Byrna Technologies Inc. (BYRN) FY 2022 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements which are included in Item 8 of this report.  In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” and elsewhere in this report. Some of the numbers included herein have been rounded for the convenience of presentation.

OVERVIEW

Byrna Technologies is a designer, manufacturer, retailer and distributor of innovative technological solutions for security situations that do not require the use of lethal force. Our mantra is Live Safe, and our core mission is to empower individuals to safely and fully engage in life and adventure. Our design team’s directive is to build easy-to-use self-defense tools to enhance the safety of our customers and their loved ones at home and outdoors. We are also focused on developing tools that can be used instead of firearms by professional law enforcement and private security customers to reduce shootings and facilitate trust between police and the communities they seek to serve. Our strategy is to establish Byrna® as a consumer lifestyle brand associated with the confidence people can achieve by knowing they can protect themselves, their loved ones and those around them. We believe we have a significant opportunity to leverage the Byrna brand to expand our product line, broaden our user base and generate increasing sales from new and existing customers.

Our business strategy is twofold: (1) to fulfill the growing demand for less-lethal products in the law enforcement, correctional services, and private security markets and (2) to provide civilians – including those whose work or daily activities may put them at risk of being a victim – with easy access to an effective, non-lethal way to protect themselves and their loved ones from threats to their person or property.

We believe that the United States, along with many other parts of the world, is experiencing a significant spike in the demand for less-lethal products and that the less-lethal market will be one of the faster growing segments of the security market over the next decade. We plan to respond to this demand for less-lethal products through the serial production and distribution of the Byrna SD and expansion of the Byrna product line.

On January 10, 2023, we created a new joint venture with Fusady located in Argentina, to expand our operations and presence in South American markets.  We hold 51% of the stock in the joint venture entity, Byrna LATAM, and the remaining 49% of stock in Byrna LATAM is held by Fusady.  Refer to Note 22, "Subsequent Events" for additional information.

RESULTS OF OPERATIONS

Results for the fiscal year ended November 30, 2022 demonstrate a continuing trend of sales growth due to increasing demand for our Byrna SD personal security device and to growth of the production capacity and administrative and control structures necessary to supply that demand.  Revenue increased to $48.0 million during the fiscal year ended November 30, 2022 from $42.2 million during the last year. During the fiscal year ended November 30, 2022, the growth in revenue came from an increased international demand, primarily in South America and Asia. However, the majority of revenue continues to be in high margin direct online sales or via Amazon, as e-commerce orders accounted for 63.6% of total net revenue this year.  In addition, the Company introduced products from Fox Labs, which the Company acquired at the end of the second quarter of this year.  Sales related to Fox Lab branded products totaled $0.8 million during the fiscal year ended November 30, 2022.

The Company has maintained gross margin profitability consistent with the prior year.  However, over the past year, the Company's growth in sales has driven an increase in variable expenses.  Also, in order to promote and manage continued growth, the Company has increased discretionary marketing spending and stock based compensation expenses.  This increase in operating expenses was greater than the increase in gross profit from revenue growth during the fiscal year, resulting in an increased net operating loss for the full year.

Year ended November 30, 2022, as compared to year ended November 30, 2021:

Net Revenue

Revenues were $48.0 million for the year ended November 30, 2022 which represents an increase of $5.8 million or 13.7% compared to the prior year period revenues of $42.2 million. It should be noted that the prior year 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 June 2020 and April 2021.  Thus, direct sales via the Company's website decreased by $6.6 million from $31.7 million for the fiscal year ended November 30, 2021 to $25.1 million for the fiscal year ended November 30, 2022.  However, sales through all other channels increased year over year. Sales via Amazon increased significantly from $0.9 million during November 30, 2021 to $5.5 million for the fiscal year ended November 30, 2022.  International sales increased by 162.9% or $5.7 million from $3.5 million during the fiscal year ended November 30, 2021 to $9.2 million for the fiscal year ended November 30, 2022.  The increase was driven by new customers in South America and Asia.    Sales to domestic dealers/distributors, in combination with sales to security companies and law enforcement agencies increased by 24.6% from $6.0 million during November 30, 2021 to $7.6 million for the fiscal year ended November 30, 2022.  In addition, Fox Labs, which was acquired on May 25, 2022, added $0.8 million in sales of pepper sprays during the fiscal year ended November 30, 2022.

