Byrna Technologies Inc 10-Q for FY2022 Q1
Byrna Technologies Inc. (BYRN)
About this 10-Q
Byrna Technologies Inc filed this 10-Q on April 6, 2022, covering the quarter ended February 28, 2022 (FY2022 Q1).
Headline figures
Quarter ended February 28, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $7.98M
- down 10.3% from $8.89M a year earlier
- Net loss
- $3.22M
- compared with a net loss of $272K a year earlier
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 April 1, 2022, the Company had 23,965,537 issued and
| Page |
||
| Condensed Consolidated Balance Sheets as of February 28, 2022 (unaudited) and November 30, 2021 |
||
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
||
References in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” or “our” refer to Byrna Technologies Inc.
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)
| February 28, | November 30, | |||||||
| 2022 | 2021 | |||||||
| Unaudited | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| LONG TERM ASSETS | ||||||||
| Patent rights, net | ||||||||
| Deposits for equipment | ||||||||
| Right-of-use asset, net | ||||||||
| Property and equipment, net | ||||||||
| Goodwill | ||||||||
| 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 | ||||||||
| Series A Preferred Stock, shares designated, and shares issued and outstanding, respectively | ||||||||
| Common stock, $ par value, shares authorized. shares issued and outstanding as of February 28, 2022 and, shares issued and outstanding as of November 30, 2021 | ||||||||
| Additional paid-in capital | ||||||||
| Treasury stock ( and shares purchased, respectively) | ( | ) | ||||||
| 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 | ||||||||
| February 28, | ||||||||
| 2022 | 2021 | |||||||
| Net revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE) | ||||||||
| Foreign currency transaction gain (loss) | ( | ) | ||||||
| Interest income (expense) | ( | ) | ||||||
| Other income - forgiveness of Paycheck Protection Program loan | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| LOSS BEFORE INCOME TAXES | ( | ) | ( | ) | ||||
| Income tax 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
(Amounts in thousands)
(Unaudited)
| For the Three Months Ended | ||||||||
| February 28, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash (used in) provided by operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Incentive compensation | ||||||||
| Forgiveness of Paycheck Protection Program loan | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Operating lease costs | ||||||||
| 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 | ( | ) | ( | ) | ||||
| NET CASH USED IN INVESTING ACTIVITIES | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from warrant exercises | ||||||||
| Proceeds from stock option exercises | ||||||||
| Payment of debt issuance costs | ( | ) | ||||||
| Repurchase of common stock | ( | ) | ||||||
| NET CASH (USED)/PROVIDED BY FINANCING ACTIVITIES | ( | ) | ||||||
| Effects of foreign currency exchange rate changes | ( | ) | ||||||
| NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH FOR THE PERIOD | ( | ) | ( | ) | ||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD | ||||||||
| CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD | $ | $ | ||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Condensed Consolidated Statements of Changes in Stockholders’ Equity
For the Three Months Ended February 28, 2022 and 2021
(Amounts in thousands except share numbers)
(Unaudited)
| Series A | Treasury | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||
| Shares | $ | Shares | $ | Shares | $ | Capital | Deficit | (Loss) Income | Total | |||||||||||||||||||||||||||||||
| Balance, November 30, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to exercise of stock options | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to settlements of restricted stock units | ||||||||||||||||||||||||||||||||||||||||
| Repurchase of common shares under Stock Buyback Plan | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance, February 28, 2022 | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||||||||
| Series A | Treasury | Additional | Accumulated Other | |||||||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Stock | Paid-in | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||||||
| Shares | Shares | Shares | Capital | Deficit | (Loss) Income | Total | ||||||||||||||||||||||||||||||||||
| Balance, November 30, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
| Issuance of common stock pursuant to exercise of stock options | ||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Warrant exercises | ||||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | |||||||||||||||||||||||||||||||||||||
| Balance, February 28, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | |||||||||||||||||||||||||||||||
See accompanying notes to the unaudited condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements (Unaudited)
For the three months ended February 28, 2022 and 2021
| 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. These products are sold in both the consumer and security professional markets. The Company operates
The Company was incorporated under the laws of the state of Delaware on March 1, 2005. On May 12, 2021, the Company acquired certain assets of the Mission Less Lethal brand from Kore Outdoor (U.S.), Inc. See Note 6, "Acquisitions". On August 18, 2021, the Company acquired certain assets of Ballistipax® Holdings LLC(“Ballistipax®”). See Note 6, "Acquisitions".
