ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Introduction
Our financial statements are stated in Canadian dollars (CDN$)
and are prepared in conformity with generally accepted accounting principles in
the United States of America for interim financial statements.
As used in this quarterly report, the terms "we", "us", "our
company" and "Lamperd" mean Lamperd Less Lethal Inc. and our wholly owned
subsidiary 1476246 Ontario Limited, unless otherwise indicated. All dollar
amounts refer to Canadian dollars unless otherwise indicated.
THE FOLLOWING DISCUSSION AND ANALYSIS PROVIDES INFORMATION
WHICH OUR MANAGEMENT BELIEVES IS RELEVANT TO AN ASSESSMENT AND UNDERSTANDING OF
OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION. THIS DISCUSSION SHOULD BE
READ TOGETHER WITH OUR FINANCIAL STATEMENTS AND THE NOTES TO FINANCIAL
STATEMENTS WHICH ARE INCLUDED IN THIS REPORT, AND WITH OUR COMPANY'S FORM
10-KSB.
Forward-Looking Statements
This quarterly report contains forward-looking statements as
that term is defined in Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as "may",
"should", "expects", "plans", "anticipates", "believes", "estimates",
"predicts", "potential" or "continue" or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled "Risk Factors", that may cause our or our industry's actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.
Our Corporate History
We were incorporated under the laws of the State of Nevada
under the name Sinewire Networks Inc. on October 4, 2001. On March 21, 2005,
we changed our name to Lamperd Less Lethal Inc. The name change was recorded
by the Secretary of State of the State of Nevada on March 21, 2005, and took
effect with NASD Inc.s Over-the-Counter Bulletin Board at the opening for
trading on March 31, 2005 under our new stock symbol LLLI.
Our Business
Our company is a developer, reseller and manufacturer of civil
defence products that are designed as a less lethal alternative to conventional
weapons. The products include weapon systems and munitions that are designed to
incapacitate as opposed to kill opponents, and at the same time, ensure the
safety of the personnel using the products. In addition, our company
manufactures or acquires for resale, shields, service equipment, training gear
and accessories. The products are primarily designed for the use by military and
law enforcement organizations. Our company also offers less lethal training to
police, military, utility companies and private sector security personnel.
Training can be provided by experienced military and police contractors in
addition to trained civilian contractors which are retained as required by our
company with permission from their respective agencies. The training programs
offered by our company incorporate the most current less lethal techniques and
equipment, including our own products.
The launchers consist of a hand held model called the Defender
I, a longer version called the Defender II, a revolving shotgun launcher
called the RSG-20, Homeland Defender 2 shot, and the Military Peace Keeper, or
MPK version, that combines lethal and less lethal technologies in one launcher.
The launchers fire 5 rounds except for our new product the Homeland Defender
which fires 2 rounds. The five types of munitions developed for use by the
launchers, as well as certain conventional weapons, consist of sock rounds, WASP
synthetic rounds, distractionary rounds, liquid incapacitant rounds, and
training rounds.
Our market is primarily comprised of military forces and law
enforcement organizations in Canada and the United States. In Canada, our
products are primarily sold to distributors who distribute its products to end
users on an exclusive basis. We have been granted a Canadian Business Firearms
License, which allows the company to manufacture, repair, store, import, export
and sell its proprietary products.
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Our products are sold in the United States through a network of
distributors. Our munitions have been approved by the Joint Less-lethal Weapons
program in the United States. The program was established in order to provide
certain personnel with a variety of non-lethal weapons products. In furtherance
of the marketing and sales of our products, we have been assigned a NATO
Commercial and Government Entity Code which enables us to sell military supplies
to NATO member countries.
On July 16, 2007, we entered into a letter of intent dated July
5, 2007 to enter into a joint manufacturing agreement with Lumenyte
International Corporation to develop an undercarriage camera inspection system.
