BYRNA TECHNOLOGIES INC. From inception toAugust 31, 2022 , the Company had incurred an accumulated deficit of$61.3 million . The Company has funded operations through the issuance of common stock. The Company generated$32.0 million in revenue and net loss of$7.8 million for the nine months endedAugust 31, 2022 . It still is expected to incur significant losses before the Company's revenues sustain its operations. The Company's future success is dependent upon its ability to continue to raise sufficient capital or generate adequate revenues, to cover its ongoing operating expenses, and also to continue to develop and be able to profitably market its products. InJuly 2021 , the Company issued and sold an aggregate of 2,875,000 registered shares of its common stock (including 375,000 shares sold pursuant to the exercise of the underwriters' overallotment option) at a price of$21.00 per share. The net proceeds to the Company, after deducting$4.4 million in underwriting discounts and commissions, and offering expenses, were approximately$56.0 million . 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 for the three and nine months endedAugust 31, 2022 and 2021 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 generally accepted accounting principles inthe 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 endedNovember 30, 2021 . In the opinion of management, the accompanying unaudited condensed consolidated financial statements, the results of its operations for the three and nine months endedAugust 31, 2022 and 2021, and its cash flows for the nine months endedAugust 31, 2022 and 2021 are not necessarily indicative of results to be expected for the full year. 6 --------------------------------------------------------------------------------
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, and allowance for sales returns. 5. RECENT ACCOUNTING GUIDANCE
Recently Adopted Accounting Guidance
In 2019, theFinancial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by primarily addressing the following: recognition of a deferred tax liability after transition to/from the equity method, evaluation when a step-up in the tax basis of goodwill should be related to a business combination or when it should be considered a separate transaction, inclusion of the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income, and recognition of the effect of an enacted change in tax laws or annual effective tax rates in the period the change was enacted. The guidance is effective for the Company in the first quarter of 2022. Several of the amendments in the update are required to be adopted using a prospective approach, while other amendments are required to be adopted using a modified-retrospective approach or retrospective approach. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements.
Accounting Guidance Issued But Not Adopted
InJanuary 2017 , the 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 the 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. 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. This is expected to generally result in earlier recognition of allowances for credit losses. ASU 2016-13 will be effective for the Company inDecember 2023 as long as it remains a smaller reporting company. Early adoption is permitted. The Company is currently evaluating the impact of adopting this update on the condensed consolidated financial statements. 6. ACQUISITIONS Asset Acquisition OnMay 12, 2021 , the Company entered into an asset purchase agreement to purchase certain assets used in the business of designing, developing, manufacturing, licensing, and selling of products and services for the Mission Less Lethal brand fromKore Outdoor (U.S.) Inc. , ("Kore") a wholly owned subsidiary ofKore Outdoor, Inc. The transaction was accounted for as an asset acquisition, with estimated$3.7 million total cost of which$0.2 million were acquisition-related expenses. The Company accounted for the transaction as an asset acquisition where the assets acquired were measured based on the amount of cash paid to Kore as well as transaction costs incurred as the fair value of the assets given was more readily determinable than the fair value of the assets received. The Company classified and designated identifiable assets acquired and assessed and determined the useful lives of the acquired intangible assets subject to amortization. Business CombinationFox Labs International
On
The estimated fair values of assets acquired and liabilities assumed on
Cash$ 241 Accounts receivable 48 Inventory 36 Trademarks 360 Customer list intangible 70 Accounts payable (59 ) Deferred revenue (14 ) Goodwill 1,492 Total acquired assets$ 2,173
Adjustments were made to the acquired assets and liabilities subsequent to the acquisition date.
Ballistipax®
On
7. RESTRICTED CASH The Company's restricted cash - current was$0 and$0.1 million atAugust 31, 2022 andNovember 30, 2021 , respectively. The$0.1 million consists of cash that the Company was contractually obligated to maintain in accordance with the terms of its lease agreement. The restricted cash was returned to the Company inJanuary 2022 . 7
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8. 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 one year of sale. The Company also sells an extended warranty for the same terms over three years. The extended 3-year warranty can be purchased separately from the product and are classified as a service warranty. Since a warranty for the first year after sale is included and non-separable from all launcher purchases, the Company considers this extended warranty to represent a service obligation during the second and third years after sale. Therefore, the Company accumulates billings of these transactions on the balance sheet as deferred revenue, to be recognized on a straight-line basis during the second and third year after sale. The Company recognizes an estimated reserve based on its analysis of historical experience, and an evaluation of current market conditions. 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 endedAugust 31, 2022 and 2021 were immaterial. The Company sells to dealers and retailers for whom there is no money back guarantee butwho may request a return or credit for unforeseen reasons orwho 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 endedAugust 31, 2022 and 2021 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.