| 2. |
OPERATIONS AND MANAGEMENT PLANS |
From inception to February 28, 2022, the Company had incurred a cumulative loss of $
In July 2021, the Company issued and sold an aggregate of
| 3. |
BASIS OF PRESENTATION |
These condensed consolidated financial statements for the three months ended February 28, 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 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, 2021. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements, the results of its operations for the three months ended February 28, 2022 and 2021, and its cash flows for the three months ended February 28, 2022 and 2021 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, and allowance for sales returns.
| 5. |
RECENT ACCOUNTING GUIDANCE |
Recently Adopted Accounting Guidance
In 2019, the 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
In January 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 in December 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
On May 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 from Kore Outdoor (U.S.) Inc., (“Kore”) a wholly owned subsidiary of Kore Outdoor, Inc. The transaction was accounted for as an asset acquisition, with estimated $
Business Combination
On August 18, 2021, the Company acquired Ballistipax®, a developer of single-handed rapidly deployable bulletproof backpacks. The purchase price of $
| 7. |
RESTRICTED CASH |
The Company’s restricted cash - current was $
| 8. | REVENUE, DEFERRED REVENUE AND ACCOUNTS RECEIVABLE |
The Company generates revenue through the wholesale distribution of its products and accessories to dealers/distributors, and retail sales to large end-users such as 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 -year warranty can be purchased separately from the product and therefore, must be 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 money back guarantee changed from 60 days to 14 days during the last quarter of 2021. 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 returns under the 14-day money back guarantee for the three months ended February 28, 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 $
Deferred Revenue
Changes in deferred revenue, which relate to unfulfilled e-commerce orders and amounts to be recognized under extended 3-year service warranties, for the three months ended February 28, 2022 and the year ended November 30, 2021, are summarized below (in thousands):
| February 28, | November 30, | |||||||
| 2022 | 2021 | |||||||
| Deferred revenue balance, beginning of period | $ | $ | ||||||
| Net additions to deferred revenue during the period | ||||||||
| Reductions in deferred revenue for revenue recognized during the period | ( | ) | ( | ) | ||||
| Deferred revenue balance, end of period | ||||||||
| Less current portion | ||||||||
| Deferred revenue, non-current | $ | $ | ||||||
Revenue Disaggregation
The following table presents disaggregation of the Company’s revenue by distribution channel (in thousands):
| Three Months Ended | ||||||||
| February 28, | ||||||||
| Distribution channel | 2022 | 2021 | ||||||
| Wholesale (dealer/distributors) | $ | $ | ||||||
| E-commerce | ||||||||
| Total | $ | $ | ||||||
| 9. | PROPERTY AND EQUIPMENT |
The following table summarizes cost and accumulated depreciation as of February 28, 2022 and November 30, 2021, respectively (in thousands):
| February 28, | November 30, | |||||||
| 2022 | 2021 | |||||||
| Computer equipment and software | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Leasehold improvements | ||||||||
| Machinery and equipment | ||||||||
| Less: accumulated depreciation | ||||||||
| Total | $ | $ | ||||||
The Company recognized approximately $
At February 28, 2022 and November 30, 2021, the Company had deposits of $
| 10. |
INVENTORY |
The following table summarizes inventory as of February 28, 2022 and November 30, 2021, respectively (in thousands):
| February 28, |
November 30, |
|||||||
| 2022 |
2021 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work in process |
||||||||
| Finished goods |
||||||||
| Total |
$ | $ | ||||||
| 11. |
PATENT RIGHTS |
On August 18, 2021, the Company acquired Ballistipax®. As part of the transaction, the Company has acquired two patents with estimated fair value of $
On May 12, 2021, the Company entered into an asset purchase agreement with Kore, pursuant to which the Company acquired the exclusive right to use the key patents and intellectual property underpinning the acquired suite of products. As consideration for the tangible and intangible assets included in the Kore Portfolio, the Company paid Kore $
On April 13, 2018, the Company entered into a purchase and sale agreement with Andre Buys, ("Buys"), the Company's Chief Technology Officer ("CTO"), pursuant to which the Company purchased certain intellectual property relating to air and/or gas fired long guns or pistols, including pump action launchers and munitions used with such pistols and long guns, including self-stabilizing shaped or “finned” rounds. As part of the agreement, the Company acquired patents with estimated fair value of $
Patent amortization expenses are recorded within operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss. Total patent amortization expense for the three months ended February 28, 2022 and 2021 were $
| 12. |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES |
The Company’s accounts payable and accrued liabilities consist of the following (in thousands):
| February 28, |
November 30, |
|||||||
| 2022 |
2021 |
|||||||
| Trade payables |
$ | $ | ||||||
| Accrued sales and use tax |