Our Products
Launchers
We have developed five proprietary projectile launchers. Each
of the launchers is compatible with our line of proprietary less lethal
munitions including the WASP composite rounds, sock rounds, training rounds,
distractionary rounds and liquid incapacitant rounds. Four launchers fire 5
rounds and one launcher fires 2 rounds. The ability of an operator to fire more
than a single round provides greater security in hostile situations.
1.
|
Defender I: The Defender I is our standard launcher
product. The launcher fires munitions from a cylinder that holds five
rounds. The launcher is a compact and lightweight product that fires 20
gauge rounds.
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2.
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Defender II: The Defender II is a longer version than the
Defender I and also fires munitions from a cylinder that holds 5 rounds.
The launcher fires 20 gauge rounds and has a longer barrel which provides
for improved accuracy and greater effectiveness at longer
ranges.
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3.
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RSG-20: The RSG-20 is a revolving shotgun version
developed for the United States market and designed to fire five 20 gauge
cartridges.
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4.
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Military Peace Keeper: The MPK version combines lethal
and less lethal technologies in one launcher and fires five rounds. The
launcher is lightweight and contains a laser system for increased
accuracy.
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5.
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Homeland Defender: The Homeland Defender is our 2 shot
launcher. This launcher is light weight and small enough to be carried as
second weapon.
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Munitions
We manufacture six types of proprietary munitions used by the
launchers. Each of the munitions is made in 20 gauge, 12 gauge, 37mm and 40mm
and 50 calibre sizes. In addition, our munitions are compatible with other 20
gauge, 12 gauge, 37mm, 40mm and 50 calibre conventional weapons delivery
systems. The munitions are designed to ensure the safety of the operator and
incapacitate rather than kill an opponent.
WASP Composite Rounds
The WASP round is our most technologically advanced product.
The round consists of a projectile made from a rubber composite material that
does not harden in colder climates and possesses energy dissipation attributes,
resulting in a safer and more accurate projectile. The composite material allows
it to be used in temperatures ranging from minus 50 degrees Celsius to 100
degrees Celsius. The chemical composition of the projectile dissipates energy
upon impact, thus inflicting a level of force that is sufficient to temporarily
incapacitate but not kill the intended opponent. The projectile is patent
pending in Canada and the United States. The projectile was developed in
partnership with the University of Western Ontario. The University of Western
Ontario granted us an exclusive world-wide license to the technology pursuant to
a license agreement dated January 30, 2005. The license agreement is effective
for the term the patent rights are protected, subject to certain conditions. In
consideration for the grant of license, weve agreed to pay all out-of-pocket
expenses incurred by the University of Western Ontario, assume responsibility
for future patent prosecution and rights and pay the University a royalty
commencing on April 1, 2006 of three percent of revenue directly attributable to
the projectile. The royalty is subject to minimum royalty obligations of $5,000
per year for each of the second and third years following the entry into the
license agreement, $10,000 per year for the fourth to sixth years, and $20,000
thereafter. Our Company has accrued $3,750 as of September 30, 2007 in
connection with the 2007 royalty obligation.
Sock Rounds
The sock round fires a pouch or beanbag projectile filled
with lead pellets. Each sock round contains a proprietary tail attached to the
end of the round which stabilizes the round for increased accuracy. The
composition of the projectile allows for the dissipation of energy upon impact
which reduces the chances of injury of the intended target. The projectile is
intended to be
15
aimed at the abdomen and hits the intended target with
sufficient force to knock the opponent down, but generally not enough to cause
permanent injury.
Distractionary Rounds
The distractionary round is an alternative to conventional stun
grenades and provides a bright flash combined with a 135 decibel noise, used to
disorient and temporarily blind opponents without causing permanent damage.
Liquid Incapacitant Rounds
Incapacitant rounds fire either a liquid or powder form of
pepper spray designed to temporarily blind and incapacitate opponents without
the need for officer contact. Firing the incapacitant rounds from a launcher
provides greater safety to the operator and provides more range than traditional
spray delivery methods.
