UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from _________ to _________
Commission File No.
| Byrna Technologies Inc. | ||
| (Exact name of registrant as specified in its charter) | ||
| | | |
| (State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) | |
| organization) | ||
| | ||
| | ||
| (Address of Principal Executive Offices, including zip code) | ||
| ( | ||
| (Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | The |
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☐ Large accelerated filer ☐ Accelerated filer ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As of October 10, 2023, the Company had 24,143,014 issued and
| Page |
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| Condensed Consolidated Balance Sheets as of August 31, 2023 (unaudited) and November 30, 2022 |
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| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART 1 – FINANCIAL INFORMATION
| ITEM 1. |
Condensed Consolidated Financial Statements |
BYRNA TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share and per share data)
| August 31, | November 30, | |||||||
| 2023 | 2022 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| LONG TERM ASSETS | ||||||||
| Intangible assets, net | ||||||||
| Deposits for equipment | ||||||||
| Right-of-use asset, net | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| Loan to joint venture | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Operating lease liabilities, current | ||||||||
| Deferred revenue, current | ||||||||
| Total current liabilities | ||||||||
| LONG TERM LIABILITIES | ||||||||
| Deferred revenue, non-current | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 21) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $ par value, shares authorized, shares issued | ||||||||
| Common stock, $ par value, shares authorized. shares issued and shares outstanding as of August 31, 2023 and, shares issued and outstanding as of November 30, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock ( shares purchased as of August 31, 2023 and November 30, 2022) | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Amounts in thousands except share and per share data)
(Unaudited)
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| August 31, |
August 31, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net revenue |
$ | $ | $ | $ | ||||||||||||
| Cost of goods sold |
||||||||||||||||
| Gross profit |
||||||||||||||||
| Operating expenses |
||||||||||||||||
| LOSS FROM OPERATIONS |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| OTHER INCOME (EXPENSE) |
||||||||||||||||
| Foreign currency transaction gain (loss) |
( |
) | ( |
) | ( |
) | ||||||||||
| Interest income (expense) |
( |
) | ||||||||||||||
| Loss from joint venture |
( |
) | ( |
) | ||||||||||||
| Other expenses |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| LOSS BEFORE INCOME TAXES |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Income tax (provision) benefit |
( |
) | ( |
) | ||||||||||||
| NET LOSS |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Foreign currency translation adjustment for the period |
( |
) | ( |
) | ( |
) | ||||||||||
| COMPREHENSIVE LOSS |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Net loss per share – basic and diluted |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average number of common shares outstanding - basic and diluted |
||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
| For the Nine Months Ended |
||||||||
| August 31, |
||||||||
| 2023 |
2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
| Net loss for the period |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Stock-based compensation expense |
||||||||
| Depreciation and amortization |
||||||||
| Provision for inventory |
||||||||
| Operating lease costs |
||||||||
| Loss from joint venture |
||||||||
| Impairment loss |
||||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
( |
) | ||||||
| Deferred revenue |
( |
) | ||||||
| Inventory |
( |
) | ( |
) | ||||
| Prepaid expenses and other current assets |
( |
) | ||||||
| Other assets |
( |
) | ||||||
| Accounts payable and accrued liabilities |
( |
) | ( |
) | ||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| NET CASH USED IN OPERATING ACTIVITIES |
( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
| Purchases of property and equipment |
( |
) | ( |
) | ||||
| Equity method investment in joint venture |
( |
) | ||||||
| Purchase of patent rights |
( |
) | ||||||
| Cash paid for asset acquisition, net of cash acquired |
( |
) | ||||||
| Loan to joint venture |
( |
) | ||||||
| NET CASH USED IN INVESTING ACTIVITIES |
( |
) | ( |
) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
| Proceeds from stock option exercises |
||||||||
| Repurchase of common stock |
( |
) | ||||||
| Payment of taxes withheld on issuance of restricted stock units |
( |
) | ||||||
| NET CASH USED IN FINANCING ACTIVITIES |
( |
) | ( |
) | ||||
| Effects of foreign currency exchange rate changes |
( |
) | ||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS FOR THE PERIOD |
( |
) | ( |
) | ||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD |
||||||||
| CASH AND CASH EQUIVALENTS END OF PERIOD |
$ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three and Nine Months Ended August 31, 2023 and 2022
(Amounts in thousands except share numbers)
(Unaudited)
| Additional |
Treasury |
Accumulated Other |
||||||||||||||||||||||||||||||
| Common Stock |
Paid-in |
Stock |
Accumulated |
Comprehensive |
||||||||||||||||||||||||||||
| Shares |
$ |
Capital |
Shares |
$ |
Deficit |
Loss |
Total |
|||||||||||||||||||||||||
| Balance, May 31, 2023 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
— | — | ||||||||||||||||||||||||||||||
| Balance, August 31, 2023 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Balance, May 31, 2022 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units |
||||||||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Settlement of obligation to grant stock options |
— | — | ||||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, August 31, 2022 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Additional |
Treasury |
Accumulated Other |
||||||||||||||||||||||||||||||
| Common Stock |
Paid-in |
Stock |
Accumulated |
Comprehensive |
||||||||||||||||||||||||||||
| Shares |
$ |
Capital |
Shares |
$ |
Deficit |
Loss |
Total |
|||||||||||||||||||||||||
| Balance, November 30, 2022 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to vesting of restricted stock units |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, August 31, 2023 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
| Balance, November 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||||||
| Issuance of common stock pursuant to exercise of stock options |
||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to settlement of restricted stock units |
||||||||||||||||||||||||||||||||
| Settlement of obligation to grant stock options |
||||||||||||||||||||||||||||||||
| Reclassification of stock-based compensation plan modification |
— | ( |
) | — | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
— | — | ||||||||||||||||||||||||||||||
| Repurchase of common shares under Stock Buyback Plan |
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Net loss |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
— | — | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance, August 31, 2022 |
$ | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three and nine months ended August 31, 2023 and 2022
| 1. |
NATURE OF OPERATIONS |
Byrna Technologies Inc. (the “Company” or “Byrna”) is a non-lethal defense technology company, specializing in next generation solutions for security situations that do not require the use of lethal force. Byrna personal security devices are non-lethal self-defense devices that are powered by CO2 and fire .68 caliber spherical kinetic and chemical irritant projectiles. The Company added pepper sprays to its non-lethal defense product line with an acquisition in May 2022. See Note 7, "Acquisitions" for additional information. These products are sold in both the consumer and security professional markets. The Company operates
On January 10, 2023, the Company created a new joint venture with Fusady S.A. ("Fusady") located in Uruguay, to expand the Company's operations and presence in South American markets. The Company holds
The Company was incorporated under the laws of the state of Delaware on March 1, 2005.
