Business context and reporting period
This unaudited Form 10-Q covers the quarter and nine months ended August 31, 2013. The filing identifies the registrant as Security Devices International, Inc. (SDI), a development-stage company developing less-lethal ammunition, including blunt impact projectiles (BIP) and wireless electric projectiles (WEP). The request metadata names Byrna Technologies Inc.; that does not match the registrant named in this filing.
SDI reported no revenue from planned operations through the period. Its BIP development was completed in 2012; it was pursuing commercialization and developing five payload or training variants. The filing describes WEP development as having been discontinued in 2011.
Financial performance and position
| Metric | Period/value |
|---|---|
| Revenue | None reported since inception. |
| Net loss | Nine months: $1,477,005 in 2013 versus $951,270 in 2012. Quarter: $444,595 versus $350,630. |
| Operating expenses | Nine months: $1,332,765 versus $824,559; quarter: $387,676 versus $313,096. |
| Interest expense | Nine months: $144,240 versus $126,711; quarter: $56,919 versus $37,534. |
| Loss per share | Nine months: $0.04 in both years; quarter: $0.01 in both years, basic and diluted. |
| Operating cash flow | Cash used: $956,040 for the nine months, versus $881,786 in 2012. |
| Investing cash flow | Cash used: $45,219, versus $147,219 in 2012. |
| Financing cash flow | Cash provided: $3,657,005, versus $1,310,000 in 2012. |
| Cash | $2,888,217 at August 31, 2013, compared with $232,471 at November 30, 2012. |
| Liquidity | Current assets $2,902,246; current liabilities $960,546; reported working capital $1,941,700. |
| Debt and liabilities | Total liabilities $960,546, down from $1,343,007 at November 30, 2012. No convertible debentures remained on the August 31 balance sheet; current loans included $522,335 from non-related parties and $94,970 from a related party. |
| Equity | Stockholders’ equity of $2,104,312, versus a deficit of $925,788 at November 30, 2012. |
Margins are not meaningful because the company had no revenue. The filing reports cumulative losses of $20,773,151 since inception. It identifies $99,245 of stock-based compensation for the nine-month period.
Material changes versus prior comparable periods
- Nine-month net loss increased by $525,735 year over year. Management attributed the increase principally to higher legal and consulting expenses and the absence of a $215,143 research and development payable recovery recorded in 2012; stock-based compensation was lower year over year.
- Cash increased substantially following the August 2013 Canadian IPO. SDI issued 9,984,950 shares at CAD $0.40 per share for gross proceeds of CAD $3,993,980 (reported as US $3,794,280). Offering costs were $734,565.
- Convertible debentures were converted or repaid in connection with the IPO and the balance-sheet debt declined. The company also issued shares to convert $500,000 of debenture principal plus accrued interest earlier in the period.
- Common shares outstanding were 45,575,907 at August 31, 2013. The filing reports different subsequent share counts in separate locations; see investor verification items below.
Outlook, risks, contingencies and unusual items
- Going concern: SDI had no operating revenue, recurring losses, and continuing cash requirements. Management stated that future financing was not assured; the filing notes substantial doubt about the company’s ability to continue as a going concern.
- Commercialization: The company’s business depended on developing customer demand, securing manufacturing and distribution support, and converting demonstrations and testing into orders. Its Chemring teaming agreement provided for joint proposals and revenue sharing if contracts were awarded; the filing does not report revenue from such contracts.
- Product and market risks: The filing highlights product safety, injury and liability exposure, government procurement and budget constraints, regulatory requirements, competition, supplier dependence, intellectual property protection, and foreign-exchange risk.
- Commitments and related parties: The filing discloses consulting and management arrangements, including services provided by entities associated with directors or officers, as well as office leases and a manufacturing supply agreement. Nine-month related-party expenses included $233,400 in director management fees, $180,000 for services from a company associated with the COO, and $92,735 in director and officer expense reimbursements.
- Subsequent events: After quarter-end, a bridge-loan holder converted principal and interest totaling CAD $382,014 into 1,273,378 shares. The company also repaid a related-party loan of $94,970 and a non-related loan of $189,940, with interest.
- Outlook: Management expected to complete development of five new BIP variants by the fourth quarter of calendar 2013. The filing gives no quantified revenue, earnings, or cash-flow guidance.
Important facts for investors to verify
- Confirm the registrant’s identity: this filing is for Security Devices International, Inc., not Byrna Technologies Inc.
- Reconcile reported common-share counts: 45,575,907 at August 31; the cover reports 46,849,285 at October 15, while MD&A reports 46,952,532 as of that date.
- Review the subsequent conversion and loan repayments and their effect on post-quarter cash, debt, and diluted share count.
- Assess the company’s cash runway, ongoing operating burn, and ability to obtain additional financing given the going-concern disclosure.
- Verify whether the BIP products and variants secured commercial orders, and whether the Chemring and manufacturing arrangements translated into sales.