Training Rounds
Training rounds are non-lethal munitions used by military and
law enforcement organizations to carry out training exercises amongst themselves
in preparation for hostile or combat situations.
Additional Products
We manufacture and distribute products in addition to launchers
and munitions, including the Specialized Mobil Armed Robot Technology System or
SMART System which combines the Defender launcher technology with an integrated
human-robot interface control platform. The SMART System is designed to deliver
less lethal, lethal and chemical weapon systems. Communication is facilitated by
a 360 degree camera and a proprietary sighting system mounted to the robotic
platform. The product can also be customized in accordance with the requirements
of the end-user. Our Firearm Training System, (FTS) is a simulation training
systems, to develop both fundamental basic and judgmental skills for lethal /
less lethal applications through computerized video hit projections. This
product scenario can be customized to the customer needs.
Results of Operations
Nine months ended September 30, 2007 compared to the nine
month period ended September 30, 2006
Our company posted losses of $ 560,524 for the nine months
ended September 30, 2007 compared to losses of $ 674,048 for the nine month
period ended September 30, 2006. The principal components of the losses were $
531,590 of selling, general and administrative expenses for the nine months
ended September 30, 2007 and $ 689,993 for the nine months ended September 30,
2006.
Our operating expenses for the nine months ended September 30,
2007 were $ 582,781 compared to $ 723,666 for the nine month period ended
September 30, 2006. The decrease was largely the result of the cancellation of
the Companies insurance policy and reductions in payroll wages.
Our gross margin for the nine months ended September 30, 2007
was $ 22,257 compared to a gross margin of $ 49,618 for the nine months ended
September 30, 2006.
Liquidity and Capital Resources
Since April 14, 2005, we have been engaged in the business of
developing and manufacturing of civil defense products that are designed as a
less lethal alternative to conventional weapons, while we have been generating
modest revenues. Our principal capital resources have been acquired through the
issuance of common stock.
Accounts receivable decreased $ 42,984 as of September 30, 2007
as compared to December 31, 2006. The decrease was the result of fewer sales and
a decrease in the value of the US dollar.
At September 30, 2007, we had a working capital deficiency of $
675,348 compared to $ 288,189 at December 31, 2006.
While we expect to meet our financial obligations, the
continuation of our business is dependent upon obtaining further financing, a
successful program of acquisition and development, and, finally, achieving a
profitable level of operations. The issuance of additional equity securities by
us could result in a significant dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would be
available, will increase our liabilities and future cash commitments.
16
There are no assurances that we will be able to obtain further
funds required for our continued operations. As noted herein, we are pursuing
various financing alternatives to meet our immediate and long-term financial
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as
planned, and we will not be able to meet our other obligations as they become
due. In such event, we will be forced to scale down or perhaps even cease our
operations.
Going Concern
Our company has shown losses since inception. Management is
anticipating that sales of launcher and ammunitions will increase in the next
quarter with volume growing in the next two quarters. The continuation of our
business is dependent upon obtaining further financing, a successful program of
acquisition and development, and, finally, achieving a profitable level of
operations. The issuance of additional equity securities by us could result in a
significant dilution in the equity interests of our current stockholders.
Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments.
There are no assurances that we will be able to obtain further
funds required for our continued operations. As noted herein, we are pursuing
various financing alternatives to meet our immediate and long-term financial
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, we will be unable to conduct our operations as
planned, and we will not be able to meet our other obligations as they become
due. In such event, we will be forced to scale down or perhaps even cease our
operations.
Research and Development
Our companys research and development efforts are focused on
enhancing our less lethal products including: (i) periodic redesign of products
and incorporation of new technologies to improve performance and
manufacturability; (ii) design of new product lines for additional specialized
applications; and (iii) expansion and adoption of existing products to
accommodate the requirements of customer needs. Research and development efforts
are conducted in-house.
Purchase of Significant Equipment
No significant purchases are being planned for the next 12
months.
Personnel
As of September 30, 2007, we have 4 full-time employees. Of
those employees, none are covered by collective bargaining agreements.