Allowance for Doubtful Accounts
The Company provides an allowance for its accounts receivable for estimated losses that may result from its customers' inability to pay. The Company determines the amount of the allowance by analyzing known uncollectible accounts, aged receivables, economic conditions, historical losses, and changes in customer payment cycles and its customers' creditworthiness. Amounts later determined and specifically identified to be uncollectible are charged or written off against this allowance. To minimize the likelihood of uncollectible debt, the Company reviews its customers' creditworthiness periodically. Material differences may result in the amount and timing of expense for any period if the Company were to make different judgments or utilize different estimates. The allowance for doubtful accounts was approximately$0.01 million as ofAugust 31, 2022 andNovember 30, 2021 . 8 --------------------------------------------------------------------------------
Deferred Revenue
Changes in deferred revenue, which relate to unfulfilled e-commerce orders and amounts to be recognized under extended 3-year service warranty, for the nine months endedAugust 31, 2022 and the year endedNovember 30, 2021 , are summarized below (in thousands): August 31, November 30, 2022 2021 Deferred revenue balance, beginning of period$ 1,125 $ 4,902 Net additions to deferred revenue during the period 21,844
33,641
Reductions in deferred revenue for revenue recognized during the period
(21,663 ) (37,418 )
Deferred revenue balance, end of period 1,306 1,125
Less current portion 921
720
Deferred revenue, non-current $ 385 $ 405 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 2022 2021 2022 2021
Wholesale (dealer/distributors) $ 4,312 $ 2,986 $ 10,746 $ 7,041
E-commerce 8,110 5,717 21,272 23,956
Total $ 12,422 $ 8,703 $ 32,018 $ 30,997
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9. PROPERTY AND EQUIPMENT
The following table summarizes cost and accumulated depreciation (in thousands):
August 31 , November 30,
2022 2021
Computer equipment and software
359 208
Leasehold improvements 729 157
Machinery and equipment 2,297 1,738
3,712 2,378
Less: accumulated depreciation 677 406
Total $ 3,035 $ 1,972 The Company recognized approximately
AtAugust 31, 2022 andNovember 30, 2021 , the Company had deposits of$2.0 million and$1.3 million , respectively, with vendors primarily for supply of machinery (molds) and equipment where the vendors have not completed the supply of these assets and is presented as Deposits for equipment in the Condensed Consolidated Balance Sheets. 10. INVENTORY
The following table summarizes inventory (in thousands):
August 31, November 30,
2022 2021
Raw materials $ 7,682 $ 3,175
Work in process 968 428
Finished goods 6,772 3,010
Total $ 15,422 $ 6,613
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11. INTANGIBLE ASSETS
The components of intangible assets were as follows:
Balance at August 31, 2022 Balance at November 30, 2021
Gross Carrying Accumulated Net Carrying Gross Carrying Accumulated Net Carrying
Amount Amortization Amount Amount Amortization Amount
Patents $ 3,938 $ (405 ) $ 3,533 $ 3,895 $ (227 ) $ 3,668
Trademarks 360 - 360 - - -
Customer List 70 (11 ) 59 - - -
Total $ 4,368 $ (416 ) $ 3,952 $ 3,895 $ (227 ) $ 3,668 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 endedAugust 31, 2022 and 2021 were$0.2 million and$0.1 million , respectively. Total intangible assets amortization expense for the three months endedAugust 31, 2022 and 2021 were$0.1 million and$0.1 million , respectively.
Estimated future amortization expense related to intangible assets as of
Fiscal Year Ending November 30, 2022 (three months)$ 68 2023 272 2024 252 2025 237 2026 237 Thereafter 2,344 Total$ 3,410 11
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12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The Company's accounts payable and accrued liabilities consist of the following
(in thousands):
August 31, November 30,
2022 2021
Trade payables $ 3,363 $ 2,793
Accrued sales and use tax 757 940
Accrued people costs 1,686 2,317
Accrued marketing 364 185
Accrued professional fees 261 617
Other accrued liabilities 418 144
Total $ 6,849 $ 6,996
13. NOTES PAYABLE
Paycheck Protection Program ("PPP") Loan
The Company received$0.2 million of funding under the Paycheck Protection Program ("PPP") onMay 4, 2020 . The PPP loan was disbursed by the Coronavirus Aid Relief and Economic Security ("CARES") Act as administered by theU.S. Small Business Administration ("SBA"). The loan was made pursuant to a PPP Promissory Note and Agreement. Loans obtained through the PPP are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. The receipt of these funds, and the forgiveness of the loan was dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its adherence to the forgiveness criteria. InJune 2020 ,Congress passed the Payroll Protection Program Flexibility Act that made several significant changes to PPP loan provisions, including providing greater flexibility for loan forgiveness. OnFebruary 10, 2021 , the Company received approval from the SBA for$0.2 million of PPP loan forgiveness. This amount was recorded as Forgiveness of Paycheck Protection Program loan in the accompanying Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income during the nine months endedAugust 31, 2021 . The SBA reserves the right to audit any PPP loan, regardless of size. These audits may occur after forgiveness has been granted. In accordance with the CARES Act, all borrowers are required to maintain the PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request. 12 --------------------------------------------------------------------------------
14. LINES OF CREDIT OnJanuary 19, 2021 , the Company entered into a$5.0 million revolving line of credit with a bank ("Revolving Note"). The revolving line of credit bears interest at a rate equal to the Wall Street Journal Prime Rate plus 0.50%, subject to a floor of 4.00%. The interest rate on the revolving line of credit was 6.0% onAugust 31, 2022 . The revolving line of credit is secured by the Company's accounts receivable and inventory. The line of credit is subject to an unused fee of 0.25% paid once annually. The line of credit expires onJanuary 19, 2024 . Also onJanuary 19, 2021 , the Company entered into a$1.5 million equipment financing line of credit with a bank ("Nonrevolving Equipment Line"). The line of credit bears interest at a rate equal to the Wall Street Journal Prime Rate plus 0.50%, subject to a floor of 4.00%. The interest rate on the equipment financing line of credit was 6.0% onAugust 31, 2022 . The line of credit is secured by the Company's equipment. The line of credit is subject to an unused fee of 0.25% paid once annually. The line of credit expires onJanuary 19, 2024 . As ofAugust 31, 2022 , there was no outstanding balance on the Revolving Note and the Company had not drawn on the Nonrevolving Equipment Line. Debt issuance costs related to the line of credit were approximately$0.1 million presented as part of Other Assets in the Condensed Consolidated Balance Sheets. Amortization of$0.02 million for the nine months endedAugust 31, 2022 and 2021 and$0.01 million for the three months endedAugust 31, 2022 and 2021 is included in Interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss. 15. STOCKHOLDERS' EQUITY
Authorized Shares and Increase in Stock Compensation Plan
At the Company's 2022 annual meeting of stockholders held onJune 17, 2022 (the "Annual Meeting"), the Company's stockholders approved a decrease in the amount of authorized common stock from 300,000,000 to 50,000,000. The decrease became effective upon filing of a Certificate of Amendment to the Company's Certificate Incorporation onJune 17, 2022 . Additionally, following approval of the Company's stockholders at the Annual Meeting, the total number of shares of common stock authorized for issuance of the Company's 2020 Equity Incentive Plan increased by 1,300,000 from 2,500,000 to 3,800,000.