| 2. |
OPERATIONS AND MANAGEMENT PLANS |
From inception to August 31, 2023, the Company has incurred an accumulated deficit of $
Management projects that all cash needs will be met beyond one year from the time these financial statements are issued.
| 3. |
BASIS OF PRESENTATION |
These condensed consolidated financial statements as of August 31, 2023 and for the three and nine months ended August 31, 2023 and 2022 include the accounts of the Company and its subsidiaries. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States of America (“GAAP”); however, such information reflects all adjustments consisting solely of normal recurring adjustments, which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods. All significant intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto together with management’s discussion and analysis of financial condition and results of operations contained in the Company's annual report on Form 10-K for the year ended November 30, 2022. In the opinion of management, the accompanying unaudited condensed consolidated financial statements, the results of its operations for the three and nine months ended August 31, 2023 and 2022, and its cash flows for the nine months ended August 31, 2023 and 2022 are not necessarily indicative of results to be expected for the full year.
| 4. |
USE OF ESTIMATES |
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our condensed consolidated financial statements. Significant estimates include assumptions about stock-based compensation expense, valuation for deferred tax assets, incremental borrowing rate on leases, valuation and carrying value of goodwill and other identifiable intangible assets, useful life of long-lived assets, inventory reserves, and allowance for sales returns.
| 5. |
RECENT ACCOUNTING GUIDANCE |
Accounting Guidance Issued But Not Adopted
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The FASB issued the update to simplify the measurement of goodwill by eliminating step 2 from the goodwill impairment test. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 will be effective for the Company so long as it remains a smaller reporting company in its first quarter of 2024. Early adoption is permitted. The Company is currently evaluating the impact of adopting this update on the condensed consolidated financial statements. The Company does not expect the standard to have an impact on its consolidated financial statements. The Company expects the adoption of this update to simplify its annual goodwill impairment testing process, by eliminating the need to estimate the implied fair value of a reporting unit’s goodwill, if its respective carrying value exceeds fair value.
In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The guidance changes the impairment model used to measure credit losses for most financial assets. A new forward-looking expected credit loss model will replace the existing incurred credit loss model and will impact the Company’s accounts and other receivables, including the loan receivable from Byrna LATAM. This is expected to generally result in earlier recognition of allowances for credit losses. ASU 2016-13 will be effective for the Company beginning in December 2023 since it is a smaller reporting company. Early adoption is permitted. The Company believes the adoption of ASU 2016-13 will not have a material impact on the condensed consolidated financial statements.
| 6. | Goodwill |
Goodwill resulting from a business combination is not amortized but is reviewed for impairment annually or more frequently when events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company has the option to perform a qualitative assessment over goodwill when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit or to bypass the qualitative assessment in any period and proceed directly to performing the quantitative goodwill impairment test. If the Company concludes, based on the qualitative assessment, that the carrying value of a reporting unit would more likely than not exceed its fair value, a quantitative assessment is performed which is based upon a comparison of the reporting unit’s fair value to its carrying value. The fair values used in this evaluation are estimated by the Company based upon future discounted cash flow projections for the reporting unit. An impairment charge is recognized for any amount by which the carrying amount of goodwill exceeds its fair value.
The Company performs its annual review for impairment during the third quarter of each year. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company’s operations constitute a single reporting unit and goodwill is assessed for impairment at the Company as a whole. At August 31, 2023, the Company determined that there was
| 7. |
ACQUISITIONS |
Business Combination
Fox Labs International
On May 25, 2022, the Company acquired Fox Labs International, a producer of defensive pepper sprays, catering primarily to law enforcement and other security professionals (domestically and internationally). The cash consideration was $
The estimated fair values of assets acquired and liabilities assumed on May 25, 2022 are as follows (in thousands):
| Cash |
$ | |||
| Accounts receivable |
||||
| Inventory |
||||
| Trademarks |
||||
| Customer list intangible |
||||
| Accounts payable |
( |
) | ||
| Deferred revenue |
( |
) | ||
| Goodwill |
||||
| Total acquired assets |
$ |
| 8. | INVESTMENT IN JOINT VENTURE |
In January 2023, the Company acquired a
Investments in equity method investees are those for which the Company has the ability to exercise significant influence or exercise joint control with other investors but does not control and is not the primary beneficiary. Under this method of accounting, the Company’s investment is recorded initially at cost and subsequently adjusted for its proportionate share of the net earnings or losses. The Company's share of net income or net loss in Byrna LATAM can have a significant impact on the reported equity method investment activity and the carrying value on the investment. In the event that net losses of Byrna LATAM reduce the equity method investment carrying amount to zero, additional net losses may be recorded if other investments, which are not accounted for under the equity method, are at-risk even if the Company has not committed to provide financial support to Byrna LATAM. The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable. The Company recorded its share of the joint venture’s loss during the three and nine months ended August 31, 2023 of $
In January 2023, the Company loaned $
| 9. |
REVENUE, DEFERRED REVENUE AND ACCOUNTS RECEIVABLE |
The Company generates revenue through the wholesale distribution of its products and accessories to dealers/distributors, and sales to large end-users such as retail stores, security companies and law enforcement agencies, and through e-commerce portals to consumers. Revenue is recognized upon transfer of control of goods to the customer, which generally occurs when title to goods is passed and risk of loss transfers to the customer. Depending on the contract terms, transfer of control is upon shipment of goods to or upon the customer’s pick-up of the goods. Payment terms to customers other than e-commerce customers are generally 30-60 days for established customers, whereas new wholesale and large end-user customers have prepaid terms for their first order. The amount of revenue recognized is net of returns and discounts that the Company offers to its customers. Products purchased include a standard warranty that cannot be purchased separately. This allows customers to return defective products for repair or replacement within year of sale. The Company also sells an extended warranty for the same terms over years. The extended
The Company also has a 14-day money back guarantee, which allows for a full refund of the purchase price, excluding shipping charges, within 14 days from the date of delivery. The right of return creates a variable component to the transaction price and needs to be considered for any possible constraints. The Company estimates returns using the expected value method, as there will likely be a range of potential return amounts. The Company’s reserve for returns under the 14-day money back guarantee for the three and nine months ended August 31, 2023 and 2022 were immaterial.
