Business context and reporting period
This unaudited Form 10-Q is for the three months ended February 28, 2013. The filing identifies the registrant as Security Devices International, Inc. (SDI), a development-stage non-lethal defense technology company—not Byrna Technologies Inc.; investors should verify the requested company and filing match.
SDI reported no revenue from inception through the quarter. Its principal commercial focus was the 40mm blunt impact projectile (BIP); the filing says BIP development and testing were complete and describes certification and shipping milestones. SDI also described five BIP variants under development, targeted for completion in calendar Q2 2013. The company had shifted focus away from its wireless electric projectile (WEP), though it cited future development ambitions.
Financial results and position
| Metric | Quarter ended February 28, 2013 | Comparable period |
|---|---|---|
| Revenue | None reported | None reported |
| Operating expenses | $433,213 | $208,330 |
| Net loss | $469,648 | $252,431 |
| Basic and diluted loss per share | $0.01 | $0.01 |
| Cash used in operations | $381,058 | $377,496 |
Operating margins are not meaningful because the company had no revenue. The larger year-over-year loss mainly reflects the prior-year $215,143 recovery of research and development costs, higher consulting expenses, and lower stock-based compensation in the current quarter.
At February 28, 2013, cash was $51,413, down from $232,471 at November 30, 2012. Current assets were $117,227 and current liabilities were $374,263, producing a $257,036 working-capital deficit, versus $121,803 of positive working capital at fiscal year-end. Total assets were $254,061; total liabilities were $1,070,870; and stockholders’ deficit was $816,809.
Convertible debentures had a $696,607 carrying value, down from $1,192,639. During the quarter, $500,000 principal plus $40,444 accrued interest was converted into 1,801,480 shares. SDI also borrowed $200,000 under an unsecured working-capital loan bearing 6% interest, plus a $12,000 repayment amount; it is repayable on demand or by July 30, 2013, whichever is earlier. Financing cash inflow was $200,000, and cash decreased by $181,058 during the quarter.
Changes, outlook, and risks
- Loss increased from $252,431 to $469,648. The prior-year comparison included a $215,143 payable recovery; consulting costs increased, while stock-based compensation fell to $38,183 from $213,440.
- Management stated that SDI had no operating cash-flow source, expected further losses, and needed additional working capital to launch products, fund overhead, and pay liabilities. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. Future financing was not assured; SDI had filed a preliminary Canadian prospectus to raise funds.
- No quantified revenue or earnings guidance was provided. Management’s stated product-development target was completion of five new BIP rounds by calendar Q2 2013. The filing describes a Chemring marketing and sales teaming arrangement and a manufacturing agreement with a BIP supplier.
- Subsequent events included a March 2013 increase in authorized common shares from 50 million to 100 million, a $100,000 director loan with 6% interest and a $6,000 repayment amount, and a five-year office lease beginning May 1, 2013 at annual rent of $39,134 plus utilities and taxes.
- Disclosed risks include funding and going-concern uncertainty, inability to commercialize products, reliance on suppliers and distribution partners, government purchasing and regulatory risks, product-liability exposure, competition, intellectual-property risks, and a limited, volatile share market. The risk discussion refers to lawsuits, while the legal-proceedings section says there were no proceedings management believed material; reconcile these disclosures.
Important facts for investors to verify
- Confirm that this SDI filing, rather than a Byrna Technologies filing, is the intended issuer and reporting period.
- Check subsequent financing, loan repayment or extensions, and available liquidity; reported cash was $51,413 against a $257,036 working-capital deficit.
- Verify whether the Canadian capital raise was completed and whether BIP products generated commercial orders or revenue after the quarter.
- Confirm progress on the five planned BIP variants and the status of the Chemring and manufacturing arrangements.
- Reconcile the filing’s general reference to existing lawsuits with its statement that no legal proceedings were believed material.