Stock Buyback Plan
OnFebruary 15, 2022 , the Company's Board of Directors approved a plan to buy back up to$10.0 million worth of shares of the Company's common stock from the open market ("Stock Buyback Plan"). The Company's Stock Buyback Plan was used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. The Company completed the full$10.0 million for the repurchases under the Stock Buyback Plan duringMarch 2022 . OnApril 28, 2022 , the Company's Board of Directors approved a plan to buy back up to an additional$5.0 million worth of shares of the Company's common stock. The Company completed the full$5.0 million repurchase of shares duringMay 2022 .
The following table summarizes the treasury stock activity during the nine
months ended
Number of Average Cost
Shares Cost of Shares per Share
Shares purchased - February 2022 296,168 $ 2,653,571 $ 9.0
Shares purchased - March 2022 754,081 7,346,422 $ 9.7
Shares purchased - May 2022 729,709 4,999,993 $ 6.9
Total 1,779,958 $ 14,999,986 $ 8.4
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16. STOCK-BASED COMPENSATION
2017 Plan The Company has granted stock options and other stock-based awards under its 2017 Stock Option Plan (the "2017 Plan"). The maximum number of shares of common stock which could have been reserved for issuance under the 2017 plan was 1,899,327. The 2017 Plan was administered by the Compensation Committee of the Board. The Compensation Committee determined the persons to whom options to purchase shares of common stock, and other stock-based awards may be granted. Persons eligible to receive awards under the 2017 Plan were employees, officers, directors, and consultants of the Company. Awards were at the discretion of the Compensation Committee. OnFebruary 24, 2021 , the Company terminated the 2017 Plan and adopted the 2020 Plan (defined below).
2020 Plan
OnOctober 23, 2020 , the Board approved and onNovember 19, 2020 the stockholders approved theByrna 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 2,500,000. OnApril 26, 2022 , the Company's Board of Directors approved and onJune 17, 2022 the Company's stockholders approved the increase of the number of shares of common stock available for issuance under the 2020 Plan by 1,300,000 shares to a total of 3,800,000 shares. The 2020 Plan is administered by the Compensation Committee of the Board. The Compensation Committee determines the persons to whom options to purchase shares of common stock, stock appreciation rights ("SARs"), restricted stock units ("RSUs"), and restricted or unrestricted shares of common stock may be granted. Persons eligible to receive awards under the 2020 Plan are employees, officers, directors, consultants, advisors and other individual service providers of the Company. Awards are at the discretion of the Compensation Committee. OnFebruary 24, 2021 , following the termination of the 2017 Plan, the Company replaced outstanding options under the 2017 Plan with options under the 2020 Plan. In connection with the adoption of the 2020 Plan, the Company cancelled outstanding option awards granted under the 2017 plan. There were no substantive changes to the rights of any holder of options granted under the 2017 plan other than replacing their award certificates with award agreements under the 2020 plan. The grant dates, exercise prices, expiration dates, and vesting provisions of any of the new award agreements under the 2020 plan that replace the certificates issued under the 2017 plan are identical for each grant and no change in valuation or accounting was required. The Board also amended the definition of Disability in the 2020 Plan to provide that "Disability" has the meaning assigned to such term in any individual employment agreement or award agreement with a plan participant and that if no such definition is provided in an award or employment agreement "Disability" is defined as in the 2020 Plan. 14
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Stock-Based Compensation Expense
Total stock-based compensation expense was$4.1 million and$2.5 million for the nine months endedAugust 31, 2022 and 2021, respectively. Total stock-based compensation expense was$2.7 million and$1.0 million for the three months endedAugust 31, 2022 and 2021, respectively. Total stock-based compensation expense was recorded in Operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. During the first half of 2022, the Board of Directors authorized granting of restricted stock unit awards (" RSUs") in excess of the limit stipulated under the 2020 Plan. Additionally, the Company agreed to grant 200,000 RSUs to the Chief Technology Officer ("CTO") in exchange for his waiver of rights to future royalty payments. See Note 21, "Commitments and Contingencies - Royalty Payments," for additional information. Because these awards were contingent on shareholder approval at the next annual shareholder meeting, these RSUs were not considered granted under Accounting Standards Codification ("ASC") 718, Compensation - Stock Compensation ("ASC 718") and were treated as obligation to issue RSU's and were remeasured at the end of each reporting period until the settlement date onJune 17, 2022 andAugust 3, 2022 (for the RSUs to the CTO). Additionally, onMarch 23, 2022 , the Board of Directors approved the issuance of RSU Amendment Agreements to each grantee of the double trigger RSUs in which 50% of the RSUs (778,750 RSUs) were exchanged for stock options. In accordance with ASC 718, a cancellation of an award accompanied by the concurrent grant of a replacement award shall be accounted for as a modification of the terms of the cancelled award. Similarly, because these stock options were not considered granted under ASC 718, they were therefore treated as obligation to issue stock options and were remeasured at the end of each reporting period until the settlement date onJune 17, 2022 . OnJune 17, 2022 , the stockholders approved to increase the stock compensation plan by 1,300,000 shares to 3,800,000 shares. Consequently, the Company settled the obligation to issue RSUs and options by issuing the related RSUs and stock options and reclassified the fair value of the issuances atJune 17, 2022 of$1.0 million from accounts payable and accrued liabilities to additional paid-in capital. Additionally, the amounts recognized as employee incentive expense for the three months endedAugust 31, 2022 and 2021 of$0 and$1.4 million , respectively, were reclassified to stock compensation expense. The non-cash expense associated with these rewards were valued at the grant date ofJune 17, 2022 , using aMonte Carlo model for double trigger RSUs and a Black Scholes model for simple employment period vesting stock options.
