock to
the Chief Technology officer (CTO), Buys, with exercise price of $0.16 and a
trigger price of $0.30, $0.50 and $1.00 for each batch of 500,000 options,
respectively. The Companys stock price must close above the trigger price for
20 days in order for the option to be vested. The options shall have a
seven-year life from grant date and Buys must remain employed by the Company for
three years for the options to vest. The grant date fair value of the options
used for the purpose of estimating the stock compensation is estimated using the
Binomial Lattice option pricing model with the following assumptions:
|
Risk free rate
|
|
2.77%
|
|
|
Expected dividends
|
|
0%
|
|
|
Expected forfeiture rate
|
|
0%
|
|
|
Expected volatility
|
|
190%
|
|
|
Expected life
|
|
7 years
|
|
|
Market price of the Companys common stock on date of grant
of options
|
$
|
0.15
|
|
|
Stock-based compensation cost expensed
during the year
|
$
|
10,568
|
|
|
Unvested stock-based compensation expense
|
$
|
40,159
|
|
11
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
5.
|
STOCK BASED COMPENSATION AND WARRANTS-Contd
|
|
|
|
On October 22, 2018, the board of directors granted
400,000 options to directors and 250,000 options to a consultant for a
total of 650,000 options. These options were issued at an exercise price
of CAD $0.19 ($0.14) per share and vest immediately with an expiry term of
five years. The fair value of each option used for the purpose of
estimating the stock compensation is estimated using the Black-Scholes
option pricing model with the following
assumptions:
|
|
Risk free rate
|
|
2.00%
|
|
|
Expected dividends
|
|
0%
|
|
|
Expected forfeiture rate
|
|
0%
|
|
|
Expected volatility
|
|
133%
|
|
|
Expected life
|
|
5 years
|
|
|
Market price of the Companys common stock on date of grant
of options
|
$
|
0.14
|
|
|
Stock-based compensation cost expensed
during the year
|
$
|
79,185
|
|
|
Unvested stock-based compensation expense
|
$
|
Nil
|
|
As of November 30, 2018, there was
$40,159 of unrecognized expense related to non-vested stock-based compensation
arrangements granted.
Nine months ended August 31,
2019
Warrants
On December 3, 2018, the Company issued
750,000 warrants each to two consultants (the incentive warrants) to purchase
common shares of the Company at a strike price equal to the average trading
price of the Company on the OTC QB during the 20 business days proceeding such
approval. 50% of the incentive warrants vested upon issuance and the balance
will vest on December 31, 2019. The incentive warrants shall have a three-year
life. These warrants were issued pursuant to the contracts executed with these
two consultants. The grant date fair value of each warrant used for the purpose
of estimating the stock compensation is estimated using the Black-Scholes option
pricing model with the following assumptions:
|
Risk free rate
|
|
2.00%
|
|
|
Expected dividends
|
|
0%
|
|
|
Expected forfeiture rate
|
|
0%
|
|
|
Expected volatility
|
|
149%
|
|
|
Expected life
|
|
3 years
|
|
|
Market price of the Companys common stock on date of grant
of warrants
|
$
|
0.16
|
|
|
Stock-based compensation cost expensed
|
$
|
164,230
|
|
|
Unvested stock-based compensation expense
|
$
|
29,860
|
|
12
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
5.
|
STOCK BASED COMPENSATION AND WARRANTS-Contd
|
|
|
|
On April 22, 2019 and May 20, 2019, the Company entered
into a securities purchase agreement with several accredited investors to
sell a total of $2,080,265 of units at a price of $1,000 per unit,
consisting of (i) $1,000 10% interest secured convertible promissory note,
convertible into the Companys common stock at a conversion price of $0.15
per share and (ii) four thousand warrants each exercisable for one share
of common stock at an exercise price of $0.25 per share on or before
October 22, 2023. The Company issued 8,321,058 warrants. The relative
grant date fair value of these warrants was estimated at $888,444 using
the Binomial lattice option pricing model and reflected in additional
paid-in capital, with the following
assumptions:
|
|
Risk free rate
|
|
2.21-2.39%
|
|
|
Expected forfeiture rate
|
|
0%
|
|
|
Expected dividends
|
|
0%
|
|
|
Expected volatility
|
|
155-156%
|
|
|
Expected life
|
|
4.5 years
|
|
|
Market price of the Companys common stock on date of grant
of warrants
|
$
|
0.15
|
|
On July 22, 2019, the Company entered
into a securities purchase agreement with several investors to sell a
total of $2,282,500 of units at a price of $1,000 per unit, consisting of (i)
$1,000 10% interest secured convertible promissory note, convertible into the
Companys common stock at a conversion price of $0.15 per share and (ii) four
thousand warrants each exercisable for one share of common stock at an exercise
price of $0.25 per share on or before January 22, 2024. The Company issued
9,130,000 warrants. The relative grant date fair value of these warrants was
estimated at $1,038,081 using the Binomial lattice option pricing model and
reflected in additional paid-in capital, with the following assumptions:
|
Risk free rate
|
|
1.8%
|
|
|
Expected forfeiture rate
|
|
0%
|
|
|
Expected dividends
|
|
0%
|
|
|
Expected volatility
|
|
154%
|
|
|
Expected life
|
|
4.5 years
|
|
|
Market price of the Companys common stock on date of grant
of warrants
|
$
|
0.16
|
|
Stock Options
On April 13, 2018, the board of
directors granted 1,500,000 options for shares of the Companys common stock to
Buys, with an exercise price of $0.16 and a trigger price of $0.30, $0.50 and
$1.00 for each batch of 500,000 options, respectively. The Company expensed
stock-based compensation of $12,681 during the nine-month period ended August
31, 2019.