Cost of Goods Sold

Cost of goods sold was $21.8 million in the fiscal year ended November 30, 2022 compared to $19.3 million in the fiscal year ended November 30, 2021. This $2.5 million increase is primarily due to the increase in 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 inbound freight costs, manufacturing depreciation, purchasing and receiving costs, and inspection costs. Gross profit was $26.3 million for the fiscal year ended November 30, 2022, or 54.7% of net revenue, as compared to gross profit of $22.9 million, or 54.3% of net revenue, in the prior year.  Gross margin profitability remained consistent as an increase in the proportion of lower margin international and dealer/distributor sales was off-set by lower freight costs due to improvements in supply chain management.

Operating Expenses / Loss from Operations

Operating expenses were $33.7 million for the fiscal year ended November 30, 2022, as compared to operating expenses in the prior fiscal year of $26.2 million. This $7.5 million increase is primarily due to three factors. First, in late 2021, management made the strategic decision to support continued revenue growth through increased marketing expenditure which increased $2.6 million from $2.9 million for fiscal year 2021 as compared to $5.5 million in fiscal year 2022.  Also, growth in sales volumes resulted in an increase in variable expenses such as freight out, commissions, and Amazon fees, of $1.2 million from $2.1 million for the fiscal year ended November 30, 2021 to $3.3 million for the fiscal year ended November 30, 2022.  Finally, the structural growth required to manage a larger business with higher sales volumes drove up payroll related costs.  Total compensation costs increased $2.5 million from $13.7 million for the fiscal year ended November 30, 2021 to $16.2 million for the fiscal year ended November 30, 2022.  The increase was mostly due to an increase of $2.2 million in non-cash stock compensation from $3.2 million during 2021 compared to $5.4 million during 2022.

The increase in operating expenses resulted in a loss from operations of $7.5 million in the fiscal year ended November 30, 2022 as compared to a loss from operations of $3.3 million in the fiscal year ended November 30, 2021.

Interest Income/Expense

Interest income for the fiscal year ended November 30, 2022 was $0.2 million compared to an expense of $0.03 million for the fiscal year ended November 30, 2021.  During the fiscal years ended November 30, 2022 and 2021,the interest income relates to interest income from the Company's money market accounts.

Forgiveness of Paycheck Protection Program Loan

Income on extinguishment of debt was $0.2 million for the year ended November 30, 2021 and relates to the forgiveness of the $0.2 million of funding under the Paycheck Protection Program (“PPP”).

Other Expenses

Other expenses in the year ended November 30, 2022 includes a loss on disposal of fixed assets of $0.2 million and other financing expenses of $0.1 million.  Other expenses in the year ended November 30, 2021 included a loss on disposal of fixed assets of $0.07 million and other financing expenses of $0.01 million.

Income Tax (Benefit) Provision

Our effective income tax rate was 3.1% for the year ended November 30, 2022, while we recorded a benefit of 4.6% for the year ended November 30, 2021.  Our income tax provision was $0.2 million for the fiscal year ended November 30, 2022 compared to an income tax benefit of $0.2 million for the fiscal year ended November 30, 2021. Our tax rate differs from the statutory rate of 21.0% primarily due to the recording of a valuation allowance against deferred tax assets generated by net operating losses, and also due to the foreign tax rate differential for Byrna South Africa, as well as effects of permanent non-deductible expenses and other effects.

We are subject to income tax in the U.S., as well as various state and international jurisdictions. The federal and state tax authorities can generally reduce a net operating loss (but not create taxable income) for a period outside the statute of limitations in order to determine the correct amount of net operating loss which may be allowed as a deduction against income for a period within the statute of limitations.

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): 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.

Non-GAAP Adjusted EBITDA

Non-GAAP Adjusted EBITDA is defined as net loss as reported in our consolidated statements of operations and comprehensive loss excluding the impact of (i) depreciation and amortization; (ii) income tax provision (benefit); (iii) interest (income) expense; (iv) stock-based compensation expense; (v) severance/separation expense; (vi) other income (forgiveness of PPP loan); and (vii) other financing expenses. Our non-GAAP 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  non-GAAP Adjusted EBITDA to net loss, the most directly comparable GAAP measure, is as follows (in thousands):

Non-GAAP adjusted net loss and non-GAAP adjusted net loss per share

Non-GAAP adjusted net (loss) income is defined as net loss as reported in our consolidated statements of operations and comprehensive loss excluding the impact of (i) stock-based compensation expense; (ii) severance/separation expense (iii) other income (forgiveness of PPP loan); and (iv) other financing expenses. Our non-GAAP adjusted net (loss) income measure eliminates potential differences in performance caused by certain non-cash and one-time costs. We also provide non-GAAP adjusted net (loss) income per share by dividing non-GAAP adjusted net (loss) income by the average basic or diluted shares outstanding for the period. Reconciliation of Non-GAAP adjusted (loss) net income to net loss, the most directly comparable GAAP measure, is as follows (in thousands):

LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

Cash as of November 30, 2022 totaled $20.1 million, a decrease of approximately $36.3 million from $56.4 of cash and restricted cash as of November 30, 2021.