Restricted Stock Units
During the nine months endedAugust 31, 2022 and 2021, the Company granted 376,555 and 174,493 RSUs, respectively. Stock-based compensation expense for the RSUs for the nine months endedAugust 31, 2022 and 2021, was$2.3 million for each of the years. Stock-based compensation expense for the RSUs for the three months endedAugust 31, 2022 and 2021, was$1.0 million and$0.9 million , respectively. During the nine months endedAugust 31, 2022 , the Company accelerated the vesting of 3,874 RSUs to a former director and 8,392 RSUs to current board members for 2021 services. During the nine months endedAugust 31, 2022 , 25,000 RSUs were forfeited due to a former employeewho was terminated for cause. These RSU's did not vest, as they were based on triggers and performance that were not met. As a result, no expenses were reversed, and going forward no expenses will be recognized. The forfeited RSUs were returned to the pool of shares available for issuance under the 2020 Plan.
As of
The following table summarizes the RSU activity during the nine months ended
RSUs
Unvested and outstanding as of
376,555
Settled (12,266 )
Cancelled (778,750 )
Forfeited (25,000 )
Unvested and outstanding at
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Stock Options
During the nine months endedAugust 31, 2022 and 2021, the Company granted options to employees and directors to purchase 994,750 and 41,000 shares of common stock, respectively. The Company recorded stock-based compensation expense for options granted to its employees and directors of$1.7 million and$0.06 million during the nine months endedAugust 31, 2022 and 2021, respectively. The Company recorded stock-based compensation expense for options granted to its employees and directors of$1.7 million and$0.05 million during the three months endedAugust 31, 2022 and 2021, respectively.
As of
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 nine months endedAugust 31, 2022 were as follows: Risk free rate 3.34 % Expected dividends 0.0 Expected volatility 78.44 % Expected life (in years) 6.5
Market price of the Company's common stock on date of grant 5.51 Exercise price
7.70
The following table summarizes option activity under the 2020 Plan during the
nine months ended
Weighted-Average
Stock Exercise Price Per Stock
Options Option
Outstanding, November 30, 2021 586,783 $ 3.48
Granted 994,750 7.70
Exercised (250,250 ) (1.82 )
Forfeited (20,500 ) (11.80 )
Outstanding, August 31, 2022 1,310,783 $ 6.83
Exercisable, August 31, 2022 274,534 $ 1.90
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17. EARNINGS PER SHARE For the three and nine months endedAugust 31, 2022 and 2021, 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 endedAugust 31, 2022 .