||||||||
| Accrued people costs |
||||||||
| Accrued professional fees |
||||||||
| Other accrued liabilities |
||||||||
| Total |
$ | $ | ||||||
| 13. |
NOTES PAYABLE |
Paycheck Protection Program (“PPP”) Loan
The Company received $
| 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 February 28, 2022, there was
| 15. |
STOCKHOLDERS’ EQUITY |
Stock Buyback Plan
On February 16, 2022, the Company's Board of Directors approved a plan to buy back up to $
The following table summarizes the treasury stock activity during the three months ended February 28, 2022:
| Number of |
|
Average Cost |
||||||||||
| Shares |
Cost of Shares |
per Share |
||||||||||
| Shares purchased - December 2021 |
$ | $ | ||||||||||
| Shares purchased - January 2022 |
$ | |||||||||||
| Shares purchased - February 2022 |
$ | |||||||||||
| Total |
$ | $ | ||||||||||
Reverse Stock Split
On April 27, 2021, the Company effected a 1-for-
| 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
2020 Plan
On October 23, 2020, the Board approved and on November 19, 2020 the stockholders approved the Byrna Technologies Inc. 2020 Equity Incentive Plan (the “2020 Equity Incentive Plan”). The aggregate number of shares of common stock available for issuance in connection with options and other awards granted under the 2020 Plan is
On February 24, 2021, following the termination of the 2017 Plan, the Company replaced outstanding options under the 2017 Plan with options under the 2020 Equity Incentive 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 by 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.
Stock-Based Compensation Expense
Total stock-based compensation expense was $
During the first quarter of 2022, the Board of Directors authorized granting of certain RSUs in excess of the limit stipulated under the 2020 Plan. Additionally, the Company agreed to grant
Restricted Stock Units
During the year ended November 30, 2020, the Company granted employees
During year ended November 30, 2021, the Company granted
In November 2021, the Company entered into a severance agreement with an employee. Based on the terms of the agreement, the employee’s previously granted RSUs were reduced to
During the three months ended February 28, 2022 and 2021, the Company granted
During the three months ended February 28, 2022, the Company settled
As of February 28, 2022, there was $
The following table summarizes the RSU activity during the three months ended February 28, 2022:
| RSUs | ||||
| Unvested and outstanding as of November 30, 2021 | ||||
| Settled | ( | ) | ||
| Forfeited | ( | ) | ||
| Unvested and outstanding at February 28, 2022 | ||||
Stock Options
During the three months ended February 28, 2022 and 2021, the Company granted options to employees and directors to purchase
As of February 28, 2022, there was $
The following table summarizes option activity under the 2020 Plan during the three months ended February 28, 2022:
| Weighted-Average | ||||||||
| Stock | Exercise Price Per Stock | |||||||
| Options | Option | |||||||
| Outstanding, November 30, 2021 | ||||||||
| Granted | ||||||||
| Exercised | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Outstanding, February 28, 2022 | $ | |||||||
| Exercisable, February 28, 2022 | $ | |||||||
| 17. |
EARNINGS PER SHARE |
For the three months ended February 28, 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 months ended February 28, 2022 and 2021.
The following table sets forth the allocation of net loss for the three months ended February 28, 2022 and 2021, respectively:
| For the Three Months Ended |
||||||||
| February 28, |
||||||||
| 2022 |
2021 |
|||||||
| 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 and diluted |
$ | ( |
) | $ | ( |
) | ||
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 |
||||||||
| February 28, |
||||||||
| 2022 |
2021 |
|||||||
| Series A Preferred Stock |
||||||||
| Warrants |
||||||||
| Stock Options |
||||||||
| Restricted stock units |
||||||||
| 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 with the exception of notes payable, and due on demand.
The Company expensed $
The Company authorized the granting of
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 $
| 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 had 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 during the three months ended February 28, 2022 is approximately $
The Company leased real estate in Fort Wayne Indiana. The lease was to expire on . In February 2021, the Company entered into a lease termination agreement with the landlord. Upon termination, the Company was required to pay a termination fee of approximately $
The Company also leases office space in Las Vegas, Nevada. The lease expires on . The base rent is approximately $
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 February 28, 2022 and 2021 the elements of lease expense were as follows (in thousands):
| Three Months Ended | ||||||||
| February 28, 2022 | February 28, 2021 | |||||||
| 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 February 28, 2022 are as follows (in thousands):
| Fiscal Year Ending November 30, | ||||
| 2022 (nine months) | $ | |||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total lease payments | ||||
| Less: imputed interest | ||||
| Total lease liabilities | $ |
| 20. |
INCOME TAXES |
For the three months ended February 28, 2022 and 2021, the Company recorded an income tax 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
COVID-19 Pandemic and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO 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 2021.
