Business context and reporting period
This is Security Devices International, Inc. (SDI)’s unaudited Form 10-Q for the three months ended February 28, 2014. The request metadata names Byrna Technologies Inc., but the filing identifies the registrant as Security Devices International, Inc.; verify the intended issuer. SDI described itself as a development-stage non-lethal ammunition company, focused primarily on its 40mm blunt impact projectile (BIP), with the wireless electric projectile (WEP) also in its product portfolio.
Financial results and position
| Metric | Quarter ended Feb. 28, 2014 | Comparable period |
|---|---|---|
| Sales | $4,516 | $0 |
| Cost of sales / gross profit | $2,174 / $2,342 | $0 / $0 |
| Operating expenses | $484,837 | $433,213 |
| Net loss | $478,437 | $469,648 |
| Basic and diluted loss per share | $0.01 | $0.01 |
Gross margin was approximately 52% on the small amount of reported sales. Cash used in operations was $444,994, versus $381,058 in the prior-year quarter; investing and financing cash flows were each reported as zero for the current quarter in management’s discussion. Cash declined from $1,842,149 at November 30, 2013 to $1,397,155 at February 28, 2014.
At quarter-end, total assets were $1,595,339, including current assets of $1,453,344; current liabilities and total liabilities were $120,296. Working capital was $1,333,048. The balance sheet reports no debt; the notes state that convertible debt was fully discharged in 2013. Equity was $1,475,043, with an accumulated development-stage deficit of $21,798,794. No dividends were paid.
Changes versus the prior period
- Sales began to appear, increasing from zero to $4,516, but remained immaterial relative to operating costs.
- Net loss increased by $8,789, while operating expenses rose by $51,624. Management cited newly engaged corporate and market advisory consultants as contributing to the variance.
- Cash used in operations increased by $63,936. The company also recorded $23,777 of inventory, described as product held at its manufacturer and available for later sale.
- Compared with November 30, 2013, cash fell by $444,994, current assets fell by $454,528, and working capital declined by $468,295.
Outlook, risks and unusual items
Management provided no quantified revenue or earnings guidance. It reported product demonstrations, distributor and agent relationships, and testing or evaluation orders from government and law-enforcement customers. The filing described payload BIP rounds as being in testing and stated that full production was expected in the first calendar quarter of 2014. These are company plans and reported activities, not assurance of future sales.
Management and the financial statements stated that substantial doubt existed about SDI’s ability to continue as a going concern: the company had limited revenue, expected significant further expenses, and might need additional capital. It said it had no commitments for additional financing. The filing also identifies risks including product liability and safety, regulation, dependence on key suppliers and partners, commercialization and customer adoption, competition, intellectual property, and access to capital.
- A former officer’s lawsuit seeks at least $95,000 in specified wrongful-dismissal and vacation-pay damages, plus other damages. Management considers the claim without merit and recorded no provision.
- Related-party expenses included $64,780 of director management fees, $60,000 for services from a corporation in which the COO had an interest, and $32,263 of director and officer travel reimbursements during the quarter.
- After quarter-end, the board granted five consultants options for 400,000 shares, immediately vested, at an exercise price of $0.31. The company expected to expense $47,897 in the following quarter.
- Disclosure controls were deemed ineffective because the small accounting department could not fully segregate duties. Management cited an audit committee and CFO oversight as mitigating measures.
Important facts for investors to verify
- Confirm the intended issuer: the filing is for Security Devices International, Inc., not Byrna Technologies Inc.
- Assess cash runway against operating cash use, expected expenses, and the absence of committed future financing.
- Verify whether planned BIP payload production, testing, customer evaluations, and distributor relationships translated into material recurring sales.
- Review the former officer litigation, related-party arrangements, and subsequent option grant and expense.
- Consider the going-concern uncertainty and the disclosed material weakness in disclosure controls.