The following table sets forth the allocation of net loss for the three and nine
months ended
For the Three Months Ended For the Nine Months Ended
August 31, August 31,
2022 2021 2022 2021
Net loss $ (1,534 ) $ (1,841 ) $ (7,752 ) $ (75 )
Preferred stock dividends - - - (1,043 )
Net loss available to common
shareholders $ (1,534 ) $ (1,841 ) $
(7,752 )
Weighted-average number of shares used in computing net loss per share, basic and diluted 21,751,879 22,047,571 22,704,565 18,269,360 Net loss per share -- basic$ (0.07 ) $ (0.08 ) $ (0.34 ) $ (0.06 ) The Company's potential dilutive securities, which may include stock options, unvested restricted stock units, convertible preferred stock, and outstanding warrants to purchase shares of common stock, 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,
2022 2021 2022 2021
Warrants - 75,000 - 75,000
Options 1,310,783 617,712 1,310,783 617,712
RSUs 1,154,659 1,747,993 1,154,659 1,747,993
Total 2,465,442 2,440,705 2,465,442 2,440,705
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 expensed$0 and approximately$0.3 million for royalties due to the Company's CTO, during the nine months endedAugust 31, 2022 and 2021, respectively. Balances payable to the CTO for royalties were$0 and$0.1 million as ofAugust 31, 2022 andNovember 30, 2021 , respectively. The Company terminated the royalty payments inDecember 2021 and the Company granted 200,000 RSUs during the three months endedAugust 31, 2022 in exchange to waive all future rights and entitlements to the CTO. Refer to Note 21, "Commitments and Contingencies - Royalty Payments," for additional information. The Company subleases office premises at itsMassachusetts headquarters to a corporation owned and controlled by the Chief Executive Officer ("CEO") of the Company beginningJuly 1, 2020 , with no stated termination date. Sublease payments received were$0.03 million and$0.01 million for the nine months endedAugust 31, 2022 and 2021, respectively. Sublease payments received were$7.0 thousand and$8.0 thousand for three months endedAugust 31, 2022 and 2021. 17 --------------------------------------------------------------------------------
19. LEASES Operating Leases
The Company has operating leases for real estate in
In 2019, the Company had entered into a real estate lease for office space inAndover, Massachusetts . InAugust 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 isFebruary 29, 2028 . The base rent is approximately$0.02 million per month. The Company leases office and warehouse space inSouth Africa that expires inNovember 2024 . The base rent during the nine months endedAugust 31, 2022 is approximately$0.01 million per month. InOctober 2021 , the Company entered into an additional lease inSouth Africa for a storage facility. The lease expiresOctober 31, 2022 . The Company leases warehouse and manufacturing space inFort Wayne, Indiana . The lease expires onJuly 31, 2025 . The base rent is approximately$0.01 million per month. The Company sub-leases the formerFort Wayne facility which commenced inAugust 2022 . InNovember 2021 , the Company entered into a lease which commenced inAugust 2022 . The lease expiresJuly 31, 2027 . The base rent is approximately$0.02 million per month.
The Company also leases office space in
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.
18
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As of August 31, 2022 and 2021 the elements of lease expense were as follows (in
thousands):
Three Months Ended Nine Months Ended
August 31, 2022 August 31, 2022
Lease Cost:
Operating lease cost $ 144 $ 360
Short-term lease cost 1 9
Total lease cost $ 145 $ 369
Other Information: Cash paid for amounts included in the measurement of operating lease liabilities
$ 148 $ 244
Operating lease liabilities arising from obtaining right-of-use assets
$ 1,047 $ 1,557
Operating Leases:
Weighted-average remaining lease term (in years) 4.6
Weighted-average discount rate 9.5 %
Future lease payments under non-cancelable operating leases as of
Fiscal Year Ending November 30, 2022 (three months)$ 169 2023 679 2024 696 2025 594 2026 527 Thereafter 451 Total lease payments 3,116 Less: imputed interest 598 Total lease liabilities$ 2,518 20. INCOME TAXES For the three months endedAugust 31, 2022 and 2021, the Company recorded an income tax expense of$0.2 million and an income tax benefit of$0.1 million , respectively. For the three months endedAugust 31, 2022 and 2021, the effective tax rate was (10.8%) and 3.9%, respectively. For the nine months endedAugust 31, 2022 and 2021, the Company recorded an income tax expense of$0.1 million and$0.1 million , respectively. For the nine months endedAugust 31, 2022 and 2021 the effective tax rate was (1.1%) and 320.6%, respectively. The Company's 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. 19 --------------------------------------------------------------------------------
21. COMMITMENTS AND CONTINGENCIES
Royalty Payment Pursuant to the Purchase and Sale Agreement, datedApril 13, 2018 and further amended onDecember 19, 2019 , the Company was committed to a minimum royalty payment of$0.025 million per year. Royalties on CO2 pistols were to be paid for so long as patents remain effective beginning at 2 ½% of the agreed upon net price of$167.60 ("StipulatedNet Price ") for the first year and reduced by 0.1% each year thereafter until it reaches 1%. For each substantially new product in this category, the rate would begin again at 2 ½%. Royalties on the fintail projectiles (and any improved versions thereof) will be paid so long as patents remain effective at a rate of 4% of the agreed upon StipulatedNet Price for fintail projectile products. OnJanuary 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 200,000 RSU's upon stockholder's approval and renegotiation of the employment contract of the increase in the number of shares of common stock available for issuance under the 2020 Plan. The RSU's will vest two years fromJanuary 7, 2022 . As a result, the Company did not recognize any royalty expense in the first quarter of 2022 and recognized stock compensation expense of$0.6 million associated with the RSUs during the three and nine months endedAugust 31, 2022 .