Application Of Critical Accounting
Policies
Our unaudited consolidated condensed financial statements and
accompanying notes have been prepared in conformity with generally accepted
accounting principles in the United States of America for interim financial
statements. Preparing financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenue, and expenses. These estimates and assumptions are affected by
management's application of accounting policies. We believe that understanding
the basis and nature of the estimates and assumptions involved with the
following aspects of our financial statements is critical to an understanding of
our financials.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
Basic loss per share has been calculated based on the weighted
average number of shares of common stock outstanding during the period.
We do not expect the adoption of recently issued accounting
pronouncements to have a significant impact on our results of operations,
financial position or cash flow.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of September 30,
2007.
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RISK FACTORS
Much of the information included in this quarterly report
includes or is based upon estimates, projections or other "forward looking
statements". Such forward looking statements include any projections or
estimates made by us and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein.
Such estimates, projections or other "forward looking
statements" involve various risks and uncertainties as outlined below. We
caution the reader that important factors in some cases have affected and, in
the future, could materially affect actual results and cause actual results to
differ materially from the results expressed in any such estimates, projections
or other "forward looking statements".
Risks Related To Our Business
We operate in a highly-competitive industry and our failure
to compete effectively may adversely affect our ability to generate revenue.
Management is aware of similar products which compete directly
with our products and some of the companies developing these products have
significantly greater financial, technical and marketing resources, larger
distribution networks, and generate greater revenue and have greater name
recognition than us. These companies may develop products superior to those of
our company. Such competition will potentially affect our chances of achieving
profitability, and ultimately adversely affect our ability to continue as a
going concern. Some of our competitors conduct more extensive promotional
activities and offer lower prices to customers than we do, which could allow
them to gain greater market share or prevent us from increasing our market
share. In the future, we may need to decrease our prices if our competitors
continue to lower their prices. Our competitors may be able to respond more
quickly to new or changing opportunities, technologies and customer
requirements. To be successful, we must carry out our business plan, establish
and strengthen our brand awareness through marketing, effectively differentiate
our product line from those of our competitors and build our distribution
network. To achieve this we may have to substantially increase marketing and
research and development in order to compete effectively. Such competition will
potentially affect our chances of achieving profitability, and ultimately
adversely affect our ability to continue as a going concern. Due to minimal
revenue and lack of cash flow we cancelled the product liability insurance
policy in July of 2006. We have subsequently reinstated our product liability
insurance on May 1, 2007. On July 26, 2007, the Company cancelled its product
liability coverage. We cannot make assurances that resources will be available
in the foreseeable future to cover any potential product liability litigation or
claims should any arise during the period that our company was self-insured.
Rapid technological changes in our industry could render our
products non-competitive or obsolete and consequently affect our ability to
generate revenues.
Currently, we derive substantially all of our revenues from the
sale of civil defence products and related products using less lethal
alternatives to conventional weapons, including launchers and munitions. Such
products are characterised and affected by rapid technological change, evolving
industry standards and regulations and changing client preferences. Our success
will depend, in significant part, upon our ability to make timely and
cost-effective enhancements and additions to our technology and to introduce new
products and services that meet customer demands. We expect new products and
services to be developed and introduced by other companies that compete with our
products and services. The proliferation of new and established companies
offering less lethal alternative products may reduce demand for our particular
products. There can be no assurance that we will be successful in responding to
these or other technological changes, to evolving industry standards or
regulations or to new products and services offered by our current and future
competitors. In addition, we may not have access to sufficient capital for our
research and development needs in order to develop new products and services.
We could lose our competitive advantages if we are not able
to protect our proprietary technology and intellectual property rights against
infringement, and any related litigation could be time-consuming and costly.