The Company sells to dealers and retailers for whom there is no money back guarantee but who may request a return or credit for unforeseen reasons or who may have agreed discounts or allowances to be netted from amounts invoiced. The Company reserves for returns, discounts and allowances based on past performance and on agreement terms and reports revenue net of the estimated reserve. The Company's reserve for returns, discounts, and allowances for the three and nine months ended August 31, 2023 and 2022 were immaterial.
The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and handling costs associated with the distribution of finished products to customers, are recorded in operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss and are recognized when the product is shipped to the customer.
Included as cost of goods sold are costs associated with the production and procurement of products, such as labor and overhead, inbound freight costs, manufacturing depreciation, purchasing and receiving costs, and inspection costs.
Accounts Receivable
The Company records accounts receivables due from dealers/distributers, large end-users such as retail stores, security companies, and law enforcement agencies. Accounts receivable, net of allowances, was $
An allowance for doubtful accounts receivable is maintained for potential credit losses based upon management's assessment of the expected collectability of all accounts receivables. The allowance for doubtful accounts was approximately $
Deferred Revenue
The balance of deferred revenue, which primarily relates to amounts to be recognized under extended
Revenue Disaggregation
The following table presents disaggregation of the Company’s revenue by distribution channel (in thousands):
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| August 31, |
August 31, |
|||||||||||||||
| Distribution channel |
2023 |
2022 |
2023 |
2022 |
||||||||||||
| Wholesale (dealer/distributors) |
$ | $ | $ | $ | ||||||||||||
| E-commerce |
||||||||||||||||
| Total |
$ | $ | $ | $ | ||||||||||||
| 10. | PROPERTY AND EQUIPMENT |
The following table summarizes cost and accumulated depreciation (in thousands):
| August 31, | November 30, | |||||||
| 2023 | 2022 | |||||||
| Computer equipment and software | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Machinery and equipment | ||||||||
| Less: accumulated depreciation | ||||||||
| Total | $ | $ | ||||||
The Company recognized approximately $
Management identified certain property and equipment items that are no longer being used in production. The Company recorded an impairment loss during the nine months ended August 31, 2023 and 2022 for certain machinery and equipment assets that are no longer in use totaling $
At August 31, 2023 and November 30, 2022, the Company had deposits of $
| 11. |
INVENTORY |
The following table summarizes inventory (in thousands):
| August 31, |
November 30, |
|||||||
| 2023 |
2022 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work in process |
||||||||
| Finished goods |
||||||||
| Total |
$ | $ | ||||||
| 12. |
INTANGIBLE ASSETS |
The components of intangible assets were as follows:
| Balance at August 31, 2023 |
Balance at November 30, 2022 |
||||||||||||||||||||||||||
| Estimated Useful Lives in Years |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
|||||||||||||||||||||
| Patents |
|
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | ||||||||||||||||
| Trademarks |
Indefinite |
— | — | ||||||||||||||||||||||||
| Customer List |
|
( |
) | ( |
) | ||||||||||||||||||||||
| Total |
$ | $ | ( |
) | $ | $ | $ | ( |
) | $ | |||||||||||||||||
The trademarks have an indefinite life and will be assessed annually for impairment. All other intangible assets are finite-lived.
Intangible assets amortization expenses are recorded within operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Total intangible assets amortization expense for the nine months ended August 31, 2023 and 2022 were $
Estimated future amortization expense related to intangible assets as of August 31, 2023 are as follows (in thousands):
| Fiscal Year Ending November 30, |
||||
| 2023 (three months) |
$ | |||
| 2024 |
||||
| 2025 |
||||
| 2026 |
||||
| 2027 |
||||
| Thereafter |
||||
| Total |
$ |
| 13. |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
The Company’s accounts payable and accrued liabilities consist of the following (in thousands):
| August 31, |
November 30, |
|||||||
| 2023 |
2022 |
|||||||
| Trade payables |
$ | $ | ||||||
| Accrued sales and use tax |
||||||||
| Accrued people costs |
||||||||
| Accrued professional fees |
||||||||
| Other accrued liabilities |
||||||||
| Total |
$ | $ | ||||||
| 14. | LINES OF CREDIT |
On January 19, 2021, the Company entered into a $
Also on January 19, 2021, the Company entered into a $
As of August 31, 2023, there was
| STOCKHOLDERS’ EQUITY |
Authorized Shares and Increase in Stock Compensation Plan
At the Company's 2022 annual meeting of stockholders held on June 17, 2022 (the "Annual Meeting"), the Company's stockholders approved a decrease in the amount of authorized common stock from
Stock Buyback Plan
On February 15, 2022, the Company's Board of Directors approved a plan to buy back up to $
On April 28, 2022, the Company's Board of Directors approved a plan to buy back up to an additional $
On October 6, 2022, the Company's Board of Directors approved a plan to buy back up to an additional $
| 16. |
STOCK-BASED COMPENSATION |
2020 Plan
On October 23, 2020, the Company's Board of Directors approved and on November 19, 2020 the stockholders approved the Byrna Technologies Inc. 2020 Equity Incentive Plan (the “2020 Plan”). The aggregate number of shares of common stock available for issuance in connection with options and other awards granted under the 2020 Plan was
Stock-Based Compensation Expense
Stock-based compensation costs are recognized as expense over the employee's requisite service period, on a straight-line basis. Total stock-based compensation expense was $
Restricted Stock Units
During the nine months ended August 31, 2023 and 2022, the Company granted
As of August 31, 2023, there was $
The following table summarizes the RSU activity during the nine months ended August 31, 2023:
| RSUs |
||||
| Unvested and outstanding as of November 30, 2022 |
||||
| Issued |
( |
) | ||
| Granted |
||||
| Forfeited |
( |
) | ||
| Unvested and outstanding at August 31, 2023 |
||||
Of the
Stock Options
During the nine months ended August 31, 2023 and 2022, the Company granted options to employees and directors to purchase
As of August 31, 2023, there was $
Stock Option Valuation
The fair value of stock options at the date of grant was estimated using the Black Scholes option pricing model. The expected volatility is based upon historical volatility of the Company's stock. The expected term for the options is based upon observation of actual time elapsed between employees. The assumption that the Company used to determine the grant-date fair value of stock options granted for the nine months ended August 31, 2023 were as follows:
| Risk free rate |
||
| Expected dividends |
$ | |
| Expected volatility |
||
| Expected life (in years) |
||
| Market price of the Company’s common stock on date of grant |
$ | |
The following table summarizes option activity under the 2020 Plan during the nine months ended August 31, 2023:
| Weighted-Average |
||||||||
| Stock |
Exercise Price Per Stock |
|||||||
| Options |
Option |
|||||||
| Outstanding, November 30, 2022 |
$ | |||||||
| Granted |
||||||||
| Forfeited |
( |
) | ||||||
| Outstanding, August 31, 2023 |
$ | |||||||
| Exercisable, August 31, 2023 |
$ | |||||||
| 17. |
EARNINGS PER SHARE |
For the three and nine months ended August 31, 2023 and 2022, the Company recorded net loss available to common shareholders. As such, because the dilution from potential common shares was antidilutive, the Company used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share for the three and nine months ended August 31, 2023 and 2022.