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.
| 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 operating segment and reportable segment.
The tables below summarize the Company’s revenue for the three months ended February 28, 2022 and 2021, respectively, by geographic region (in thousands):
| Revenue: | ||||||||||||
| Three Months Ended | U.S. | South Africa | Total | |||||||||
| February 28, 2022 | $ | $ | $ | |||||||||
| February 28, 2021 | ||||||||||||
| 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 the changes in economic conditions.
During the three months ended February 28, 2022, in comparison to the prior year period, the U.S. dollar strengthened 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 gain 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, and accounts receivable. 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.
| 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,” “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 ended November 30, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 11, 2022 (the “2021 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 the potential global impact of the COVID-19 pandemic, the impact of new strains including Delta and Omicron 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 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 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, 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® HD and expansion of the Byrna product line.
RESULTS OF OPERATIONS
Results for the first 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. While revenue decreased, we continue to have high margin direct sales through our website. E-commerce orders account for 78% of total net revenue this quarter.
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 the SEC and Nasdaq, insurance expenses, audit expenses, investor relations activities, Sarbanes-Oxley compliance expenses and other administrative expenses and professional services.
On February 16, 2022, the Company's Board of Directors approved a plan to buy back up to $10 million worth of shares of our common stock from the open market (“Stock Buyback Plan”). The Company's Stock Buyback Plan has and will be used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. The Company's Board of Directors specified an expiration date of the sooner of April 30, 2022 or until we reach the aggregate limit of $10 million for the repurchases under the Stock Buyback Plan.
Three months ended February 28, 2022 as compared to three months ended February 28, 2021:
Net Revenue
Revenues were $8.0 million in the first quarter of 2022 which represents a decrease of $0.9 million or 10.3% as compared to the prior year period revenues of $8.9 million. Orders received during the quarter increased substantially, however, up 45.6% to $8.9 million in the first quarter of 2022 from $6.1 million in the prior year period. The prior year period sales included the fulfillment of approximately $4.0 million of backorders received in prior quarters due to the Company's product being featured on a national news program. International sales also decreased by $0.3 million from $0.4 million in the first quarter of 2021 to $0.1 million in the first quarter of 2022. Sales via Amazon were $0.8 million in the first quarter of 2022 compared to $0 in the first quarter of 2021, before that site had been established. Sales to dealers and distributors increased from $1.3 million in the first quarter of 2021 to $1.5 million in the first quarter of 2022.
Cost of Goods Sold
Cost of goods sold was $3.4 million in the first quarter of 2022 compared to $4.2 million in the prior year period. This $0.8 million decrease is primarily due to the decrease 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, inspection costs and shipping and handling costs. Gross profit was $4.6 million in the first quarter of 2022, or 57.8% of net revenue, as compared to gross profit of approximately $4.7 million, or 53.3% of net revenue, in the prior year period. The improvement in gross margin profitability is primarily due to increased production efficiency. Introduction of new, higher margin products also contributed to the improvement in gross profit margin.
Operating Expenses / Loss from Operations
Operating expenses were $8.0 million in the first quarter of 2022, as compared to the prior year period expenses of $5.2 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 $1.1 million to $1.3 million for the first quarter of 2022 as compared to $0.2 million in the first quarter of 2021.
The structural growth required to manage a larger business with higher sales volumes drove up structural costs. Payroll related costs increased $0.8 million from $3.1 million in the first quarter of 2021 to $4.0 million in the first quarter of 2022. The increase was mostly due to an increase in non-cash stock compensation and related non-cash incentive compensation which increased $0.5 million from $0.7 million in the first quarter of 2021 to $1.3 million in the first quarter of 2022.
Insurance expense increased from $0.2 million in the first quarter of 2021 to $0.4 million in the first quarter of 2022. Public company regulatory costs increased from $0.1 million in the first quarter of 2021 to $0.4 million in the first quarter of 2022 due to higher Delaware franchise tax. Travel and entertainment costs increased from $0.05 million in the first quarter of 2021 to $0.2 million in the first quarter of 2022.