Operating Activities

Cash used in operating activities was $13.8  million for the fiscal year ended November 30, 2022, compared to $4.4 million cash used in operating activities for the fiscal year ended November 30, 2021. Net loss was $7.9 million for the fiscal year ended November 30, 2022 compared to $3.3 million for the fiscal year ended November 30, 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 during the fiscal year ended November 30, 2022.  These include stock-based expenses of $5.4 million during the fiscal year ended November 30, 2022 compared to $3.2 million for the fiscal year ended November 30, 2021 and depreciation and amortization of $0.9 million during the fiscal year ended November 30, 2022 compared to $0.5 million during the fiscal year ended November 30, 2021.

During the fiscal year ended November 30, 2022, the growth of the Company was reflected in the use of cash for growing working capital needs.  Inventory increased $9.0 million during the fiscal year ended November 30, 2022 compared to $1.5 million during for the fiscal year ended November 30, 2021.  The increase in inventory was a planned measure to ensure we have the ability to meet demand.  Accounts receivable increased by $4.3 million during the fiscal year ended November 30, 2022 compared to an increase of $0.3 million during the fiscal year ended November 30, 2021 due to a significant increase in international sales to international distributors.  Deferred revenue decreased $0.3 million during the fiscal year ended November 30, 2022 compared to a decrease of $3.8 million during for the fiscal year ended November 30, 2021 due to fulfillment of backlog in 2020.

Investing Activities

During the fiscal year ended November 30, 2022, $5.1 million was used for investing activities, including $1.9 million paid for the Fox Labs International acquisition and $3.0 million to purchase property and equipment. In comparison, $5.9 million was used for investing activities during the fiscal year ended November 30, 2021, including $4.0 million paid for acquisitions and $1.7 million to purchase property and equipment.

Financing Activities

Cash flows used in financing activities was $17.0 million during the fiscal year ended November 30, 2022 compared to cash provided by financing activities totaling $57.3 million during the fiscal year ended November 30, 2021.  The fiscal year ended November 30, 2022 amount was primarily due to $17.5 million of repurchases of the Company's common stock compared to $56.0 from proceeds from the sale of common stock during the fiscal year ended November 30, 2021.  The prior year also included $1.3 million relating to warrant exercises.

In addition to cash, the Company has an available $5.0 million revolving line of credit and an available $1.5 million equipment financing line of credit with a bank. As of November 30, 2022, there was no outstanding balance on the revolving line of credit and the Company had not drawn on the nonrevolving equipment line of credit. See Note 12, "Lines of Credit", in the Notes to Consolidated Financial Statements included in Item 8 of this Report for further discussion.

MATERIAL CASH REQUIREMENTS FROM CONTRACTUAL OBLIGATIONS

Leases

As of November 30, 2022, we reported current and long-term operating lease liabilities of $0.8 million and $1.8 million, respectively. These balances represent our contractual obligation to make future payments on our leases, discounted to reflect our cost of borrowing. All leases are for real estate. In the event that we vacate a location, we may be obliged to continue making lease payments. Where possible, we mitigate this risk by including clauses allowing for the termination of lease agreements.  See Note 17, “Leases”, in the Notes to Consolidated Financial Statements included in Item 8 of this Report for further discussion.

We believe that existing cash and cash expected to be provided by future operating activities, are adequate to satisfy our working capital, capital expenditure requirements and other contractual obligations for at least the next 18 months.

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OFF-BALANCE SHEET ARRANGEMENTS

The Company had no off-balance sheet arrangements as of November 30, 2022 and 2021.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 4, “Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements included in Item 8 of this Report for a discussion of recently issued and adopted accounting standards.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our 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 this report. We believe that the following are the more critical judgmental areas in the application of our accounting policies that currently affect our financial position and results of operations:

Revenue Recognition

Product Sales

The Company generates revenue through the wholesale distribution of its products and accessories to dealers/distributors, large end-users such as retail stores, security companies and law enforcement agencies, and through an 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 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 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 year ended November 30, 2022 and November 30, 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 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.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

Deferred tax assets are recognized to the extent the Company believes that these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, it would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.