COVID-19 Pandemic and CARES Act
OnJanuary 30, 2020 , theWorld Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus originating inWuhan, China (the "COVID-19 outbreak") and the risks to the international community as the virus spreads globally beyond its point of origin. InMarch 2020 , theWHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic may have on the Company's financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2022. The Company faces various risks related to COVID-19 outbreak. The Company is dependent on its workforce to deliver its products. If significant portions of the Company's workforce are unable to work effectively, or if customers' operations are curtailed due to illness, quarantines, government actions, facility closures, or other restrictions in connection with the COVID-19 pandemic, the Company's operations will likely be impacted. The Company may be unable to perform fully on its contracts and costs may increase as a result of the COVID-19 outbreak. These cost increases may not be fully recoverable or adequately covered by insurance. Since the COVID-19 outbreak began, no facilities have been fully shut down. Certain of the Company's vendors may be unable to deliver materials on time due to the COVID-19 outbreak. Such delays may negatively impact the Company's production, and the Company plans to continue to monitor these and its other vendors and, if necessary, seek alternative suppliers. 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. 20 --------------------------------------------------------------------------------
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 one reportable segment. The tables below summarize the Company's revenue for the three and nine months endedAugust 31, 2022 and 2021, respectively, by geographic region (in thousands): Revenue: Europe/South Three Months Ended U.S. South Africa America/Asia Canada Total August 31, 2022$ 10,347 $ 704 $ 1,342 $ 29$ 12,422 August 31, 2021 7,140 1,563 - - 8,703 Europe/South Nine Months Ended U.S. South Africa America/Asia
Canada Total August 31, 2022$ 27,140 $ 2,061 $ 2,765 $ 52$ 32,018 August 31, 2021 28,465 2,532 - - 30,997 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 theU.S. inU.S. dollars and with banks inSouth Africa inU.S. dollars and South African rand. The Company's operations are conducted in theU.S. andSouth Africa . The value of the South African rand against theU.S. dollar may fluctuate with changes in economic conditions. During the three and nine months endedAugust 31, 2022 , in comparison to the prior year period, theU.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$0.6 million and$0.06 million related to the South African rand during the three months endedAugust 31, 2022 and 2021, respectively. The Company recorded a translation adjustment loss of$0.6 million and translation adjustment gain of$0.1 million during the nine months endedAugust 31, 2022 and 2021. 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 theU.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 intoU.S. dollars. The Company is not using any forward or option contracts to fix the foreign exchange rates. Using a 10% fluctuation in theU.S. exchange rate, the impact on the loss and stockholders' equity (deficit) is not material. 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, and accounts receivable. The Company maintains cash with high credit quality financial institutions located in theU.S. andSouth Africa . The Company maintains cash and cash equivalent balances with financial institutions in theU.S. in excess of amounts insured by theFederal 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.
21
--------------------------------------------------------------------------------ITEM 2. 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 period endedNovember 30, 2021 filed with theU.S. Securities and Exchange Commission (the "SEC") onFebruary 11, 2022 (the "2021 10-K"), the Company's subsequent filings with theSEC , which can be accessed on the EDGAR section of theSEC'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 the potential global impact of the COVID-19 pandemic, the impact of new strains on our personnel and operations, 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, 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 theBureau of Alcohol , Tobacco, and Firearms, import and export regulators, or other federal or state authority, or changes in international law in key jurisdictions includingSouth 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. 22 -------------------------------------------------------------------------------- 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 thatthe 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, particularly given the fear caused by the recent COVID-19 pandemic. The less lethal market has been projected to approach$12 billion per year by 2023 (Statistics MRC. Non-Lethal Weapons - Global Market Outlook (2017-2023)). We plan to respond to this demand for less-lethal products through the serial production and distribution of the Byrna® SD and expansion of theByrna product line. RESULTS OF OPERATIONS Results for the third quarter of 2022 demonstrate a continuing demand for our Byrna SD personal security device and growth of the production capacity and administrative and control structures necessary to supply that demand. Revenue increased to$12.4 million from$8.7 million in the third quarter of last year. Most of the growth in revenue continues to be in high margin direct sales or Amazon, as e-commerce orders accounted for 65.3% of total net revenue this quarter. In addition, the Company introduced products fromFox Labs , which the Company acquired at the end of the second quarter of this year. Sales related toFox Lab branded products totaled$0.4 million in the third quarter of 2022. Over the past year, the structural growth required to manage a larger company with higher sales volumes has required an increase in structural operating expenses such as payroll, insurance and marketing expenses. We also incur expenses associated with operating as a public company, including expenses related to compliance with the rules and regulations of theSEC and Nasdaq, insurance expenses, audit expenses, investor relations activities, Sarbanes-Oxley compliance expenses and other administrative expenses and professional services.
Three months ended
Net Revenue Revenues were$12.4 million in the third quarter of 2022 which represents an increase of$3.7 million or 42.7% as compared to the prior year period revenues of$8.7 million . Website sales, increased by$2.4 million from$5.7 million in the third quarter of 2021 to$8.1 million in the third quarter of 2022. This increase includes a$1.7 million increase in Amazon sales. Additionally, sales through all other channels, with the exception of law enforcement, increased in comparison with the same quarter of the prior year. International sales increased by$0.5 million from$1.6 million in the third quarter of 2021 to$2.1 million in the third quarter of 2022 due to a strong quarter for exports toAsia andLatin America . Sales to domestic dealers/distributors increased from$1.2 million in the third quarter of 2021 to$1.7 million in the third quarter of 2022. In addition,Fox Labs , which was acquired onMay 25, 2022 , added$0.4 million in sales pepper sprays the third quarter of 2022.
Cost of Goods Sold
Cost of goods sold was$5.5 million in the third quarter of 2022 compared to$3.8 million in the prior year period. This$1.7 million increase is primarily due to the increase in related sales volume.
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$6.9 million in the third quarter of 2022, or 55.4% of net revenue, as compared to gross profit of approximately$4.9 million , or 56.2% of net revenue, in the prior year period. While improvements in shipping efficiency lowered freight costs and improved gross profit by approximately 1%, one-time increases to inventory reserves decreased gross profit by approximately 2%. 23 --------------------------------------------------------------------------------
Operating Expenses / Income (Loss) from Operations
Operating expenses were$8.3 million in the third quarter of 2022, an increase of$1.6 million , as compared to the prior year period expenses of$6.7 million . This increase is due to the growth of the Company. During fiscal year 2021, management made the strategic decision to support continued revenue growth through increased marketing expenditure which increased$0.8 million to$1.4 million for the third quarter of 2022 as compared to$0.6 million in the third quarter of 2021. The structural growth required to manage a larger business with higher sales volumes drove up structural costs. Payroll related costs increased$0.3 million from$3.6 million in the third quarter of 2021 to$3.9 million in the third quarter of 2022, mainly due to the increase in stock compensation expense. IT subscriptions increased$0.1 million from$0.03 million in the third quarter of 2021 to$0.2 million in the third quarter of 2022.