The following table sets forth the allocation of net loss for the three and nine months ended August 31, 2023 and 2022, respectively:
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| August 31, |
August 31, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net loss available to common shareholders |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Weighted-average number of shares used in computing net loss per share, basic and diluted |
||||||||||||||||
| Net loss per share - basic |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The Company’s potential dilutive securities, which may include stock options and unvested restricted stock units have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.
The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
| For the Three Months Ended |
For the Nine Months Ended |
|||||||||||||||
| August 31, |
August 31, |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Options |
||||||||||||||||
| RSUs |
||||||||||||||||
| Total |
||||||||||||||||
| 18. | RELATED PARTY TRANSACTIONS |
The following transactions are in the normal course of operations and are measured at the amount of consideration established and agreed to by related parties. Amounts due to related parties are unsecured, non-interest bearing and due on demand.
The Company pays royalties to the Company's Chief Technology Officer ("CTO") for sales on fintail projectiles. The Company expensed $
In January 2022, the Company and the CTO agreed to waive all future rights and entitlements under a certain purchase and sale agreement, including without limitation any right, title, or interest in the intellectual property or royalty fees except for those on the fintail projectiles in December 2021 in exchange for
The Company subleases office premises at its Massachusetts headquarters to a corporation owned and controlled by the Chief Executive Officer ("CEO") of the Company beginning July 1, 2020, with no stated termination date. Sublease payments received were $
Fusady is owned, in equal
| 19. | LEASES |
Operating Leases
The Company has operating leases for real estate in the United States and South Africa and does not have any finance leases.
In 2019, the Company entered into a real estate lease for office space in Andover, Massachusetts. In August 2021, the lease was amended to include additional space and extend the term of the existing space by one year. The new lease expiration date is . The base rent is approximately $
The Company leases office and warehouse space in South Africa that expires in . The base rent is approximately $
The Company leases warehouse and manufacturing space in Fort Wayne, Indiana. The lease expires on . The base rent is approximately $
The Company also leases office space in Las Vegas, Nevada, which expires on . The base rent is less than $
Certain of the Company’s leases contain options to renew and extend lease terms and options to terminate leases early. Reflected in the right-of-use asset and lease liability on the Company’s balance sheets are the periods provided by renewal and extension options that the Company is reasonably certain to exercise, as well as the periods provided by termination options that the Company is reasonably certain to not exercise.
As of August 31, 2023 and 2022, the elements of lease expense were as follows (in thousands):
| Three Months Ended | Nine Months Ended | |||||||
| August 31, 2023 | August 31, 2023 | |||||||
| Lease Cost: | ||||||||
| Operating lease cost | $ | $ | ||||||
| Short-term lease cost | ||||||||
| Total lease cost | $ | $ | ||||||
| Other Information: | ||||||||
| Cash paid for amounts included in the measurement of operating lease liabilities | $ | $ | ||||||
| Operating lease liabilities arising from obtaining right-of-use assets | $ | $ | ||||||
| Operating Leases: | ||||||||
| Weighted-average remaining lease term (in years) | ||||||||
| Weighted-average discount rate | % | |||||||
Future lease payments under non-cancelable operating leases as of August 31, 2023 are as follows (in thousands):
| Fiscal Year Ending November 30, | ||||
| 2023 (three months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Present value of operating lease liabilities | $ | |||
| Operating lease liabilities, current | $ | |||
| Operating lease liabilities, non-current | $ |
| 20. |
INCOME TAXES |
For the three months ended August 31, 2023 and 2022, the Company recorded an income tax expense (benefit) of $(
| 21. | COMMITMENTS AND CONTINGENCIES |
Royalty Payment
Pursuant to the Purchase and Sale Agreement, dated April 13, 2018 and further amended on December 19, 2019, the Company was committed to a minimum royalty payment of $
On January 7, 2022, the Company and the CTO agreed to waive all future rights and entitlements under such agreement, including without limitation any right, title, or interest in the intellectual property or royalty fees except for those on the fintail projectiles. In exchange for the royalty termination, the Company agreed to grant
Legal Proceedings
In the ordinary course of our business, the Company may be subject to certain other legal actions and claims, including product liability, consumer, commercial, tax and governmental matters, which may arise from time to time. The Company does not believe it is currently a party to any pending legal proceedings. Notwithstanding, legal proceedings are subject-to inherent uncertainties, and an unfavorable outcome could include monetary damages, and excessive verdicts can result from litigation, and as such, could result in a material adverse impact on the Company’s business, financial position, results of operations, and/or cash flows. Additionally, although the Company has specific insurance for certain potential risks, the Company may in the future incur judgments or enter into settlements of claims which may have a material adverse impact on the Company’s business, financial position, results of operations, and/or cash flows.
| 22. |
SEGMENT AND GEOGRAPHICAL DISCLOSURES |
The CEO, who is also the Chief Operating Decision Maker, evaluates the business as a single entity, which includes reviewing financial information and making business decisions based on the overall results of the business. As such, the Company’s operations constitute a single operating segment and
The tables below summarize the Company’s revenue for the three and nine months ended August 31, 2023 and 2022, respectively, by geographic region (in thousands):
| Revenue: |
||||||||||||||||||||
| Three Months Ended |
U.S. |
South Africa |
Europe/South America/Asia |
Canada |
Total |
|||||||||||||||
| August 31, 2023 |
$ | $ | $ | $ | $ | |||||||||||||||
| August 31, 2022 |
||||||||||||||||||||
| Nine Months Ended |
U.S. |
South Africa |
Europe/South America/Asia |
Canada |
Total |
|||||||||||||||
| August 31, 2023 |
$ | $ | $ | $ | $ | |||||||||||||||
| August 31, 2022 |
||||||||||||||||||||
| 23. |
FINANCIAL INSTRUMENTS |
The Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies and processes for managing those risks and the methods used to measure them.
| i) |
Currency Risk |
The Company held its cash balances within banks in the U.S. in U.S. dollars and with banks in South Africa in U.S. dollars and South African rand. The Company’s operations are conducted in the U.S. and South Africa. The value of the South African rand against the U.S. dollar may fluctuate with changes in economic conditions.
