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Security Devices International Inc.
2012-02-29
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<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">1.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">BASIS OF PRESENTATION</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The condensed financial statements should be read in conjunction with the financial statements and notes thereto together with management’s discussion and analysis of financial condition and results of operations contained in the Company’s 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 Company’s 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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The Company was incorporated under the laws of the state of Delaware on March 1, 2005.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
</table>
<p> </p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<b>2.</b>
</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">NATURE OF OPERATIONS AND GOING CONCERN</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<font color="#2a2a2a">The Company is a defense 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).</font>
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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 Company’s 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.</font>
</font>
</p>
</td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">3.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">RESEARCH AND PRODUCT DEVELOPMENT</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Research and Product Development costs, including acquired research and product development costs, are charged against income in the period incurred.</font>
</font>
</p>
</td>
</tr>
</table>
<p> </p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">4.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">PLANT AND EQUIPMENT</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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:</font>
</font>
</p>
</td>
</tr>
</table>
<br/>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr valign="top">
<td width="10%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Computer equipment</font>
</font>
</td>
<td align="center" bgcolor="#e6efff" width="20%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">30%</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="40%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">declining balance method</font>
</font>
</td>
</tr>
<tr valign="top">
<td width="10%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Furniture and Fixtures</font>
</font>
</td>
<td align="center" width="20%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">30%</font>
</font>
</td>
<td align="left" width="40%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">declining balance method</font>
</font>
</td>
</tr>
<tr valign="top">
<td width="10%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Leasehold Improvements</font>
</font>
</td>
<td align="center" bgcolor="#e6efff" width="20%"> </td>
<td align="left" bgcolor="#e6efff" width="40%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">straight line over period of lease</font>
</font>
</td>
</tr>
</table>
<br/>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr valign="top">
<td width="5%"> </td>
<td align="left"> </td>
<td align="left" width="1%"> </td>
<td align="center" colspan="4">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">February 29, 2012</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" width="1%"> </td>
<td align="center" colspan="4">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">November 30, 2011</font>
</font>
</td>
<td align="right" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left"> </td>
<td align="left" width="1%"> </td>
<td align="center" width="12%"> </td>
<td align="center" width="2%"> </td>
<td align="center" width="1%"> </td>
<td align="center" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Accumulated</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" width="1%"> </td>
<td align="center" width="12%"> </td>
<td align="center" width="2%"> </td>
<td align="center" width="1%"> </td>
<td align="center" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Accumulated</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left"> </td>
<td align="left" width="1%"> </td>
<td align="center" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Cost</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" width="1%"> </td>
<td align="center" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Amortization</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" width="1%"> </td>
<td align="center" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Cost</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" width="1%"> </td>
<td align="center" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Amortization</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$ </font>
</font>
</td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;"> $</font>
</font>
</td>
<td align="center" width="2%"> </td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
<td width="1%"> </td>
<td width="12%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="12%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="12%"> </td>
<td width="2%"> </td>
<td width="1%"> </td>
<td width="12%"> </td>
<td width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Computer equipment</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">37,573</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">25,708</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">35,211</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">24,873</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Furniture and fixtures</font>
</font>
</td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">18,027</font>
</font>
</td>
<td align="left" width="2%"> </td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">11,310</font>
</font>
</td>
<td align="left" width="2%"> </td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">15,310</font>