13
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
5.
|
STOCK BASED COMPENSATION AND WARRANTS-Contd
|
|
|
|
On May 21, 2019, the Company granted 120,000 options to
an employee. These options were issued at an exercise price of CAD $0.19
($0.14) per share and vested immediately with an expiry term of five
years. The grant date fair value of each option used for the purpose of
estimating the stock compensation is estimated using the Black-Scholes
option pricing model with the following
assumptions:
|
|
Risk free rate
|
|
2.00%
|
|
|
Expected dividends
|
|
0%
|
|
|
Expected forfeiture rate
|
|
0%
|
|
|
Expected volatility
|
|
133%
|
|
|
Expected life
|
|
5 years
|
|
|
Market price of the Companys common stock on date of grant
of options
|
$
|
0.14
|
|
|
Stock-based compensation cost expensed
|
$
|
14,621
|
|
|
Unvested stock-based compensation expense
|
$
|
Nil
|
|
As of August 31, 2019, there was
$57,337 of unrecognized expense related to non-vested stock-based compensation
arrangements granted.
14
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
6.
|
RELATED PARTY TRANSACTIONS
|
The following transactions are in the normal course of
operations and are measured at the amount of consideration established and
agreed to by related parties.
Nine months ended August 31, 2019
The Company expensed $66,667 for services provided by Jensen as
CEO through March 31, 2019, which includes an obligation of the Company to issue
shares for $20,000.
The Company expensed $50,000 for services provided by Malhotra,
CFO of the Company, which was paid to a corporation in which the CFO has an
ownership interest.
The Company expensed $43,200, which includes $25,200 for the
issuance of 180,000 common shares for services, pursuant to a consulting
contract, for services provided by Thrasher, a former director of the
Company.
The Company expensed $90,000 for services provided by Andre Buys
("Buys"), CTO
of the Company, and an additional $8,333 for royalties. The Company expensed
$12,681 for the value of that portion of his 1,500,000 options that vested during
this period. As at August 31, 2019, the Company owes Buys $16,333.
The Company expensed $136,374 for services provided by Ganz,
President of the Company and, effective April 1, 2019, CEO of the Company, which
includes $46,667 for issuance of 333,333 common shares and $52,500 for issuance
of convertible notes.
The Company expensed $119,385 for services provided for Wager,
CLO of the Company, which includes $35,000 for issuance of 250,000 common shares
and $42,500 for issuance of convertible notes.
The Company expensed $16,200 for office rent including services
to a corporation owned and controlled by Ganz, President and, effective April 1,
2019 CEO of the Company. As of August 31, 2019, the Company has a payable due to
that corporation of $8,120.
Current directors and officers of the Company participated in
the April 22, 2019, May 20, 2019 and July 22, 2019 financing for 316 units for
total proceeds of $315,588, of which $70,000 was issued for services
rendered.
Amounts owing to related parties are unsecured, non-interest
bearing and due on demand.
15
SECURITY DEVICES INTERNATIONAL, INC.
Notes to Condensed Interim Consolidated Financial Statements
For the Periods Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars) (Unaudited)
6.
|
RELATED PARTY TRANSACTIONS-Cont’d
|
Nine months ended August 31, 2018
As of August 31, 2018, there were no amounts receivable from related parties.
As of August 31, 2018, the Company had a payable of $103,906 to related parties to be settled by issuance of stock.
The Company expensed $150,000 for services provided by Jensen, COO and President of the Company through July 13, 2018 and, CEO of the Company effective July 13, 2018.
The Company expensed $34,875 for services provided by Malhotra, CFO of the Company, which was paid to a corporation in which Malhotra has an ownership interest, in accordance with his consulting contract.
The Company expensed $116,575 which includes $18,000 for issuance of proportionate shares per his contract, for services provided by Dean Thrasher as CEO of the Company through July 13,2018 and as Executive Chairman of the Company effective
July 13, 2018, which was paid to a corporation in which the CEO has an ownership interest, in accordance with the consulting contract (see also note 7). The Company also expensed $39,046 for the value of that portion of
his 1,150,000 options
that vested during this period.
The Company issued 507,550 common shares to NEIP at a price of $0.12 per share to satisfy the payment of $62,500 for services rendered due in December 2017.
On April 13, 2018, the Company employed Buys as the CTO with compensation of $10,000 per month over a three-year period and granted Buys options to acquire a total of 1,500,000 common shares. The Company
expensed $46,667 paid to Buys, and expensed $6,341 for the value of that
portion of his 1,500,000 options that vested during this period. See Note 7(a).