During the three and nine months ended August 31, 2023, in comparison to the prior year period, the U.S. dollar was weaker in relation to the South African rand, and upon the translation of the Company’s subsidiaries’ revenues, expenses, assets and liabilities held in South African rand, respectively. As a result, the Company recorded a translation adjustment loss of $
The Company’s South African subsidiary revenues, cost of goods sold, operating costs and capital expenditures are denominated in South African rand. Consequently, fluctuations in the U.S. dollar exchange rate against the South African rand increases the volatility of sales, cost of goods sold and operating costs and overall net earnings when translated into U.S. dollars. The Company is not using any forward or option contracts to fix the foreign exchange rates. Using a
| ii) |
Credit Risk |
Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The financial instruments that potentially subject the Company to credit risk consist of cash, cash equivalents, accounts receivable, and the loan receivable from Byrna LATAM. The Company maintains cash with high credit quality financial institutions located in the U.S. and South Africa. The Company maintains cash and cash equivalent balances with financial institutions in the U.S. in excess of amounts insured by the Federal Deposit Insurance Corporation.
The Company provides credit to its customers in the normal course of its operations. It carries out, on a continuing basis, credit checks on its customers.
The Company loaned $
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
References in this quarterly report on Form 10-Q (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Byrna Technologies Inc. References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” "may," “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important risk factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of our Annual Report on Form 10-K for the year ended November 30, 2022 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 9, 2023 (the “2022 10-K”), the Company’s subsequent filings with the SEC, which can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, we disclaim any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, including but not limited to our ability to design, introduce and sell new products, services and features, the impact of any regulatory proceedings or litigation, our ability to protect our intellectual property and compete with existing and new products, the impact of stock compensation expense, dividends, warrant exercises and related accounting, impairment expense and income tax expense on our financial results, our ability to manage our supply chain and avoid production delays, shortages or other factors, including product mix, cost of parts and materials and cost of labor that may impact our gross margins, our ability to retain and incentivize key management personnel, product defects, the success of our entry to new markets, customer purchase behavior and negative media publicity or public perception of our brand or products, restrictions or prohibitions imposed by advertising platforms, loss of customer data, breach of security or an extended outage related to our e-commerce storefronts, including a breach or outage by our third party cloud based storage providers, exposure to international operational risks, delayed cash collections or bad debt, determinations or audits by taxing authorities, changes in government regulations, the impact of existing or future regulation by the Bureau of Alcohol, Tobacco, and Firearms, import and export regulators, or other federal or state authority, or changes in international law in key jurisdictions including South America and South Africa or our inability to obtain needed exemptions from such existing or future regulation.
OVERVIEW
The following discussion and analysis is intended to help you understand us, our operations and our financial performance. It should be read in conjunction with our condensed consolidated financial statements and the accompanying notes, which are included in Item 1 of this report.
Byrna Technologies is a designer, manufacturer, retailer and distributor of innovative technological solutions for security situations that do not require the use of lethal force. Our mantra is Live Safe, and our core mission is to empower individuals to safely and fully engage in life and adventure. Our design team’s directive is to build easy-to-use self-defense tools to enhance the safety of our customers and their loved ones at home and outdoors. We are also focused on developing tools that can be used instead of firearms by professional law enforcement and private security customers to reduce shootings and facilitate trust between police and the communities they seek to serve. Our strategy is to establish Byrna® as a consumer lifestyle brand associated with the confidence people can achieve by knowing they can protect themselves, their loved ones and those around them. We believe we have a significant opportunity to leverage the Byrna brand to expand our product line, broaden our user base and generate increasing sales from new and existing customers.
Our business strategy is twofold: (1) to fulfill the growing demand for less-lethal products in the law enforcement, correctional services, and private security markets and (2) to provide civilians – including those whose work or daily activities may put them at risk of being a victim – with easy access to an effective, non-lethal way to protect themselves and their loved ones from threats to their person or property.
We believe that the United States, along with many other parts of the world, is experiencing a significant spike in the demand for less-lethal products and that the less-lethal market will be one of the faster growing segments of the security market over the next decade. We plan to respond to this demand for less-lethal products through the serial production and distribution of the Byrna® SD and expansion of the Byrna product line.
On January 10, 2023, the Company created a new joint venture with Fusady S.A. ("Fusady") located in Uruguay, to expand the Company's operations and presence in South American markets. The Company holds 51% of the stock in the joint venture entity, Uldawer S.A. (soon to be renamed "Byrna LATAM"), and the remaining 49% of stock in Byrna LATAM is held by Fusady.
RESULTS OF OPERATIONS
Three months ended August 31, 2023 as compared to three months ended August 31, 2022:
Net Revenue
Revenues were $7.1 million in the third quarter of 2023 which represents a decrease of $5.3 million as compared to the prior year period revenues of $12.4 million. The decrease was primarily attributed to challenges in our direct-to-consumer marketing efforts, resulting from advertising bans on social media platforms, and reduced international sales to South Africa, Asia, and Latin America. E-commerce sales, through our website and Amazon, decreased $3.3 million to $4.8 million during the third quarter of 2023 from $8.1 million during the third quarter of 2022. Sales to domestic dealers/distributors decreased $0.1 million, or 8.7% to $1.7 million during the third quarter 2023 from $1.8 million during the third quarter of 2022. Sales to customers in Canada increased to $0.2 million during the third quarter of 2023 from $0.03 million during the third quarter of 2022. In addition, Fox Labs, which we acquired on May 25, 2022, sales decreased to $0.3 million during the third quarter of 2023 from $0.4 million during the third quarter of 2022. International sales, which are characterized by infrequent but very large orders, decreased by $1.8 million from $2.0 million during the third quarter of 2022 to $0.2 million during the third quarter of 2023.
Cost of Goods Sold
Cost of goods sold was $3.9 million in the third quarter of 2023 compared to $5.5 million in the prior year period. This $1.6 million decrease is due to the decrease in sales volume, offset by increases in reserves for excess and obsolete inventory of $0.6 million.