</font>
</td>
<td align="left" width="2%"> </td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">10,985</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Leasehold Improvements</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">8,252</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">5,625</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">8,252</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">4,501</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left"> </td>
<td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">63,852</font>
</font>
</td>
<td align="left" width="2%"> </td>
<td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">42,643</font>
</font>
</td>
<td align="left" width="2%"> </td>
<td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">58,773</font>
</font>
</td>
<td align="left" width="2%"> </td>
<td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">40,359</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr>
<td width="5%"> </td>
<td bgcolor="#e6efff"> </td>
<td bgcolor="#e6efff" width="1%"> </td>
<td bgcolor="#e6efff" width="12%"> </td>
<td bgcolor="#e6efff" width="2%"> </td>
<td bgcolor="#e6efff" width="1%"> </td>
<td bgcolor="#e6efff" width="12%"> </td>
<td bgcolor="#e6efff" width="2%"> </td>
<td bgcolor="#e6efff" width="1%"> </td>
<td bgcolor="#e6efff" width="12%"> </td>
<td bgcolor="#e6efff" width="2%"> </td>
<td bgcolor="#e6efff" width="1%"> </td>
<td bgcolor="#e6efff" width="12%"> </td>
<td bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Net carrying amount</font>
</font>
</td>
<td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> </td>
<td align="center" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">21,209</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">18,414</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> </td>
<td align="left" width="2%"> </td>
</tr>
<tr>
<td width="5%"> </td>
<td bgcolor="#e6efff"> </td>
<td bgcolor="#e6efff" width="1%"> </td>
<td align="center" bgcolor="#e6efff" width="12%"> </td>
<td align="center" bgcolor="#e6efff" width="2%"> </td>
<td align="center" bgcolor="#e6efff" width="1%"> </td>
<td align="center" bgcolor="#e6efff" width="12%"> </td>
<td align="center" bgcolor="#e6efff" width="2%"> </td>
<td align="center" bgcolor="#e6efff" width="1%"> </td>
<td align="center" bgcolor="#e6efff" width="12%"> </td>
<td align="center" bgcolor="#e6efff" width="2%"> </td>
<td align="center" bgcolor="#e6efff" width="1%"> </td>
<td align="center" bgcolor="#e6efff" width="12%"> </td>
<td bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">   Amortization expense</font>
</font>
</td>
<td align="left" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> </td>
<td align="center" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">2,284(3 months)</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">10,786(12 months)</font>
</font>
</td>
<td align="center" width="2%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="center" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%"> </td>
<td align="center" width="2%"> </td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">5.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">CAPITAL STOCK</font>
</font>
</p>
</td>
</tr>
</table>
<br/>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td width="5%"> </td>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">a)</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Authorized</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
    50,000,000 Common shares, $0.001 par value
<br/>
And
<br/>
    5,000,000 Preferred shares, $0.001 par value
</font>
</font>
</p>
</td>
</tr>
</table>
<p align="justify" style="margin-left: 10%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The Company’s Articles of Incorporation authorize its Board of Directors to issue up to 5,000,000 shares of preferred stock. The provisions in the Articles of Incorporation relating to the preferred stock allow the directors to issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of SDI’s common stock.</font>
</font>
</p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td width="5%"> </td>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">b)</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Issued</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">26,828,050 Common shares</font>
</font>
</p>
</td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td width="5%"> </td>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">c)</font>
</font>
</td>
<td>
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Changes to Issued Share Capital</font>
</font>
</td>
</tr>
</table>
<p align="justify" style="margin-left: 10%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Year ended November 30, 2011</u>
</font>
</font>
</p>
<p align="justify" style="margin-left: 10%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 10%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Three months ended February 29, 2012</u>
</font>
</font>
</p>
<p align="justify" style="margin-left: 10%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The Company did not issue any shares during this period.</font>
</font>
</p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">6.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">STOCK BASED COMPENSATION</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Effective October 30, 2006 the Company adopted the following stock option and stock bonus plans.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Incentive Stock Option Plan</u>
. The Company’s 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.
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Non-Qualified Stock Option Plan</u>
. SDI’s Non-Qualified Stock Option Plan authorizes the issuance of shares of its Common Stock to persons that exercise options granted pursuant to the Plans. SDI’s 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.
</font>
</font>
</p>
</td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Stock Bonus Plan</u>
. SDI’s 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.