Effective June 1, 2018 the Company entered into a consulting agreement (the “Consulting Agreement”) with Bryan Ganz pursuant to which Mr. Ganz served as President of the Company. By the terms of the Consulting Agreement, Mr. Ganz was to
be paid annually $200,000 in the Company’s common shares for his services and subject to stock exchange approval. For the Company’s fiscal third and fourth quarters Ganz was to be paid 500,000 common shares for each quarter, ending
March 31, 2019. The Company accrued expenses of $72,573 as the cost of shares issued to Ganz for services.
Effective December 1, 2017, the Company leased office premises at Wakefield, Massachusetts, USA for rent of $700 per month from a corporation owned and controlled by a director of the Company. The Company expensed $6,300 as office rent for
the nine-months ended August 31, 2018. As of August 31, 2018, the Company had a payable for $3,940 for the rent.
16
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
On April 13, 2018, the Company entered
into a Purchase and Sale Agreement (the Agreement) with André Buys, (Buys) a
resident of South Africa, pursuant to which the Company purchased from Buys a
portfolio of registered patent rights and other intellectual property relating
to air and/or gas fired long guns or pistols, including pump action launchers
and munitions used with such pistols and long guns, including self-stabilizing
shaped or finned rounds (the Portfolio). As consideration for the Portfolio,
the Company (i) paid Buys $100,000, (ii) agreed to pay Buys either $500,000 in
cash or $750,000 worth of Company stock within two years (the Second Payment)
at Buys discretion and (iii) agreed to pay Buys certain royalty payments for
sales of products by the Company using technology covered by the Portfolio. In
addition, the Company employed Buys as the CTO and for services issued 1,500,000
options for shares of the Companys common stock to Buys with a strike price of
$0.16 and a trigger price of $0.30, $0.50 and $1.00 for each batch of 500,000
options, respectively. The Companys stock price must close above the trigger
price for 20 days in order for the option to be triggered. The options shall
have a seven-year life from grant date and Buys must remain employed by the
Company for three years in order for the options to vest. Until the earlier of,
the second anniversary or the date the Second Payment is made, the royalty will
be 10% of the Net Sales Price (NSP). The royalty will then be reduced to 4%
till the sixth anniversary, 3% till the eighth anniversary, and 2% till the last
expiration date of any of the intellectual property in the Portfolio. Until the
royalty exceeds $25,000 per year, the Company is committed to a minimum payment
of $25,000 per year effective on the earlier of one year from closing or upon
Buys relocation to Boston. In the event that the Company fails to make the
Second Payment, the Portfolio would revert to Buys, but the Company would retain
perpetual, irrevocable, exclusive and non-exclusive licenses to use technology
with respect to the Portfolio and any technology developed within two years of
April 13, 2018. As the substance of the purchase and sale agreement has been
determined to be an option agreement, the Company has not recorded any amount
related to the Second Payment. The Company agrees that it will not terminate
Buys except for cause prior to April 2021. As a result, the minimal commitment
relating to the employment contract is $320,000 payable over a period of 32
months.
Effective November 1, 2018, the Company
entered into consulting agreements (the Consulting Agreements) with two
consultants. The consultants will each be paid $7,500 per month commencing
November 1, 2018 and to be increased to $10,000 per month subsequent to the
month the Company begins shipping the Byrna HD product to customers. The term of
the contracts with the consultants continue until December 31, 2019.
|
1.
|
The Company has commitments for leasing office premises
in Wakefield, Massachusetts, USA to June 27, 2019, at a monthly rent of
$700 (see note 6).
|
|
2.
|
The Company has commitments for leasing warehouse space
in Fort Wayne, Indiana, USA to February 28, 2020, at a monthly rent of
$2,472.
|
|
3.
|
The Company has commitments for leasing office premises
in Pretoria East, South Africa to December 19, 2020, at a monthly rent of
$968 (Rand 14,750).
|
17
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
8.
|
EXCLUSIVE SUPPLY AND PURCHASE AGREEMENTS
|
|
|
|
The Company entered a Development, Supply and
Manufacturing Agreement with the BIP manufacturer on August 1, 2017. This
agreement provides the Company to order and purchase only from the BIP
manufacturer certain BIP assemblies and components for use by the Company
to produce less-lethal and training projectiles as described in the
agreement in North America. The agreement is for a term of four years with
an automatic extension for additional one- year terms if neither party has
given written notice of termination at least sixty (60) days prior to the
end of the then- current term.
|
|
|
|
The Company entered a License and Supply Agreement with
Safariland, LLC on May 1, 2017. This agreement provides the Company to
license and sell only to Safariland, LLC for certain BIP standard payloads
for integration with and production of certain less-lethal impact
munitions in North America. This agreement is for a term of four years
with an automatic extension for an additional one-year term if neither
party has given written notice of termination at least ninety (90) days
prior to the end of the then-current term.
|
|
|
9.
|
CONVERTIBLE DEBENTURES, CONVERTIBLE NOTES AND DEFERRED FINANCING
COSTS
|
a) Secured Convertible Debentures $Nil
(November 30, 2018: $978,361)
The CAD$1,363,000 ($1,015,026) of
Series B Secured Convertible Debentures (Subordinate Secured Debentures) were
issued pursuant to the Trust Indenture agreement dated December 7, 2016 (the
Indenture) in exchange for the Unsecured Debentures in equal principal amount
and an additional CAD$36,000 ($26,640) of Series B Secured Convertible
Debentures were issued pursuant to the Indenture in payment of accrued interest.