Income Tax Provision
For the three months endedAugust 31, 2022 and 2021, the Company recorded an income tax expense of$0.2 million and an income tax benefit of$0.1 million , respectively. For the three months endedAugust 31, 2022 and 2021, the effective tax rate was (10.8%) and 3.9%, respectively. The Company's 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. Non-GAAP Financial Measures In addition to providing financial measurements based on generally accepted accounting principles inthe United States (GAAP), we provide the following additional financial metrics that are not prepared in accordance with GAAP (non-GAAP): adjusted EBITDA, non-GAAP adjusted net loss, and non-GAAP adjusted net loss per share. Management uses these non-GAAP financial measures, 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 these non-GAAP financial measures help 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 measures.
Accordingly, we believe that these non-GAAP financial measures reflect 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.
These non-GAAP financial measures do 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 measures as
tools for comparison.
24--------------------------------------------------------------------------------
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; and (v) other expenses. 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,
2022 2021
Net loss $ (1,534 ) $ (1,841 )
Adjustments:
Interest (income) expense 3 (13 )
Income tax provision (benefit) 150 (74 )
Depreciation and amortization 250 136
Non-GAAP EBITDA (1,131 ) (1,792 )
Stock-based compensation expense 2,689 981
Non-cash incentive compensation expense (1,415 ) -
Other expenses 3 9
Severance/Separation 138 -
Non-GAAP adjusted EBITDA $ 284 $ (802 ) Non-GAAP adjusted net loss per share
Non-GAAP adjusted net loss is defined as net (loss) income as reported in our
condensed consolidated statements of operations and comprehensive (loss) income
excluding the impact of (i) stock-based compensation expense and (ii) other
expenses. Our non-GAAP adjusted net loss measure eliminates potential
differences in performance caused by certain non-cash and one-time costs. We
also provide non-GAAP adjusted net loss per share by dividing non-GAAP adjusted
net loss by the average basic shares outstanding for the period. Reconciliation
of Non-GAAP adjusted (loss) income to net (loss) income, the most directly
comparable GAAP measure, is as follows (in thousands):
For the Three Months Ended
August 31,
2022 2021
Net loss $ (1,534 ) $ (1,841 )
Adjustments:
Stock-based compensation 2,689 981
Non-cash incentive compensation expense (1,415 ) -
Other expenses 3 9
Severance/Separation 138 -
NON-GAAP ADJUSTED NET (LOSS) INCOME $ (119 ) $ (851 )
Net income applicable to preferred stock - -
NON-GAAP ADJUSTED NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (119 ) $
(851 )
Non-GAAP adjusted net income (loss) per share - basic and diluted$ (0.01 ) $
(0.04 ) Weighted-average number of common shares outstanding during the period - basic and diluted
21,751,879 22,047,571
Nine months ended
Net Revenue Revenues were$32.0 million in the nine months endedAugust 31, 2022 which represents an increase of$1.0 million as compared to the prior year period revenues of$31.0 million . The prior year period sales included the fulfillment of approximately$4.0 million of backorders received in fiscal year 2020 and a surge in the Company's website sales due to the Company's product being featured on a national news program in April of 2021. Thus, website sales (excluding Amazon) decreased by$6.3 million from$23.9 million in nine months endedAugust 31, 2021 to$17.6 million in nine months endedAugust 31, 2022 . However, sales through all other channels increased year over year. International sales increased by$2.4 million from$2.5 million in the nine months endedAugust 31, 2021 to$4.9 million in the nine months endedAugust 31, 2022 . This increase was driven by new customers inSouth America andAsia . Sales via Amazon were$3.7 million in the nine months endedAugust 31, 2022 compared to$0.05 million in the nine months endedAugust 31, 2021 , before that site had been established. Sales to domestic dealers/distributors, and retail sales to large end-users such as security companies and law enforcement agencies increased from$4.5 million in the nine months endedAugust 31, 2021 to$5.5 million in the nine months endedAugust 31, 2022 . In addition,Fox Labs , which was acquired onMay 25, 2022 , added$0.4 million in sales of pepper sprays in the nine months endedAugust 31, 2022 . Cost of Goods Sold Cost of goods sold was$14.4 million in the nine months endedAugust 31, 2022 compared to$13.8 million in the prior year period. This$0.6 million increase is primarily due to the increase in related sales volume.
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$17.6 million in the nine months endedAugust 31, 2022 , or 55.0% of net revenue, as compared to gross profit of approximately$17.2 million , or 55.5% of net revenue, in the prior year period. 25 --------------------------------------------------------------------------------
Operating Expenses / Income (Loss) from Operations
Operating expenses were
During fiscal year 2021, management made the strategic decision to support
continued revenue growth through increased marketing expenditure which increased
The structural growth required to manage a larger business with higher sales volumes drove up structural costs. Payroll related costs increased$3.0 million from$9.6 million in the nine months endedAugust 31, 2021 to$12.6 million in the nine months endedAugust 31, 2022 . The increase was mostly due to an increase in non-cash stock compensation which increased by$1.6 million from$2.5 million in the nine months endedAugust 31, 2021 to$4.1 million in the nine months endedAugust 31, 2022 . Salary, wages and bonuses increased by$1.2 million from$5.9 million in the nine months endedAugust 31, 2021 to$7.1 million in the nine months endedAugust 31, 2022 .