The Company records uncertain tax positions on the basis of a two-step process in which (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority. The Company records uncertain tax positions as liabilities and adjusts these liabilities when its judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the Company’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of November 30, 2022 and 2021, the Company has not recorded any uncertain tax positions in our consolidated financial statements.

The Company recognizes interest and penalties related to income taxes on the income tax expense line in the accompanying Consolidated Statement of Operations and Comprehensive Loss. As of November 30, 2022 and 2021, no accrued interest or penalties related to income taxes are included in the Consolidated Balance Sheets.

The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from November 30, 2019, to the present. The resolution of tax matters is not expected to have a material effect on the Company’s consolidated financial statements.

Business Combination

Assets and liabilities acquired in business combinations are accounted for at fair value. The Company records the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the acquisition dates. The excess, if any, of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. If the fair value of the assets and liabilities acquired exceed the fair value of the purchase consideration, negative goodwill is recognized in the statement of operations. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from the utilization of trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, the Company may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Goodwill resulting from a business combination is not amortized but is reviewed for impairment annually or more frequently when events or changes in circumstances occur that would more than likely than not reduce the fair value of a reporting unit below its carrying amount. The Company has the option to perform a qualitative assessment over goodwill when events occur or circumstances change that would, more likely than not, reduce the fair value of a reporting unit. If the Company concludes, based on the qualitative assessment, that the carrying value of a reporting unit would more likely than not exceed its fair value, a quantitative assessment is performed which is based upon a comparison of the reporting unit’s fair value to its carrying value. The fair values used in this evaluation are estimated by the Company based upon future discounted cash flow projections for the reporting unit. An impairment charge is recognized for any amount by which the carrying amount of goodwill exceeds its fair value.

The Company performs its review for impairment during the third quarter of each year. The Company assesses goodwill for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating segment, referred to as a component. The Company’s operations constitute a single reporting unit and goodwill is assessed for impairment at the Company as a whole.  At August 31, 2022, the Company determined that there was no impairment of goodwill.

Asset Acquisition

Acquisitions of the assets of a business are accounted for at cost based on their allocated fair value. The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed and intangible assets acquired based on their estimated fair values at the acquisition dates. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from the utilization of trade names from a market participant perspective, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Goodwill is not recognized in accounting for an asset acquisition. Acquisition related expenses are capitalized as part of the cost and allocated with the purchase consideration.

Stock-Based Compensation

The Company accounts for all stock-based payment awards granted to employees and non-employees as stock-based compensation expense at their grant date fair value. The Company’s stock-based payments include stock options and restricted stock units.  The Company values simple restricted stock units (RSUs) at the quoted price on date of grant and RSUs with certain market triggers using the Monte Carlo model for valuation.  The Company values stock options using the Black Scholes model.  The measurement date for employee awards is the date of grant, and stock-based compensation costs are recognized as expense over the employees’ requisite service period, on a straight-line basis. The measurement date for non-employee awards is the date of grant and stock-based compensation costs for non-employees are recognized as expense over the vesting period on a straight-line basis. Stock-based compensation is classified in the accompanying Consolidated Statements of Operations and Comprehensive Loss based on the function to which the related services are provided, which is included in operating expenses in the accompanying Consolidated Statements of Operations and Comprehensive Loss. Forfeitures are accounted for as they occur.

To determine the grant-date fair value of our stock-based payment awards, we use a Black-Scholes or the quoted stock price on the date of grant, unless the awards are subject to market conditions, in which case we use the Monte Carlo simulation model. Due to our limited history, the expected term of the Company’s stock options granted to employees has been determined utilizing the method as prescribed by the SEC’s Staff Accounting Bulletin, Topic 14. The expected term for stock options granted to non-employees is equal to the contractual term of the options. The risk-free interest rate is determined by reference to the US Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends on common stock and does not expect to pay any cash dividends in the foreseeable future.

Impairment of Long-lived Assets

Long-lived assets to be held and used are analyzed for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. The Company evaluates at each balance sheet date whether events and circumstances have occurred that indicate possible impairment. If there are indications of impairment, the Company uses future undiscounted cash flows of the related asset or asset group over the remaining life in measuring whether the assets are recoverable. In the event such cash flows are not expected to be sufficient to recover the recorded asset values, the assets are written down to their estimated fair value.

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