These debentures mature on June 6, 2019 and bear interest at 12% per annum,
payable semi-annually. The debentures are secured by all the assets of the
Company. The principal amount, plus accrued interest, may be converted at the
option of the holder at any time during the term to maturity into shares of the
Companys common stock at a conversion price of $0.24 (CAD $0.31) per share
subject to anti-dilution protection with a minimum conversion price of $0.135
and for capital reorganization events. The debentures also embody certain
traditional default provisions that are linked to credit or interest risks, such
as bankruptcy proceedings, liquidation events and corporate existence. The
Company has concluded that the embedded conversion option is not indexed to its
stock because it did not pass all eight conditions of equity classification
provided in ASC 815. The embedded conversion option is subject to classification
in the financial statements in liabilities at fair value both at inception and
subsequently.
The Company has evaluated the terms and
conditions of the debentures under the guidance of ASC 815. All three criteria
under ASC 815-15-25-1 are met, therefore, the conversion feature requires
classification and measurement as derivative financial instruments. Accordingly,
the evaluation resulted in the conclusion that this derivative financial
instrument requires bifurcation and liability classification, at fair value.
Current standards contemplate that the classification of financial instruments
requires evaluation at each report date.
18
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
9.
|
CONVERTIBLE DEBENTURES, CONVERTIBLE NOTES AND DEFERRED FINANCING
COSTS-Contd
The following table reflects the allocation of the
purchase on December 7, 2016:
|
|
Secured convertible debentures
|
|
Face Value
|
|
|
(CAD $1,399,000)
|
$
|
1,041,835
|
|
|
Proceeds
|
|
1,041,835
|
|
|
Embedded derivative
|
|
(285,612
|
)
|
|
Carrying value
|
$
|
756,223
|
|
The carrying value of these debentures
at November 30, 2018 was CAD $1,301,359 ($978,361). Effective May 31, 2019, the
Company repaid these debentures for CAD $1,399,000 ($1,035,930) plus accrued
interest.
Discounts (premiums) on the convertible
debentures arise from (i) the allocation of basis to other instruments issued in the
transaction, (ii) fees paid directly to the creditor and (iii) initial
recognition at fair value, which is lower than face value. Discounts (premiums)
are amortized through charges (credits) to interest expense over the term of the
debt agreement. Amortization of debt discounts (premiums) amounted to CAD
$98,924 ($73,201) during the nine months ended August 31, 2019 and CAD$112,064
($88,102) during the prior nine months ended August 31, 2018. During the nine
months ended August 31, 2019, the Company recorded interest expense for $67,007
(August 31, 2018: $99,090).
b) Convertible
Notes - $3,202,633, (November 30, 2018: $167,077)
1. On October 22, 2018, the Company
entered into a Securities Purchase Agreement with several accredited investors
to sell $1,275,000 of units, with each $1,000 of unit consisting of (i) a $1,000
10% interest convertible promissory note (collectively the Notes) due April
15, 2020, convertible into the Companys common stock at a conversion price of
$0.15 per share, and (ii) four thousand (4,000) warrants each exercisable for
one share of common stock at an exercise price of $0.25 per share on or before
the five year anniversary of the issuance. The notes are secured secondary by
all of the Company assets and accrue interest at 10% per annum, payable in cash
at maturity. As a result of the repayment of the November 2016 Subordinate
Secured Debentures on May 31, 2019, these convertible notes entered senior
security position. The principal amount, plus accrued interest, may be converted
at the option of the holder at any time during the term to maturity into shares
of common stock at a conversion price of $0.15 per share subject to
anti-dilution protection. The note embodies certain traditional default
provisions that are linked to credit or interest risks, such as bankruptcy
proceedings, liquidation events and corporate existence. The Company concluded
that the embedded conversion option is not indexed to the Companys stock
because it did not pass all eight conditions of equity classification provided
in ASC 815. Therefore, the embedded conversion option is subject to
classification in the financial statements in liabilities at fair value both at
inception and subsequently.
The Company evaluated the terms and
conditions of the Notes under the guidance of ASC 815. All three criteria under
ASC 815-15-25-1 are met, therefore, the conversion feature requires
classification and measurement as derivative financial instruments. Accordingly,
the evaluation resulted in the conclusion that this derivative financial
instrument requires bifurcation and liability classification, at fair value.
Current standards contemplate that the classification of financial instruments
requires evaluation at each report date.