IT subscriptions increased
Income Tax Provision For the nine months endedAugust 31, 2022 and 2021, the Company recorded an income tax provision of$0.1 million and$0.1 million , respectively. For the nine months endedAugust 31, 2022 and 2021, the effective tax rate was (1.1%) and 320.6%, respectively. The Company's 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.
Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted accounting principles inthe United States (GAAP), we provide the following additional financial metrics that are not prepared in accordance with GAAP (non-GAAP): adjusted EBITDA, non-GAAP adjusted net loss, and non-GAAP adjusted net loss per share. Management uses these non-GAAP financial measures, 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 these non-GAAP financial measures help 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 measures.
Accordingly, we believe that these non-GAAP financial measures reflect 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.
These non-GAAP financial measures do 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
measures as tools for comparison.
26
--------------------------------------------------------------------------------
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; and (v) other expenses. 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,
2022 2021
Net loss $ (7,752 ) $ (75 )
Adjustments:
Interest expense (income) (10 ) 24
Income tax provision (benefit) 82 109
Depreciation and amortization 638 369
Non-GAAP EBITDA (7,042 ) 427
Stock-based compensation expense 4,061 2,527
Other expenses 183 18
Forgiveness of PPP loan - (190 )
Severance/Separation 556 -
Non-GAAP adjusted EBITDA $ (2,242 ) $ 2,782 Non-GAAP adjusted net loss per share
Non-GAAP adjusted net loss is defined as net (loss) income as reported in our
condensed consolidated statements of operations and comprehensive (loss) income
excluding the impact of (i) stock-based compensation expense and (ii) other
expenses. Our non-GAAP adjusted net loss measure eliminates potential
differences in performance caused by certain non-cash and one-time costs. We
also provide non-GAAP adjusted net loss per share by dividing non-GAAP adjusted
net loss by the average basic shares outstanding for the period. Reconciliation
of Non-GAAP adjusted (loss) income to net (loss) income, the most directly
comparable GAAP measure, is as follows (in thousands):
For the Nine Months Ended
August 31,
2022 2021
Net loss $ (7,752 ) $ (75 )
Adjustments:
Stock-based compensation expense 4,061 2,527
Other expenses 183 18
Forgiveness of PPP loan - (190 )
Severance/Separation 556 -
NON-GAAP ADJUSTED NET INCOME (LOSS) (2,952 ) 2,280
Net income applicable to preferred stock - (1,043 ) NON-GAAP ADJUSTED NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS$ (2,952 ) $
1,237
Non-GAAP adjusted net income (loss) per share - basic and diluted$ (0.13 ) $
0.07
Weighted-average number of common shares outstanding during the period - basic and diluted
22,704,565 18,269,360
27--------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Summary
Cash as of
Operating Activities
Cash used in operating activities was$12.8 million for the nine months endedAugust 31, 2022 compared to cash used in operations of$3.3 million during the prior year period. Net loss was$1.5 million and$7.8 million for the three and nine months endedAugust 31, 2022 . Net loss was$1.8 million and$0.1 million for the three and nine months endedAugust 31, 2021 . Significant changes in noncash and working capital activity are as follows: Our non-cash activity adds back several non-cash items to net loss to calculate cash used in operations in the nine months endedAugust 31, 2022 . These include stock-based expenses of$4.1 million , compared to$2.5 million for the nine months endedAugust 31, 2021 ; depreciation and amortization of$0.6 million compared to$0.4 million for the nine months endedAugust 31, 2021 . During the nine months endedAugust 31, 2022 , the growth of the Company was reflected in the use of cash for growing working capital needs. Inventory increased during the nine months endedAugust 31, 2022 by$8.9 million , compared to$2.3 million for the nine months endedAugust 31, 2021 . The increase in inventory is a planned measure to ensure we have the ability to meet demand during the remainder of 2022. Accounts receivable decreased by$1.0 million during the nine months endedAugust 31, 2022 , due to decreased accounts receivables inSouth Africa , as compared to an increase of$0.4 million for the nine months endedAugust 31, 2021 . Deferred revenue increased$0.2 during the nine months endedAugust 31, 2022 , compared to a decrease of$4.2 million for the nine months endedAugust 31, 2021 as we fulfilled backlogged e-commerce orders. Investing Activities Cash used in investing activities was$4.2 million for the nine months endedAugust 31, 2022 , compared to$4.9 million for the nine months endedAugust 31, 2021 . The current year investing activities relate to purchase of property and equipment and theFox Labs acquisition. The prior year investing activities relate to the Mission Less Lethal and Ballistipax acquisitions.
Financing Activities
Cash used by financing activities was$14.5 million during the nine months endedAugust 31, 2022 , compared to cash provided by$57.2 million for the nine months endedAugust 31, 2021 . The nine months endedAugust 31, 2022 amount was primarily composed of stock repurchased of$15.0 million compared to$56.8 million from proceeds from the sale of common stock during the nine months endedAugust 31, 2021 .
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its 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
The Company's 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 2021 10-K. During the three and nine months endedAugust 31, 2022 , there were no significant changes to the Company's critical accounting policies from those described in our 2021 10-K. 28
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