Our success and ability to compete depends in part on our
proprietary technology incorporated in our products. If any of our competitors
copy or otherwise gain access to our proprietary technology or develop similar
technologies independently, we would not be able to compete as effectively. We
consider our technologies invaluable to our ability to continue to develop and
maintain the goodwill and recognition associated with our brand. The measures we
take to protect our technologies, and other intellectual property rights, which
presently are based upon registered trade marks in addition to trade secrets,
may not be adequate to prevent their unauthorized use. Although we rely, in
part, on contractual provisions to protect our trade secrets and proprietary
know-how, there is no assurance that these agreements will not be breached, that
we would have adequate remedies for any breach or that our trade secrets will
not otherwise become known or be independently developed by competitors.
Further, the laws of foreign countries may provide inadequate protection of
intellectual property rights. We may need to bring legal claims to enforce or
protect our intellectual property rights. Any litigation, whether successful or
unsuccessful, could result in
18
substantial costs and a diversion of corporate resources. In
addition, notwithstanding any rights we have secured to our intellectual
property, other persons may bring claims against us claiming that we have
infringed on their intellectual property rights, including claims that our
intellectual property rights are not valid. Adverse determinations in litigation
in which we may become involved could subject us to significant liabilities to
third parties, require us to grant licenses to or seek licenses from third
parties and prevent us from manufacturing and selling our products. Any claims
against us, with or without merit, could be time-consuming and costly to defend
or litigate, divert our attention and resources, result in the loss of goodwill
associated with our trademarks or require us to make changes to our
technologies. Furthermore, we cannot assure you that any pending patent
application made by us will result in an issued patent, or that, if a patent is
issued, it will provide meaningful protection against competitors or competitor
technologies.
We may not be able to hire and retain qualified personnel to
support our growth and if we are unable to retain or hire such personnel in the
future, our ability to improve our products and implement our business
objectives could be adversely effected.
To continue our growth, we will need to recruit additional
senior management personnel, including persons with financial and sales
experience. In addition, we must hire, train and retain a significant number of
other skilled personnel, including persons with experience in less lethal
munitions engineering and manufacturing. We have encountered competition for
these personnel. We may not be able to find or retain qualified personnel, which
will have a material adverse impact on our business.
Our growth could be impaired if we are not able to develop
and maintain the relationships we need to implement our international strategy.
Our growth will depend, in large part, on the success of our
international distribution strategy. We have limited experience in marketing and
selling our products outside of Canada and the United States. We will depend on
partnerships and/or joint ventures in international markets to help us build our
international operations and distribution networks. We will depend upon
international partners to provide marketing and relationship building expertise,
and a base of existing customers. If we are unable to develop and maintain these
relationships, or to develop additional relationships in other countries, our
ability to penetrate, and successfully compete in foreign markets will be
adversely affected.
We intend to expand our business internationally, and
therefore, we are subject to additional financial and regulatory risks.
Our current and future international operations are and will be
subject to various risks, including: foreign import controls (which may be
arbitrarily imposed and enforced and which could interrupt our supplies or
prohibit customers from purchasing our products); exchange rate fluctuations;
the necessity of obtaining government approvals for both new and continuing
operations; and legal systems of decrees, laws, taxes, regulations,
interpretations and court decisions that we are not familiar with. One component
of our strategy is to expand our operations into selected international markets.
Foreign countries in which we are actively marketing include the United States
and we intend to commence marketing efforts in the United Kingdom in the near
future. We, however, may be unable to execute our business model in this market
or new markets. Further, foreign providers of competing products and services
may have a substantial advantage over us in attracting consumers and businesses
in their country due to earlier established businesses in that country, greater
knowledge with respect to the cultural differences of consumers and businesses
residing in that country and/or their focus on a single market. As a result, we
expect to experience higher costs as a percentage of any revenues that we may
generate in the future in connection with the development and maintenance of
international sales. In pursuing our international expansion strategy, we face
several additional risks, including:
- foreign laws and regulations, which may vary country by
country, that may impact how we conduct our business;
- higher costs of doing business in foreign countries;
- potential adverse tax consequences if taxing authorities in
different jurisdictions worldwide disagree with our interpretation of various
tax laws or our determinations as to the income and expenses attributable to
specific jurisdictions, which could result in our paying additional taxes,
interest and penalties;
- technological differences that vary by marketplace, which we
may not be able to support;
- longer payment cycles and foreign currency fluctuations; and
- economic downturns.