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Year ended November 30, 2011</u>
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The Company did not issue any options during the year ended November 30, 2011.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Three months ended February 29, 2012</u>
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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:</font>
</font>
</p>
</td>
</tr>
</table>
<br/>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Risk free rate</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">2.00%</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Expected dividends</font>
</font>
</td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">0%</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Forfeiture rate</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">0%</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Volatility</font>
</font>
</td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">206.87%</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Market price of Company’s common stock on date</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="left" bgcolor="#e6efff" width="12%"> </td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">of grant of options</font>
</font>
</td>
<td align="left" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">0.13</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Stock-based compensation cost</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">113,292</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
</table>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">As of February 29, 2012 there was $Nil of unrecognized expense related to non-vested stock-based compensation arrangements granted.</font>
</font>
</p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">7.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">STOCK PURCHASE WARRANTS</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Year ended November 30, 2011</u>
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The Company did not issue any stock purchase warrants during the year ended November 30, 2011.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Three months ended February 29, 2012</u>
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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:</font>
</font>
</p>
</td>
</tr>
</table>
<br/>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Risk free rate</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">2.00%</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Expected dividends</font>
</font>
</td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">0%</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Forfeiture rate</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">0%</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Volatility</font>
</font>
</td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">206.87%</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Market price of Company’s common stock on date</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="left" bgcolor="#e6efff" width="12%"> </td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">of grant of options</font>
</font>
</td>
<td align="left" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">0.13</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td width="5%"> </td>
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Compensation expense</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">100,148</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">8.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">RELATED PARTY TRANSACTIONS</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Three months ended February 29, 2012</u>
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<u>Three months ended February 28, 2011</u>
</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The Company expensed a total of $25,000 as Management fee for payment to its two directors for the three month period.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
</table>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">9.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">COMMITMENTS</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">a) Consulting agreements:</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Agreement with a director to pay compensation for $7,000 per month. The agreement expires December 31, 2012.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
<tr>
<td width="5%"> </td>
<td> </td>
</tr>
<tr>
<td width="5%"> </td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
</td>
</tr>
</table>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">10.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">CONVERTIBLE DEBENTURES AND DEFERRED FINANCING COSTS</font>
</font>
</p>
</td>
</tr>
</table>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The carrying values of the Company’s convertible debentures consist of the following as of February 29, 2012:</font>
</font>
</p>
<div align="right">
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="95%">
<tr valign="top">
<td align="left"> </td>
<td align="left" width="1%"> </td>
<td align="center" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Carrying Value</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$100,000 face value convertible debenture due March 23, 2012 (Convertible Debenture 1)</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;"> 98,157</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$46,500 face value convertible debenture due April 14, 2012 (Convertible Debenture 3)</font>
</font>
</td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">45,642</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$731,828 face value convertible debenture due June 30, 2014 (Convertible Debenture 2)</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="1%"> </td>
<td align="right" bgcolor="#e6efff" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">731,828</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" width="2%"> </td>
</tr>
<tr valign="top">
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$585,000 face value convertible debenture due January 16, 2015 (Convertible Debenture 4)</font>
</font>
</td>
<td align="left" width="1%"> </td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">585,000</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$240,000 face value convertible debenture due January 16, 2015 (Convertible Debenture 5)</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%"> </td>
<td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">191,225</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%"> </td>
</tr>
<tr valign="top">
<td align="left">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Total</font>
</font>
</td>
<td align="left" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;"> 1,651,852</font>
</font>
</td>
<td align="left" width="2%"> </td>
</tr>
<tr valign="top">
<td align="left" bgcolor="#e6efff">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">Current portion</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;"> (143,799</font>
</font>
</td>
<td align="left" bgcolor="#e6efff" style="border-bottom: 1px solid rgb(0, 0, 0);" width="2%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">)</font>
</font>
</td>
</tr>
<tr valign="top">
<td align="left"> </td>
<td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="1%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">$</font>
</font>
</td>
<td align="right" style="border-bottom: 3px double rgb(0, 0, 0);" width="12%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;"> 1,508,053</font>
</font>
</td>
<td align="left" style="border-bottom: 3px double rgb(0, 0, 0);" width="2%"> </td>
</tr>
</table>
</div>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<i>$100,000 Face Value Convertible Debenture</i>
</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<i>$46,500 Face Value Convertible Debenture</i>
</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<i>$731,828 Face Value Convertible Debenture</i>
</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<i>$585,000 Face Value Convertible Debenture</i>
</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<i>$240,000 Face Value Convertible Debenture</i>
</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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”).</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">
<b>Accounting for the Financings:</b>
</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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 stockholder’s equity.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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 feature’s 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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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).</font>
</font>
</p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">11.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">PREPAID EXPENSES AND OTHER RECEIVABLES</font>
</font>
</p>
</td>
</tr>
</table>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;"> </p>
<table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt;" width="100%">
<tr>
<td valign="top" width="5%">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">12.</font>
</font>
</td>
<td>
<p align="justify">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">SUBSEQUENT EVENTS</font>
</font>
</p>
</td>
</tr>
</table>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">a) Convertible Debentures</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">b) Settlement of Accounts Payable</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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 Company’s 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.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">The $100,000 payment was made on March 20, 2012.</font>
</font>
</p>
<p align="justify" style="margin-left: 5%;">
<font style="font-size: 10pt;">
<font style="font-family: times new roman,times,serif;">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.</font>
</font>
</p>