Gross Profit
Gross profit is calculated as total revenue less cost of goods sold and gross margin is calculated as gross profit divided by total revenue. Included as cost of goods sold are costs associated with the production and procurement of products, such as labor and overhead, inbound freight costs, manufacturing depreciation, purchasing and receiving costs, and inspection costs. Gross profit was $3.2 million in the third quarter of 2023, or 44.6% of net revenue, as compared to gross profit of approximately $6.9 million, or 55.4% of net revenue, in the prior year period. The decrease in gross profit as a percentage of sales is primarily due to $0.6 million of charges to costs of goods sold for inventory write-downs and additions to reserves for excess and obsolete inventory recorded during the third quarter of 2023.
Operating Expenses
Operating expenses were $7.3 million in the third quarter of 2023, a decrease of $1.0 million, as compared to the prior year period expenses of $8.3 million. The decrease is due to managed cost reduction as detailed below.
Marketing expenses decreased by $1.1 million from $2.4 million in the third quarter of 2022 to $1.3 million in the third quarter of 2023. Payroll related costs, including non-cash stock compensation, increased $0.4 million from $4.0 million in the third quarter of 2022 to $4.4 million in the third quarter of 2023 due to primarily a $0.4 million increase in stock compensation.
Loss from Operations
The reduction in gross profit, offset partly by the reduction in operating expenses, resulted in an increase in loss from operations of $2.7 million to $4.1 million for the third quarter of 2023 compared to $1.4 million for the third quarter of 2022.
Other Income (Expense)
We recorded $0.05 million of foreign currency transaction loss during the third quarter of 2023 compared to $0.02 million of foreign currency transaction gain during the third quarter of 2022. We recorded $0.2 million of interest income during the third quarter of 2023 compared to $0 of interest in the third quarter of 2022. We recorded a loss of $0.3 million from our South American joint venture investment that was formed during the first quarter of 2023.
Income Tax Provision
For the three months ended August 31, 2023 and 2022, we recorded an income tax benefit of $0.1 million and an income tax expense of $0.2 million, respectively. For the three months ended August 31, 2023 and 2022, the effective tax rate was 2.8% and 10.8%, respectively. Our tax rate differs from the statutory rate of 21.0% due to the effects of state taxes net of federal benefit, the foreign tax rate differential as a result of Byrna South Africa, effects of permanent non-deductible expenses, the recording of a valuation allowance against the deferred tax assets generated in the current period, and other effects.
Net Loss
Net loss increased by $2.6 million from $1.5 million for the third quarter of 2022 to $4.1 million for the third quarter of 2023.
Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in the United States (GAAP), we provide an additional financial metric that is not prepared in accordance with GAAP (non-GAAP) with presenting non-GAAP adjusted EBITDA. Management uses this non-GAAP financial measure, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate our financial performance. We believe that this non-GAAP financial measure helps us to identify underlying trends in our business that could otherwise be masked by the effect of certain expenses that we exclude in the calculations of the non-GAAP financial measure.
Accordingly, we believe that this non-GAAP financial measure reflects our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business and provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
This non-GAAP financial measure does not replace the presentation of our GAAP financial results and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP. There are limitations in the use of non-GAAP measures, because they do not include all the expenses that must be included under GAAP and because they involve the exercise of judgment concerning exclusions of items from the comparable non-GAAP financial measure. In addition, other companies may use other non-GAAP measures to evaluate their performance, or may calculate non-GAAP measures differently, all of which could reduce the usefulness of our non-GAAP financial measure as a tool for comparison.
Adjusted EBITDA
Adjusted EBITDA is defined as net (loss) income as reported in our condensed consolidated statements of operations and comprehensive (loss) income excluding the impact of (i) depreciation and amortization; (ii) income tax provision (benefit); (iii) interest income (expense); (iv) stock-based compensation expense, (v) impairment loss and (vi) one time, non-recurring other expenses or income. Our Adjusted EBITDA measure eliminates potential differences in performance caused by variations in capital structures (affecting finance costs), tax positions, the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense). We also exclude certain one-time and non-cash costs. Reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP measure, is as follows (in thousands):
| For the Three Months Ended |
||||||||
| August 31, |
||||||||
| 2023 |
2022 |
|||||||
| Net loss |
$ | (4,094 | ) | $ | (1,534 | ) | ||
| Adjustments: |
||||||||
| Interest (income) expense |
(239 | ) | 3 | |||||
| Income tax provision (benefit) |
(124 | ) | 150 | |||||
| Depreciation and amortization |
301 | 250 | ||||||
| Non-GAAP EBITDA |
(4,156 | ) | (1,131 | ) | ||||
| Stock-based compensation expense |
1,738 | 2,689 | ||||||
| Non-cash incentive compensation expense |
— | (1,415 | ) | |||||
| Severance/Separation |
— | 138 | ||||||
| Other expenses |
— | 3 | ||||||
| Non-GAAP adjusted EBITDA |
$ | (2,418 | ) | $ | 284 | |||
Nine months ended August 31, 2023 as compared to nine months ended August 31, 2022:
Net Revenue
Revenues were $27.0 million in the nine months ended August 31, 2023 which represents a decrease of $5.0 million or 15.7% as compared to the prior year period revenues of $32.0 million. The decrease was primarily attributed to challenges in our direct-to-consumer marketing efforts, resulting from advertising bans on social media platforms, and reduced international sales to South Africa, Asia, and Latin America. E-commerce sales, through our website and Amazon, decreased $3.6 million to $17.7 million during the nine months ended August 31, 2023 from $21.3 million during the nine months ended August 31, 2022. Sales to domestic dealers/distributors increased $0.7 million from $5.5 million in the nine months ended August 31, 2022 to $6.2 million in the nine months ended August 31, 2023. Sales to customers in Canada increased to $0.7 million during the nine months ended August 31, 2023 from $0.05 million from the prior year. In addition, Fox Labs, which we acquired on May 25, 2022, sales increased to $0.8 million during the nine months ended 2023 from $0.4 million during the nine months ended August 31, 2022. International sales, which are characterized by infrequent but very large orders, decreased by $3.3 million from $4.8 million during the nine months ended August 31, 2022 to $1.5 million during the nine months ended August 31, 2023.
Cost of Goods Sold
Cost of goods sold was $12.4 million in the nine months ended August 31, 2023 compared to $14.4 million in the prior year period. This $2.0 million decrease is due to the decrease in sales volume, offset by increases in reserves for excess and obsolete inventory of $0.6 million.