We propose to operate in areas where local government policies
regarding foreign entities and the regulation of less lethal products are often
uncertain. We cannot, therefore, be certain that we are in compliance with, or
will be protected by, all relevant local laws and taxes at any given point in
time. A subsequent determination that we failed to comply with relevant local
laws and taxes could have a material adverse effect on our business, financial
condition, results of operations and liquidity. One or more of these factors
could adversely affect our future international operations and, consequently,
could have a material adverse effect on our business, financial condition,
results of operation and liquidity.
19
Many of our customers have fluctuating budgets, which may
cause substantial fluctuations in our results of operations.
The potential customers for our products may include federal,
state, municipal, foreign and military, law enforcement and other governmental
agencies. Government tax revenues and budgetary constraints, which fluctuate
from time to time, can affect budgetary allocations from these customers. Many
domestic and foreign government agencies have in the past experienced budget
deficits that have led to decreased spending in defence, law enforcement and
other military and security areas. Any future revenues that our company may
generate may be subject to substantial periodic fluctuations because of these
and other factors affecting military, law enforcement and other governmental
spending. A reduction of funding for federal, state, municipal, foreign and
other governmental agencies could have a material adverse effect on any future
revenues that we may generate.
Our WASP synthetic round is costly to compound, and our
company may not be able to find other subcontractors who are willing to supply
our company with this service.
The WASP synthetic round is made from a proprietary rubber
compound and is costly to compound. It may be difficult to find other
contractors willing to compound our material. If we are unable to find
contractors willing to compound and deliver our material, our revenues will be
reduced.
Risks Related To Our Industry
The products we sell are inherently risky and could give
rise to product liability and other claims.
The products that we manufacture are typically used in
applications and situations that involve a high level of risk of personal
injury. Failure to use our products for their intended purposes, failure to use
or care for them properly, or their malfunction, or, in some limited
circumstances, even correct use of our products, could result in serious bodily
injury or death. Given this potential risk of injury, proper maintenance of our
products is critical. Our products consist of less lethal products such as
launchers, munitions, pepper sprays and distraction devices. The manufacture and
sale of less-lethal products may be the subject of product liability claims
arising from the design, manufacture or sale of such goods. If these claims are
decided against our company and we are founds liable, we may be required to pay
substantial damages and our insurance costs, if any, may increase significantly
as a result. Also, a significant or extended lawsuit could also divert
significant amounts of managements time and energy. We cannot assure you that
our insurance coverage, if any, would be sufficient to cover the payment of any
potential claim. In addition, we cannot assure you that this or any other
insurance coverage will continue to be available or, if available, that we will
be able to obtain it at a reasonable cost. Any material uninsured loss could
have a material adverse effect on our business, financial condition and results
of operations.
We are subject to extensive government regulation, and our
failure or inability to comply with these regulations could materially restrict
our operations and subject us to substantial penalties.
We are subject to many requirements with respect to the sale in
foreign and/or domestic countries of certain of our products. In addition, we
are obligated to comply with a variety of federal, state and local regulations,
both domestically and abroad, governing certain aspects of our operations and
workplace. The inability of our company to comply with such regulations may
limit our operations and subject us to substantial penalties and fines.
Risks Related To Our Common Stock
A decline in the price of our common stock could affect our
ability to raise further working capital and adversely impact our operations.
