Filing summary
Issuer and period: The filing identifies the company as Security Devices International, Inc. (SDI), a development-stage non-lethal defense technology company, for the quarter and six months ended May 31, 2013. The request metadata names Byrna Technologies Inc.; the filing itself does not use that name. Financial statements are unaudited and in U.S. dollars.
Key financial results and position
| Metric | Six months ended May 31, 2013 | Comparable 2012 period |
|---|---|---|
| Revenue | $0; no revenue generated since inception | $0 |
| Operating expenses | $945,089 | $511,463 |
| Net loss | $1,032,410 | $600,640 |
| Loss per share, basic and diluted | $0.03 | $0.02 |
| Cash used in operating activities | $736,588 | $807,696 |
- For the three months ended May 31, 2013, net loss was $562,762, versus $348,209 in 2012; loss per share was $0.02 versus $0.01.
- At May 31, 2013, cash was $79,214, down from $232,471 at November 30, 2012. Current assets were $179,071 and current liabilities were $970,005, a working-capital deficit of $790,934.
- Total liabilities were $1,670,666, compared with $1,343,007 at November 30, 2012. Convertible debentures were $700,661; current loans were $531,850 from non-related parties and $96,700 from a related party. Stockholders’ deficit was $1,318,509.
- Net cash provided by financing activities was $12,953,278 for the six months, including $10,468,900 net proceeds from common-share issuance, $628,550 in non-related loans, $96,700 in related-party borrowing, and proceeds from debentures and option exercises. Cash used in investing was $251,211.
- No operating margin is meaningful because the company had no revenue. The filing reports no income taxes paid and no interest paid in cash for the period.
Changes versus the prior period
- Six-month net loss increased by $431,770, and operating expenses rose by $433,626. Management attributed the change chiefly to higher legal and consulting costs, including two sales consultants at $7,000 per month each and expenses associated with Canadian and U.S. offering filings.
- 2013 included $99,245 of non-cash stock-based compensation for lender warrants, compared with $213,440 in the 2012 period. The 2012 comparison also benefited from a $215,143 recovery of research and development costs arising from a settlement with a former contractor; no comparable recovery occurred in 2013.
- Cash used in operations decreased from $807,696 to $736,588. The balance sheet nevertheless shows a sharp increase in current liabilities, principally reflecting short-term working-capital loans and accrued liabilities.
- During the six months, $500,000 face value of convertible debentures plus $40,444 accrued interest converted into 1,801,480 common shares. The company also increased authorized common shares from 50 million to 100 million in March 2013.
Outlook, risks and notable items
- Management states that the company has no operating cash flow, has not achieved profitability, expects further losses, and needs additional working capital. The filing says these conditions raise substantial doubt about its ability to continue as a going concern; future financing is not assured.
- SDI develops 40mm less-lethal ammunition, including the blunt impact projectile (BIP), and had discontinued further development of its wireless electric projectile (WEP) to focus on BIP. It was developing five BIP variants, with completion expected by the fourth quarter of calendar 2013; the payload rounds were in testing. No revenue, sales guidance, or profitability target is provided.
- The company filed a Canadian prospectus seeking C$3 million gross proceeds and estimating C$2.73 million net proceeds. Management expected more than $250,000 of unallocated working capital after specified offering, operating, marketing, and bridge-loan obligations. This is a stated expectation, not confirmed proceeds in the reported-period financial statements. The filing notes subsequent receipt of a prospectus receipt on July 3, 2013.
- Unsecured working-capital loans obtained in 2013 bear 6% interest and are repayable, with additional fixed amounts, on the earlier of July 30, 2013 and demand. Lenders received immediately vested warrants exercisable at $0.50 per share. Convertible debentures generally bear 8% interest and include conversion and default provisions.
- Important business risks include inability to raise capital or commercialize products; government customer budget, regulatory and procurement constraints; product safety, injury, warranty and liability exposure; reliance on suppliers and manufacturing/distribution partners; competition, intellectual-property risks, foreign-exchange exposure, and limited, volatile trading in the shares.
- Related-party expenses included $147,600 in director management fees, $120,000 for services by a company in which the COO had an interest, and $87,019 in reimbursed director and officer travel and entertainment. The filing also describes significant consulting commitments and office rent of C$6,399 per month through April 2018.
- The filing states in its legal-proceedings section that management knows of no material proceedings, but its risk disclosures also state that the company is currently subject to lawsuits involving product-related claims. The text does not clarify this apparent inconsistency.
Investor verification priorities
- Confirm the issuer identity and corporate history linking the filing’s named registrant, Security Devices International, Inc., to the company identified in the request metadata.
- Verify whether the Canadian offering closed, actual net proceeds received, subsequent use of funds, and repayment status of loans due or payable on demand.
- Assess cash runway, ongoing operating cash needs, and the basis for management’s stated post-offering working-capital expectation given the going-concern warning.
- Check BIP product testing, regulatory and customer acceptance, manufacturing and distribution arrangements, and whether the planned product-development timetable was achieved.
- Reconcile the filing’s statements about lawsuits and review outstanding product-liability exposure, insurance limits, related-party arrangements, and potential share dilution from debt conversions and warrants.