Gross Profit
Gross profit is calculated as total revenue less cost of goods sold and gross margin is calculated as gross profit divided by total revenue. Included as cost of goods sold are costs associated with the production and procurement of products, such as labor and overhead, inbound freight costs, manufacturing depreciation, purchasing and receiving costs, and inspection costs. Gross profit was $14.6 million in the nine months ended August 31, 2023, or 54.1% of net revenue, as compared to gross profit of approximately $17.6 million, or 55.0% of net revenue, in the prior year period. The decrease is attributable to reductions in net revenue and $0.6 million of charges to costs of goods sold for inventory write-downs and additions to reserves for excess and obsolete inventory recorded during the nine months ended 2023.
Operating Expenses
Operating expenses were $21.5 million in the nine months ended August 31, 2023, a decrease of $3.5 million, as compared to the prior year period expenses of $25.1 million. The decrease is due to a managed cost reduction as detailed below.
Payroll related costs, excluding stock compensation, decreased $1.0 million from $8.5 million in the nine months ended August 31, 2022 to $7.5 million in the nine months ended August 31, 2023 while stock based and related incentive compensation costs increased from $4.1 million during the nine months ended August 31, 2022 to $4.7 million during the nine months ended August 31, 2023. Marketing expenses decreased by $1.8 million from $3.9 million in the nine months ended August 31, 2022 to $2.1 million in the nine months ended August 31, 2023. Insurance costs decreased $0.4 million to $0.6 million during the nine months ended August 31, 2023 from $1.0 million during the nine months ended August 31, 2022 due to negotiation of improved contract terms.
Loss from Operations
The reduction in operating expenses, partly offset by the reduction in gross profit, resulted in a decrease in loss from operations of $0.5 million to $6.9 million during the nine months ended August 31, 2023 compared to $7.4 million during the nine months ended August 31, 2022.
Other Income (Expense)
We recorded $0.2 million of foreign currency transaction loss during the nine months ended August 31, 2023 compared to $0.07 million of foreign currency transaction loss during the nine months ended August 31, 2022. We recorded $0.5 million of interest income during the nine months ended August 31, 2023 compared to $0.01 of interest income in the nine months ended August 31, 2022. We recorded a loss of $0.6 million from our South American joint venture investment that was formed during the nine months ended August 31, 2023. Other expenses of $0.3 million during the nine months ended August 31, 2023 and $0.2 million during the nine months ended August 31, 2022 are primarily related to fixed asset impairment and disposals.
Income Tax Provision
For the nine months ended August 31, 2023 and 2022, we recorded an income tax benefit of $0.2 million and an income tax expense of $0.1 million, respectively. For the nine months ended August 31, 2023 and 2022, the effective tax rate was 2.2% and 1.1%, respectively. Our tax rate differs from the statutory rate of 21.0% due to the effects of state taxes net of federal benefit, the foreign tax rate differential as a result of Byrna South Africa, effects of permanent non-deductible expenses, the recording of a valuation allowance against the deferred tax assets generated in the current period, and other effects.
Net Loss
Net loss was $7.4 million during the nine months ended August 31, 2023, an improvement of $0.4 million compared to the net loss of $7.8 million during the nine months ended August 31, 2022.
Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles in the United States (GAAP), we provide an additional financial metric that is not prepared in accordance with GAAP (non-GAAP) with presenting non-GAAP adjusted EBITDA. Management uses this non-GAAP financial measure, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate our financial performance. We believe that this non-GAAP financial measure helps us to identify underlying trends in our business that could otherwise be masked by the effect of certain expenses that we exclude in the calculations of the non-GAAP financial measure.
Accordingly, we believe that this non-GAAP financial measure reflects our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business and provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.
This non-GAAP financial measure does not replace the presentation of our GAAP financial results and should only be used as a supplement to, not as a substitute for, our financial results presented in accordance with GAAP. There are limitations in the use of non-GAAP measures, because they do not include all the expenses that must be included under GAAP and because they involve the exercise of judgment concerning exclusions of items from the comparable non-GAAP financial measure. In addition, other companies may use other non-GAAP measures to evaluate their performance, or may calculate non-GAAP measures differently, all of which could reduce the usefulness of our non-GAAP financial measure as a tool for comparison.
Adjusted EBITDA
Adjusted EBITDA is defined as net (loss) income as reported in our condensed consolidated statements of operations and comprehensive (loss) income excluding the impact of (i) depreciation and amortization; (ii) income tax provision (benefit); (iii) interest income (expense); (iv) stock-based compensation expense, (v) impairment loss, and (vi) one time, non-recurring other expenses or income. Our Adjusted EBITDA measure eliminates potential differences in performance caused by variations in capital structures (affecting finance costs), tax positions, the cost and age of tangible assets (affecting relative depreciation expense) and the extent to which intangible assets are identifiable (affecting relative amortization expense). We also exclude certain one-time and non-cash costs. Reconciliation of Adjusted EBITDA to net (loss) income, the most directly comparable GAAP measure, is as follows (in thousands):
| For the Nine Months Ended |
||||||||
| August 31, |
||||||||
| 2023 |
2022 |
|||||||
| Net loss |
$ | (7,363 | ) | $ | (7,752 | ) | ||
| Adjustments: |
||||||||
| Interest expense (income) |
(525 | ) | (10 | ) | ||||
| Income tax provision (benefit) |
(165 | ) | 82 | |||||
| Depreciation and amortization |
921 | 638 | ||||||
| Non-GAAP EBITDA |
(7,132 | ) | (7,042 | ) | ||||
| Stock-based compensation expense |
4,689 | 4,061 | ||||||
| Impairment loss |
176 | — | ||||||
| Severance/Separation |
52 | 556 | ||||||
| Other expense |
— | 183 | ||||||
| Non-GAAP adjusted EBITDA |
$ | (2,215 | ) | $ | (2,242 | ) | ||
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Summary
Cash and cash equivalents as of August 31, 2023 totaled $13.7 million a decrease of $6.4 million from $20.0 million of cash and cash equivalents as of November 30, 2022.
Operating Activities
Cash used in operating activities was $3.6 million for the nine months ended August 31, 2023 compared to cash used in operations of $12.8 million during the prior year period. Net loss was $7.4 million and $7.8 million for the three and nine months ended August 31, 2023 and 2022, respectively. Significant changes in noncash and working capital activity are as follows:
Non-cash activity includes stock-based and related incentive compensation expenses of $4.7 million for the nine months ended August 31, 2023 compared to $4.1 million for the nine months ended August 31, 2022; depreciation and amortization expense of $0.9 million for the nine months ended August 31, 2023 compared to $0.6 million for the nine months ended August 31, 2022; provision for inventory of $0.6 million for the nine months ended August 31, 2023 compared to $0 million for the nine months ended August 31, 2022, operating lease costs of $0.5 million for the nine months ended August 31, 2023 compared to $0.4 million for the nine months ended August 31, 2022, and $0.6 million of joint venture investment loss in the nine months ended August 31, 2023 compared to zero during the nine months ended August 31, 2022.