19
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
9.
|
CONVERTIBLE DEBENTURES, CONVERTIBLE NOTES AND DEFERRED FINANCING
COSTS-Contd
The following table reflects the allocation of the
purchase on October 22, 2018:
|
|
Proceeds
|
$
|
1,275,000
|
|
|
|
|
|
|
|
Convertible notes
|
$
|
(131,547
|
)
|
|
|
|
|
|
|
Derivative liability-convertible promissory
notes
|
$
|
(619,364
|
)
|
|
|
|
|
|
|
Additional paid in capital (equity
warrants)
|
$
|
(524,089
|
)
|
In conjunction with the October 22,
2018 note placement, the Company issued 5,100,000 warrants. The relative fair
value of these warrants was estimated at $524,089 using the Binomial Lattice
option pricing model and reflected in additional paid-in capital. Discounts
(premiums) on the convertible notes arise from (i) the allocation of basis to
other instruments issued in the transaction, (ii) fees paid directly to the
creditor and (iii) initial recognition at fair value, which is lower than face
value. Discounts (premiums) are amortized through charges (credits) to interest
expense over the term of the debt agreement. Amortization of debt discounts
(premiums) amounted to $322,897 during the nine months ended August 31, 2019
(August 31, 2018: $Nil) resulting in the carrying value of convertible notes at
$489,974 as at August 31, 2019 (November 30, 2018: $167,077). During the nine
months ended August 31, 2019, the Company recorded interest expense for $93,115
(August 31, 2018: $Nil).
2. On April 22, 2019 and May 20, 2019,
the Company entered into a securities purchase agreement with several accredited
investors to sell a total of $2,080,265 of units, with each $1,000 unit
consisting of (i) a $1,000 10% interest convertible promissory note
(collectively the Notes) due April 15, 2020, convertible into the Companys
common stock at a conversion price of $0.15 per share, and (ii) four thousand
(4,000) warrants each exercisable for one share of common stock at an exercise
price of $0.25 per share on or before October 22, 2023. The notes are secured
secondary by all of the Company assets and accrue interest at 10% per annum,
payable in cash at maturity. The principal amount, plus accrued interest, may be
converted at the option of the holder at any time during the term to maturity
into shares of common stock at a conversion price of $0.15 per share. The note
embodies certain traditional default provisions that are linked to credit or
interest risks, such as bankruptcy proceedings, liquidation events and corporate
existence. The Company concluded that the Notes meet the definition of
conventional convertible debt provided in ASC 815 and the embedded conversion
option is not subject to bifurcation and classification in the financial
statements in liabilities at fair value. In connection with the issuance of the
Notes, the Company issued the holders warrants to purchase the common stock. The
warrant is exercisable until October 23, 2023 for 8,321,058 of shares at a
purchase price of $0.25 per share. The Company concluded that the warrants are
indexed to the stock and, accordingly, the analysis resulted in the conclusion
that these warrants achieved equity classification in the financial statements.
As a result of the repayment of the November 2016 Subordinate Secured Debentures
on May 31, 2019, these convertible notes entered senior security position.
20
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
9.
|
CONVERTIBLE DEBENTURES, CONVERTIBLE NOTES AND DEFERRED FINANCING
COSTS-Contd
|
|
|
|
The Company accounted for this transaction as a financing
transaction, wherein the net proceeds received were allocated to the
financial instruments issued which resulted in a discount. The warrants
were valued at $888,444 and the balance of the convertible debt for
$1,191,821. The discount is being charged to interest and is being
accreted over the term of the note using the effective interest method.
During the nine-month period ended August 31, 2019 (August 31, 2018: $Nil)
the Company recorded $243,162 in interest from the accretion of the
discount. In addition, the Company recorded interest expense for $71,862
for the nine-month period ended August 31, 2019 (August 31, 2018: $Nil).
Prior to making the accounting allocation, the Company evaluated for
proper classification under ASC 480 Distinguishing Liabilities from
Equity (ASC 480) and ASC 815 Derivatives and Hedging (ASC
815). This debt agreement did not contain any embedded terms or features
that require classification as derivatives. The Company was required to
consider whether the hybrid contract embodied a beneficial conversion
feature (BCF). The calculation of the effective conversion amount did
not result in a BCF because the effective conversion price was equal to
the Companys stock price on the date of issuance.
|
|
|
|
3. On July 22, 2019, the Company entered into a
securities purchase agreement with several investors to sell a
total of $2,282,500 of units, with each $1,000 of unit consisting of (i) a
$1,000 10% interest convertible promissory note (collectively the Notes)
due June 30, 2021, convertible into the Companys common stock at a
conversion price of $0.15 per share, and (ii) four thousand (4,000)
warrants each exercisable for one share of common stock at an exercise
price of $0.25 per share on or before January 22, 2024. The notes are
secured pari passu with the October 2018 and April/May 2019 notes,
by all of the Company assets and accrue interest at 10% per annum, payable
in cash at maturity. However, the principal amount, plus accrued interest,
may be converted at the option of the holder at any time during the term
to maturity into shares of common stock at a conversion price of $0.15 per
share. The note embodies certain traditional default provisions that are
linked to credit or interest risks, such as bankruptcy proceedings,
liquidation events and corporate existence. The Company concluded that the
Notes meet the definition of conventional convertible debt provided in ASC
815 and the embedded conversion option is not subject to bifurcation and
classification in the financial statements in liabilities at fair value.