Income Tax Provision
For the three months ended February 28, 2022 and 2021, the Company recorded an income tax benefit of $0.1 million and $0, respectively. For the three months ended February 28, 2022 and 2021, the effective tax rate was 3.59% and 0%, 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 in the United States (GAAP), we provide the following additional financial metrics that are not prepared in accordance with GAAP (non-GAAP): adjusted EBITDA, non-GAAP net loss, and non-GAAP 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.
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 |
||||||
| February 28, |
||||||
| 2022 |
2021 |
|||||
| Net loss |
$ | (3,221 | ) | $ | (272 | ) |
| Adjustments: |
||||||
| Interest (income) expense |
(1 | ) | 27 | |||
| Income tax benefit |
(120 | ) | — | |||
| Depreciation and amortization |
175 | 88 | ||||
| Non-GAAP EBITDA |
(3,167 | ) | (157 | ) | ||
| Stock-based compensation expense |
812 | 693 | ||||
| Non-cash incentive compensation expense |
472 | — | ||||
| Other expenses |
111 | 2 | ||||
| Forgiveness of PPP loan |
— | (190 | ) | |||
| Severance |
46 | — | ||||
| Non-GAAP adjusted EBITDA |
$ | (1,726 | ) | $ | 348 | |
Non-GAAP net loss and non-GAAP net loss per share
Non-GAAP 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 net loss measure eliminates potential differences in performance caused by certain non-cash and one-time costs. We also provide non-GAAP net loss per share by dividing non-GAAP net loss by the average basic shares outstanding for the period. Reconciliation of Non-GAAP comprehensive (loss) income to net (loss) income, the most directly comparable GAAP measure, is as follows (in thousands):
| For the Three Months Ended |
||||||||
| February 28, |
||||||||
| 2022 |
2021 |
|||||||
| Net loss |
$ | (3,221 | ) | $ | (272 | ) | ||
| Adjustments: |
||||||||
| Stock-based compensation |
812 | 693 | ||||||
| Non-cash incentive compensation expense |
472 | — | ||||||
| Other expenses |
111 | 2 | ||||||
| Forgiveness of PPP loan |
— | (190 | ) | |||||
| Severance |
46 | — | ||||||
| NON-GAAP NET (LOSS) INCOME |
$ | (1,780 | ) | $ | 233 | |||
| Non-GAAP net (loss) income per share — basic |
$ | (0.07 | ) | $ | 0.02 | |||
| Weighted-average number of common shares outstanding during the period — basic |
23,790,382 | 14,886,721 | ||||||
LIQUIDITY AND CAPITAL RESOURCES
Cash Flow Summary
Cash and balances of restricted cash as of February 28, 2022 totaled $44.7 million a decrease of $11.6 million from $56.3 million as of November 30, 2021. There was $0 of current restricted cash at February 28, 2022 as compared to $0.1 million for the period ended November 30, 2021.
Operating Activities
Cash used in operating activities was $8.4 million for the three months ended February 28, 2022 compared to cash used in operations of $5.7 million during the prior year period. Net loss was $3.2 million for the three months ended February 28, 2022. Net loss was $0.3 million for the three months ended February 28, 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 three months ended February 28, 2022. These include stock-based and incentive compensation expenses of $1.3 million, compared to $0.7 million for the three months ended February 28, 2021; depreciation and amortization of $0.2 million compared to $0.09 million for the three months ended February 28, 2021.
During the three months ended February 28, 2022, the growth of the Company was reflected in the use of cash for growing working capital needs. Inventory increased during the first quarter by $5.4 million, compared to $2.5 million for the three months ended February 28, 2021. The increase in inventory is a planned increase to ensure we had the ability to meet demand and to have an inventory buffer as we experienced supply chain difficulties during the prior year. Deferred revenue decreased $0.4 during the three months ended February 28, 2022, compared to a decrease of $3.6 million for the three months ended February 28, 2021 as we fulfilled backlogged e-commerce orders. Additionally, for the three months ended February 28, 2022, accounts payable and accrued expenses decreased by $0.7 million, compared to $1.1 million for the three months ended February 28, 2021. This decrease was only partially offset by decreases in prepaid expenses and other current assets of $0.4 million, compared to increases of $0.6 million for the three months ended February 28, 2021. Other assets decreased $0.4 million during the three months ended February 28, 2022, compared to a decrease of $0.01 million for the three months ended February 28, 2021.
Investing Activities
Cash used in investing activities was $0.9 million for the three months ended February 28, 2022, compared to $0.03 million for the three months ended February 28, 2021. This was all attributable to purchases of property and equipment.