Inventory increased during the nine months ended August 31, 2023 by $2.3 million, compared to $8.9 million for the nine months ended August 31, 2022. Accounts receivable decreased by $2.0 million during the nine months ended August 31, 2023 as compared to an increase of $1.0 million for the nine months ended August 31, 2022. Accounts payable and accrued liabilities decreased during the nine months ended August 31, 2023 by $3.0 million, compared to $0.2 million nine months ended August 31, 2022. Prepaid expenses and other current assets decreased by $0.2 million during the nine months ended August 31, 2023 compared to an increase of $0.1 million during the nine months ended August 31, 2022. Operating lease liabilities decreased by $0.5 million during the nine months ended August 31, 2023 compared to a decrease of $0.2 million during the nine months ended August 31, 2022
Investing Activities
Cash used in investing activities was $2.4 million for the nine months ended August 31, 2023 compared to $4.2 million for the nine months ended August 31, 2022. The current year investing activities primarily relates to the investment in the joint venture and the corresponding loan. The prior year investing activities relate to the purchase of property and equipment and the Fox Labs acquisition.
Financing Activities
Cash used in financing activities was $0.4 million during the nine months ended August 31, 2023, compared to cash used of $14.5 million for the nine months ended August 31, 2022. During the nine months ended August 31, 2023, the Company paid taxes of $0.4 million related to payroll taxes withheld on the vesting of restricted stock units. The prior year amount was primarily composed of stock repurchased of $15.0 million offset by stock option exercises of $0.5 million during the nine months ended August 31, 2022.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 5, “Recent Accounting Guidance,” in the Notes to condensed consolidated financial statements included in Item 1 of this report for a discussion of recently issued and adopted accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our condensed consolidated financial statements are based on the selection and application of significant accounting policies, which require management to make significant estimates and assumptions. Our significant accounting policies are outlined in Note 4, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of the 2022 Form 10-K. During the three and nine months ended August 31, 2023, there were no significant changes to our critical accounting policies from those described in our 2022 Form 10-K, except as follows.
Investment in Joint Venture
Investments in equity method investees are those for which we have the ability to exercise significant influence but does not control and is not the primary beneficiary. Under this method of accounting, our investment is recorded initially at cost and subsequently adjusted for our proportionate share of the net earnings or losses. We evaluate our equity method investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of such investments may not be recoverable.
In January 2023, we acquired a 51% ownership interest in Byrna LATAM, a corporate joint venture formed to expand our operations and presence in South American markets, for $0.5 million. We account for the investment in the joint venture using the equity method because the Company does not have voting control of Byrna LATAM. Additionally, we do not have substantive participating rights that would result in us having control of Byrna LATAM.
We recorded our share of the joint venture’s loss during the three and nine months ended August 31, 2023 of $0.3 million and $0.6 million, respectively, in the Consolidated Statements of Operations and Comprehensive Loss as other expense. The carrying value of our investment in the joint venture at August 31, 2023 is $0 due to losses exceeding original investment. During the three and nine months ended August 31, 2023, the cumulative net losses of Byrna LATAM exceeded the equity method investment by $0.1 million. The carrying basis of the loan receivable was reduced by the $0.1 million excess loss from $1.6 million to $1.5 million. In January 2023, we loaned $1.6 million to Byrna LATAM, which is recorded as loan to joint venture in the Consolidated Balance Sheets.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
The Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of our disclosure controls and procedures as of August 31, 2023 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934. Disclosure controls and procedures are designed to ensure that material information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that material information is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. The Company’s CEO and CFO concluded that as of August 31, 2023, our disclosure controls and procedures were effective.
Changes in Internal Controls Over Financial Reporting
There were no changes that occurred during the third quarter of 2023 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
| LEGAL PROCEEDINGS |
In the normal course of business, the Company occasionally becomes involved in various legal proceedings. The results of any such proceedings cannot be predicted with certainty because such matters are inherently uncertain. Significant damages or penalties may be sought in some matters, and some matters may require years to resolve. In our opinion, at this time, any liability from such proceedings would not have a material adverse effect on the business or financial condition of the Company.
| RISK FACTORS |
Factors that could cause our actual results to differ materially from those in this report include the “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended November 30, 2022, filed with the SEC on February 9, 2023, and in Part II, Item 1A of our Quarterly Report on 10-Q for the fiscal quarter ended May 31, 2023, filed with the SEC on July 11, 2023. Except for the risk factor set forth, as of the date of this Report, there have been no material changes to the risk factors disclosed in our 2022 Form 10-K.
Restrictions imposed by advertising and social media platforms that we use may result in decreased sales and market presence.
Our direct-to-consumer sales rely to a significant degree on advertising that we place on advertising platforms, including social media platforms. Recently, Meta has prohibited advertising of any Byrna product and Google has imposed significant restrictions on our ability to advertise on its platform. Any prohibitions or restrictions on advertising imposed by these or other platforms, or any changes in the algorithms used by such platforms, may result in reduced direct-to-consumer sales, reduced traffic to our website and a decreased market presence, which could have a material adverse effect on our business, operating results, and financial condition.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
| DEFAULTS UPON SENIOR SECURITIES. |
None.
| MINE SAFETY DISCLOSURES. |
Not applicable.
| OTHER INFORMATION. |
None.
| EXHIBITS. |
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| No. |
Description of Exhibit |
| Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| Certification of Principal Financial and Accounting Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
| Certification of Principal Executive Officer and Principal Financial and Accounting Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
| 101.INS* |
Inline XBRL Instance Document |
| 101.CAL* |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.SCH* |
Inline XBRL Taxonomy Extension Schema Document |
| 101.DEF* |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB* |
Inline XBRL Taxonomy Extension Labels Linkbase Document |
| 101.PRE* |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * |
Filed herewith. |
| ** |
Furnished. |
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Byrna Technologies Inc. |
||
| Date: October 12, 2023 |
/s/ Bryan Ganz |
|
| Name: |
Bryan Ganz |
|
| Title: |
Chief Executive Officer, President and Director |
|
| (Principal Executive Officer) |
||
| Date: October 12, 2023 |
/s/ David North |
|
| Name: |
David North |
|
| Title: |
Chief Financial Officer |
|
| (Principal Financial and Accounting Officer) |
||