In connection with the issuance of the Notes, the Company issued the
holders warrants to purchase the Companys common stock. The warrants are
exercisable until January 22, 2024 for 9,130,000 of shares at a purchase
price of $0.25 per share. The Company concluded that the warrants are
indexed to the stock and, accordingly, the analysis resulted in the
conclusion that these warrants achieved equity classification in the
financial statements.
|
|
|
|
The Company accounted for this transaction as a financing
transaction, wherein the net proceeds received were allocated to the
financial instruments issued which resulted in a discount. The warrants
were valued at $1,038,081 and the balance of the convertible debt for
$1,244,419. The discount is being charged to interest and is being
accreted over the term of the note using the effective interest method.
During the nine-month period ended August 31, 2019 (August 31, 2018: $Nil)
the Company recorded $33,257 in interest from the accretion of the
discount. In addition, the Company recorded interest expense for $25,014
for the nine-month period ended August 31, 2019 (August 31, 2018: $Nil).
Prior to making the accounting allocation, the Company evaluated for
proper classification under ASC 480 Distinguishing Liabilities from
Equity (ASC 480) and ASC 815 Derivatives and Hedging (ASC
815). This debt agreement did not contain any embedded terms or features
that require classification as derivatives. The Company was required to
consider whether the hybrid contract embodied a beneficial conversion
feature (BCF). The calculation of the effective conversion amount did
not result in a BCF because the effective conversion price was equal to
the Companys stock price on the date of issuance.
|
21
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
9.
|
CONVERTIBLE DEBENTURES, CONVERTIBLE NOTES AND DEFERRED FINANCING
COSTS-Contd
|
|
|
|
Derivative Liabilities
|
|
|
|
The carrying values of the embedded derivative
liabilities is reflected on the balance sheet, with changes in the
carrying value being recorded as a change in fair value of derivative
liabilities on the statement of operations.
|
|
|
|
The components of the embedded derivative as of August
31, 2019 are:
|
|
|
|
Indexed
|
|
|
|
|
|
|
Financings giving
rise to derivative financial instruments
|
|
Shares
|
|
|
|
Fair
Value
|
|
|
Convertible Notes October 22, 2018
|
|
8,500,000
|
|
|
$
|
214,200
|
|
|
|
|
8,500,000
|
|
|
$
|
214,200
|
|
The components of the embedded
derivative as of November 30, 2018 are:
|
|
|
|
Indexed
|
|
|
|
|
|
|
Financings giving
rise to derivative financial instruments
|
|
|
Shares
|
|
|
|
Fair
Value
|
|
|
Convertible Secured Debentures December 7,
2016
|
|
|
8,044,853
|
|
|
$
|
426,016
|
|
|
Convertible Notes October 22, 2018
|
|
|
8,500,000
|
|
|
|
531,285
|
|
|
|
|
|
16,544,853
|
|
|
$
|
957,301
|
|
The following table summarizes the
effects on gain (loss) associated with changes in the fair values of derivative
financial instruments by type of financing for the nine months ended August 31,
2019 and 2018:
|
|
|
|
Nine Months
|
|
|
|
Nine Months
|
|
|
|
|
|
Ended
|
|
|
|
Ended
|
|
|
|
|
|
August 31, 2019
|
|
|
|
August 31, 2018
|
|
|
Financings giving
rise to derivative financial instruments and the income effects:
|
|
|
|
|
|
|
|
|
|
Convertible Secured Debentures December 7,
2016
|
|
$
|
425,020
|
|
|
$
|
(245,852
|
)
|
|
Convertible Notes October 22, 2018
|
|
$
|
317,086
|
|
|
|
-
|
|
|
|
|
$
|
742,106
|
|
|
$
|
(245,852
|
)
|
22
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
9.
|
CONVERTIBLE DEBENTURES, CONVERTIBLE NOTES AND DEFERRED FINANCING
COSTS-Contd
|
|
|
|
Fair Value Considerations
|
|
|
|
GAAP establishes a fair value hierarchy that prioritizes
the inputs to valuation techniques used to measure fair value. As
presented in the tables below, this hierarchy consists of three broad
levels:
|
|
Level 1 valuations:
|
Quoted prices in active markets for identical assets and
liabilities.
|
|
Level 2 valuations:
|
Quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; and model- derived valuations whose inputs or
significant value drivers are observable.
|
|
|
|
|
Level 3 valuations:
|
Significant inputs to valuation model are unobservable.
|
The Company follows the provisions of
ASC 820 with respect to the financial instruments. As required by ASC 820,
assets and liabilities measured at fair value are classified in their entirety
based on the lowest level of input that is significant to their fair value
measurement. The derivative financial instruments which are required to be
measured at fair value on a recurring basis under of ASC 815 as of August 31,
2019 and November 30, 2018 are all measured at estimated fair value using Level
2 and 3 inputs.