A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because our operations have been financed through
the sale of equity securities, a decline in the price of our common stock could
be especially detrimental to our liquidity and our continued operations. Any
reduction in our ability to raise equity capital in the future would force us to
reallocate funds from other planned uses and would have a significant negative
effect on our business plans and operations, including our ability to develop
new products and continue our current operations. If the stock price declines,
there can be no assurance that we can raise additional capital or generate funds
from operations sufficient to meet our obligations. We believe the following
factors could cause the market price of our common stock to continue to
fluctuate widely and could cause our common stock to trade at a price below the
price at which you purchase your shares:
- actual or anticipated variations in our quarterly operating
results;
- announcements of new services, products, acquisitions or
strategic relationships by us or our competitors;
- trends or conditions in the less lethal products industry;
20
- changes in accounting treatments or principles;
- changes in earnings estimates by securities analysts and in
analyst recommendations;
- changes in market valuations of other less lethal product
companies; and
- general political, economic, regulatory and market
conditions.
The market price for our common stock may also be affected by
our ability to meet or exceed expectations of analysts or investors. Any failure
to meet these expectations, even if minor, could materially adversely affect the
market price of our common stock.
If we issue additional shares in the future, it will result
in the dilution of our existing shareholders.
Our certificate of incorporation authorizes the issuance of
1,000,000,000 shares of common stock. Our board of directors has the authority
to issue additional shares up to the authorized capital stated in the
certificate of incorporation. Our board of directors may choose to issue some or
all of such shares to acquire one or more businesses or to provide additional
financing in the future. The issuance of any such shares will result in a
reduction of the book value or market price of the outstanding shares of our
common stock. If we do issue any such additional shares, such issuance also will
cause a reduction in the proportionate ownership and voting power of all other
shareholders. Further, any such issuance may result in a change of control of
our corporation.
If a market for our common stock does not develop,
shareholders may be unable to sell their shares.
There is currently a limited market for our common stock, which
trades through the Over-the-Counter Bulletin Board quotation system. Trading of
stock through the Over-the-Counter Bulletin Board is frequently thin and highly
volatile. There is no assurance that a sufficient market will develop in the
stock, in which case it could be difficult for shareholders to sell their
stock.
Trading of our stock may be restricted by the Securities and
Exchange Commissions penny stock regulations which may limit a stockholders
ability to buy and sell our stock.
The Securities and Exchange Commission has adopted regulations
which generally define penny stock to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The term accredited investor refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the Securities and
Exchange Commission which provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customers account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customers confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules; the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.
The Financial Industry Regulatory Authority (formerly
National Association of Securities Dealers Inc),hereafter referred to as NASD,
has adopted sales practice requirements, which may limit a stockholders ability
to buy and sell our shares.
In addition to the penny stock rules described above, the
NASD has adopted rules requiring that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative
low-priced securities to their non-institutional customers, broker-dealers must
make reasonable efforts to obtain information about the customers financial
status, tax status, investment objectives and other information. Under
interpretations of these rules, the NASD believes that there is a high
probability that speculative low-priced securities will not be suitable for at
least some customers. The NASD requirements make it more difficult for
broker-dealers to recommend that their customers buy our common stock, which may
limit our shareholders ability to buy and sell our stock and which may have an
adverse effect on the market for our shares.
21
Most of our assets and a majority of our directors and
officers are outside the United States, with the result that it may be difficult
for investors to enforce within the United States any judgments obtained against
us or any of our directors or officers.
Although we are organized under the laws of the State of
Nevada, our principal executive office is located in Sarnia, Ontario, Canada.
Outside the United States, it may be difficult for investors to enforce
judgments against us obtained in the United States in any such actions,
including actions predicated upon civil liability provisions of federal
securities laws. In addition, some of our officers and directors reside outside
the United States, and a majority of the assets of these persons and our assets
are located outside of the United States. As a result, it may not be possible
for investors to effect service of process within the United States upon such
persons or to enforce against us or such persons judgments predicated upon the
liability provisions of the United States securities laws. There is substantial
doubt as to the enforceability against us or any of our directors and officers
located outside the United States in original actions or in actions of
enforcement of judgments of United States courts or liabilities predicated on
the civil liability provisions of United States federal securities laws.