Financing Activities
Cash used by financing activities was $2.3 million during the three months ended February 28, 2022, compared to cash provided of $0.1 million for the three months ended February 28, 2021. The three months ended February 28, 2022 amount was comprised primarily of the stock repurchase of $2.7 million, offset by proceeds from stock option exercises totaling $0.4 million.
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 months ended February 28, 2022, there were no significant changes to the Company’s critical accounting policies from those described in our 2021 10-K.
| 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 February 28, 2022 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 February 28, 2022, due to the material weakness described below, our disclosure controls and procedures were not effective.
Previously Reported Material Weakness
As disclosed in Item 9A. “Controls and Procedures” of our Form 10-K for the fiscal year ended November 30, 2021, filed with the SEC on February 11, 2022, we previously identified material weakness in our internal control over financial reporting related to controls over user access within the Company’s ERP system.
The material weakness noted is that the Company did not design and maintain effective controls over user access within the Company’s enterprise resources planning (“ERP”) system, SAP Business One, to ensure appropriate segregation of duties and to adequately restrict user access to appropriate personnel. Specifically, certain users were deemed to have excessive access rights within the ERP system. Therefore, a material weakness in the design and operating effectiveness of the internal controls over information technology was identified as of November 30, 2021.
This material weakness did not result in any material misstatement in our financial statements or disclosures. Based on additional procedures and post-closing review, management concluded that the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented, in conformity with accounting principles generally accepted in the United States.
Remediation Plan
We have modified the designated SAP Business One access rights for each employee for which a conflict has been identified to remove any responsibilities deemed to be excessive or otherwise inappropriate for the employee’s job function and are in the process of determining the effectiveness of our remediation.
Changes in Internal Control Over Financial Reporting
There were no changes that occurred during the first quarter of 2022 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 Item 1A of our Annual Report on Form 10-K for the fiscal year ended November 30, 2021, filed with the SEC on February 11, 2022. As of the date of this Report, there have been no material changes to the risk factors disclosed in our 2021 10-K.
| UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
On February 16, 2022, our Board of Directors approved a plan to buy back up to $10 million worth of shares of our common stock from the open market (the “Stock Buyback Plan”). Our Board of Directors specified an expiration date of the sooner of April 30, 2022 or until we reach the aggregate limit of $10 million for the repurchases under the Stock Buyback Plan. Below is a summary of stock repurchases for the three months ended February 28, 2022. See Note 15 of our notes to condensed consolidated financial statements for information regarding our Stock Buyback Program.
| Total Number of |
Approximate Dollar |
|||||||||||||||
| Shares Purchased as Part of Publicly |
Value of Shares that May Yet Be |
|||||||||||||||
| Number of Shares |
Average Cost per Share |
Announces Plans or Programs |
Purchased Under Plans or Programs |
|||||||||||||
| December 2021 |
— | $ | — | — | $ | — | ||||||||||
| January 2022 |
— | — | — | — | ||||||||||||
| February 2022 |
296,168 | 8.96 | 296,168 | 7,346,429 | ||||||||||||
| Total |
296,168 | 296,168 | ||||||||||||||
| 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: April 6, 2022 |
/s/ Bryan Ganz |
|
| Name: |
Bryan Ganz |
|
| Title: |
Chief Executive Officer, President and Director |
|
| (Principal Executive Officer) |
||
| Date: April 6, 2022 |
/s/ David North |
|
| Name: |
David North |
|
| Title: |
Chief Financial Officer |
|
| (Principal Financial and Accounting Officer) |
||
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bryan Ganz, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Byrna Technologies Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: April 6, 2022 |
By: |
/s/ Bryan Ganz |
|
Bryan Ganz |
||
|
Chief Executive Officer, President, and Director |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECURITIES EXCHANGE ACT RULES 13A-14(A) AND 15D-14(A)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, David North, certify that:
|
1. |
I have reviewed this Quarterly Report on Form 10-Q of Byrna Technologies Inc.; |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
Date: April 6, 2022 |
By: |
/s/ David North |
|
David North |
||
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Byrna Technologies Inc. (the “Company”) for the three months ended February 28, 2022, as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned, in the capacities and on the date indicated below, hereby certify pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
|
2. |
To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report. |
|
Date: April 6, 2022 |
By: |
/s/ Bryan Ganz |
|
Bryan Ganz Chief Executive Officer, President, and Director |
||
|
By: |
/s/ David North |
|
|
David North Chief Financial Officer |