The embedded derivative was fair valued
using the income valuation technique using the Lattice valuation model. The
following table sets forth the inputs for each significant assumption:
|
Convertible secured debentures, December 7, 2016
|
|
|
August 31, 2019
|
|
|
November 30,
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
-
|
|
$
|
426,016
|
|
|
Conversion price
|
|
$
|
-
|
|
$
|
0.135
|
|
|
Volatility
|
|
|
-
|
|
|
91%
|
|
|
Remaining term (years)
|
|
|
-
|
|
|
0.52
|
|
|
Risk free rate
|
|
|
-
|
|
|
2.52%
|
|
|
Convertible notes, October 22, 2018
|
|
|
August 31, 2019
|
|
|
November 30,
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
$
|
214,200
|
|
$
|
531,285
|
|
|
Conversion price
|
|
$
|
0.15
|
|
$
|
0.15
|
|
|
Volatility
|
|
|
65%
|
|
|
79%
|
|
|
Remaining term (years)
|
|
|
0.62
|
|
|
1.38
|
|
|
Risk free rate
|
|
|
1.76%
|
|
|
2.70%
|
|
23
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
10.
|
INVENTORY
|
|
|
|
Inventory as of August 31, 2019 consists of raw materials
for Byrna for $401,742 (November 30, 2018: $Nil) finished goods of Byrna
for $160,833 (November 30, 2018: $Nil), finished goods of Blunt Impact
Projectiles 40mm for $67,121 (November 30, 2018: $90,329) and inventory
procured from other suppliers for $37,216 (November 30, 2018: $38,792).
The Company values its inventory on a first-in, first-out basis. Inventory
is valued at the lower of cost or net realizable value.
|
|
|
11.
|
SEGMENT DISCLOSURES
|
|
|
|
The Company is organized on three geographic areas in the
U.S.A., South Africa (SA) and Canada respectively. The U.S.A., South
Africa and Canada operations are the Companys operating segments and
reportable segments, and each of those segments are led by the Companys
CEO. Performance is assessed and resources are allocated by the CEO, whom
we have determined to be the Companys Chief Operating Decision Maker
(CODM). Management evaluates the segments based primarily upon revenue and
assets. The tables below present segment sales and assets for the nine
months ended August 31, 2019 and August 31, 2018:
|
|
|
|
Nine months ended August 31,
2019
|
|
|
|
SDI
USA
|
|
|
SDI
SA
|
|
|
SDI
Canada
|
|
|
Total
|
|
|
Sales
|
$
|
278,676
|
|
|
266,417
|
|
$
|
36,202
|
|
$
|
581,295
|
|
Nine months ended August 31,
2018
|
|
|
SDI
USA
|
|
|
SDI
SA
|
|
|
SDI
Canada
|
|
|
Total
|
|
|
Sales
|
$
|
188,304
|
|
|
-
|
|
$
|
115,472
|
|
$
|
303,776
|
|
|
|
|
2019
|
|
|
2018
|
|
|
Sales
|
$
|
581,295
|
|
$
|
303,776
|
|
|
Elimination of intersegment revenue
|
|
(157,318
|
)
|
|
(83,661
|
)
|
|
|
|
|
|
|
|
|
|
Consolidated sales
|
$
|
423,977
|
|
|
220,115
|
|
As at August 31, 2019
|
|
|
SDI
USA
|
|
|
SDI
SA
|
|
|
SDI
Canada
|
|
|
Total
|
|
|
Assets
|
$
|
3,374,139
|
|
|
687,882
|
|
$
|
50,415
|
|
$
|
4,112,436
|
|
As at November 30, 2018
|
|
|
SDI
USA
|
|
|
SDI
SA
|
|
|
SDI
Canada
|
|
|
Total
|
|
|
Assets
|
$
|
2,629,315
|
|
|
-
|
|
$
|
27,770
|
|
$
|
2,657,085
|
|
24
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
12.
|
PATENT RIGHTS
|
|
|
|
Seven patent applications, six non-provisional, have been
filed by the Company with the U.S. Patent Office. The Patents have been
granted on the six non-provisional patents. The Company also owns the
trademark for BIP and has filed to register the Byrna trademark and
the Byrna logo.
|
|
|
|
Non-Provisional (Granted U.S. Patents):
|
|
|
|
(a) Less-lethal Projectile: This issued patent relates to
the Companys distinctive collapsible ammunition head technology that
absorbs kinetic energy of the projectile upon impact. The Corporations
collapsible head is used in both the BIP and the Wireless Electric
Projectile (WEP).
|
|
|
|
(b) Electronic Circuitry for Incapacitating a Living
Target: This issued patent relates to the electronic circuitry
incapacitation system which forms part of the WEP. The patent describes an
electronic circuit which provides an electrical incapacitation current to
a living target.
|
|
|
|
(c) Less-lethal Wireless Stun Projectile System for
Immobilizing a Target by Neuro-Muscular Disruption: This issued patent
describes the process by which the WEP operates with its attachment system
to halt a target through a neuro-muscular-disruption system.
|
|
|
|
(d) Autonomous Operation of a Less-lethal Projectile:
This patent describes a motion sensing system within the WEP. The sensor
will monitor movement of the target and enable the electrical output until
the target is subdued. The electrical pulse is programmed for an exact
timeframe to specifications of the user.
|
|
|
|
(e) Projectile: This invention relates to a non-lethal
projectile to be fired using a paintball gun, and more particularly, but
not exclusively, to an aerodynamic non-lethal projectile which is used for
marking, inhibiting or administering medicinal or other chemical
substances to live targets.
|
|
|
|
(f) Payload Carrying Arrangement for a Non-Lethal
Projectile: This patent relates to the process of carrying liquid and
powder payloads in the head of the BIP munitions that upon impact release
from the head and are dispersed upon the target.
|
25
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
12.
|
PATENT RIGHTS-Contd
|
|
|
|
On April 13, 2018, the Company entered into a purchase
and sale agreement with André Buys, pursuant to which the Company agreed
to purchase from Mr. Buys a portfolio of registered patent rights,
provisional patent rights, and other intellectual property relating to air
and/or gas fired long guns or pistols, including pump action launchers and
munitions used with such pistols and long guns, including self-stabilizing
shaped or finned rounds (the Portfolio). As consideration for the
portfolio, the Company paid Buys $100,000, and incurred $10,000 in legal
costs to transfer these patent rights. This consideration of $110,000 has
been capitalized. The Company also agreed to pay Buys either $500,000 in
cash or $750,000 worth of Company stock within two years (the Second
Payment) at Buys discretion. In the event that the Company fails to make
the Second Payment, the Portfolio would revert to Buys, but the Company
would retain perpetual, irrevocable, exclusive and non-exclusive licenses
to use technology with respect to the Portfolio and any technology
developed within two years of April 13, 2018. As the substance of the
purchase and sale agreement has been determined to be an option agreement,
the Company has not recorded any amount related to the Second Payment.
These patent rights have a maximum life of 20 years, expiring on various
dates beginning in November 2033 to 2038, and are amortized straight-line
commencing June 2018 over a period of 15 years being the estimated useful
life, as determined by management. The Company amortized $5,499 during the
nine months ended August 31, 2019 (August 31, 2018: $1,833). As the
agreement included an option for full acquisition of the rights,
conditional upon certain future events taking place, the Company has
recorded the minimum rights to a licence arrangement as patent rights. As
at August 31, 2019, the amount recorded as patent rights refer to the
perpetual, irrevocable, exclusive and non-exclusive license to use
technology with respect to the portfolio.
|
|
|
13.
|
PREPAID EXPENSES AND OTHER RECEIVABLES
|
|
|
|
Prepaid expenses and other receivables as of August 31,
2019, include the prepayment of $583,333 (November 30, 2018: $750,000) by
the issuance of common shares to FinTekk AP LLC, being the issuance
relating to the marketing campaign for the launch of the Companys new
ByrnaTM HD product to occur in the last half of fiscal
2019.
|
|
|
14.
|
DEFERRED COSTS
|
|
|
|
The Company has capitalized $55,862 of legal costs
incurred for a future financing (see note 15).
|
26
SECURITY DEVICES INTERNATIONAL, INC.
Notes to
Condensed Interim Consolidated Financial Statements
For the Periods
Ended August 31, 2019 and 2018
(Amounts expressed in US Dollars)
(Unaudited)
15.
|
SUBSEQUENT EVENTS
|
|
|
|
|
a)
|
The Company entered into a Securities Purchase Agreement
(the "Agreement") with several investors (the "Purchasers") and Northeast
Industrial Partners, LLC as collateral agent for the Purchasers to sell up
to $3,000,000 of units, with each $1,000 of units consisting of (i) a
$1,000 convertible promissory note (collectively the "Notes"), convertible
into the Company's common stock at a conversion price of $0.15 per share,
and (ii) four thousand warrants (the "Warrants") each exercisable for one
share of common stock at an exercise price of $0.25 per share on or before
January 22, 2024. On September 16, 2019, the Company closed on the sale of
an additional $818,000 of the Units.
|
|
|
|
|
|
The outstanding principal amount of the Notes accrues
interest at a rate of 10% per annum, provided that, in the event of
default on the Notes, the interest rate will be 15% during the period of
default. The maturity date of the Notes is June 30, 2021, which date is
subject to optional extension by each Purchaser if a change of control of
the Company is announced prior to such date. Interest on the Notes is
payable in arrears on the last day of each January and July while the
Notes are outstanding. The Company has the option to redeem the Notes by
paying the Purchasers the optional redemption price as described in the
Notes. Each Note is convertible into common stock, at the option of the
Purchaser. Upon such optional conversion, the outstanding principal amount
of the Note converts into shares of common stock at a conversion price of
$0.15 per share, subject to adjustment upon issuance of other securities
as set forth in the Notes. The Notes contain restrictive covenants which,
among other things, restrict the Companys ability to incur additional
indebtedness, grant security interests on its assets, or make
distributions on or repurchase its common stock. The Notes are secured,
pursuant to the Agreement, with a security interest in substantially all
of the Companys assets.
|
|
|
|
|
b)
|
On September 23, 2019, 156,000 warrants were exercised
for proceeds of $20,280.
|
27