byrn20210831

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File No. 333-132456

Byrna Technologies Inc.
(Exact name of registrant as specified in its charter)

Delaware		71-1050654
(State or other jurisdiction of incorporation or		(I.R.S. Employer Identification No.)
organization)
100 Burtt Road, Suite 115
Andover, MA 01810
(Address of Principal Executive Offices, including zip code)

(978) 868-5011
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

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. Yes ☐ No ☒

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). Yes ☒ No ☐

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 ☒ Non-accelerated filer ☒ Smaller reporting company ☐ Emerging growth company

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 ☐ No ☒

As of September 30, 2021, the Company had 23,613,945 issued and outstanding shares of common stock.

TABLE OF CONTENTS

		Page

PART 1 – FINANCIAL INFORMATION		2

Item 1.	Condensed Consolidated Financial Statements	2

	Condensed Consolidated Balance Sheets as of August 31, 2021 (unaudited) and November 30, 2020	2

	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three and Nine Months Ended August 31, 2021 and 2020 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended August 31, 2021 and 2020 (unaudited)	4

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended August 31, 2021 and 2020 (unaudited)	6

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40

Item 4.	Controls and Procedures	40

PART II – OTHER INFORMATION		41

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3.	Defaults Upon Senior Securities	41

Item 4.	Mine Safety Disclosures	41

Item 5.	Other Information	41

Item 6.	Exhibits	42

SIGNATURES		43

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)

	*August 31,*			*November 30,*
	*2021*			*2020*
	*Unaudited*
ASSETS
CURRENT ASSETS
Cash	$	58,421		$	3,175
Restricted cash		—			6,389
Accounts receivable, net		945			834
Inventory, net		7,551			4,817
Net investment in sales-type lease, current		46			—
Prepaid expenses and other current assets		993			1,391
Total current assets		67,956			16,606

Patent rights, net		3,659			811
Deposits for equipment		1,084			619
Right-of-use asset, net		1,148			1,200
Net investment in sales-type lease, non-current		45			—
Property and equipment, net		1,393			1,220
Goodwill		816			651
Restricted cash		92			92
Other assets		85			17
TOTAL ASSETS	$	76,278		$	21,216

LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	6,233		$	6,629
Operating lease liabilities, current		237			257
Deferred revenue		417			4,843
Line of credit		—			—
Notes payable, current		—			76
Total current liabilities		6,887			11,805

Notes payable, non-current		—			115
Deferred revenue - non-current		303			59
Operating lease liabilities, non-current		830			828
Total liabilities		8,020			12,807

COMMITMENTS AND CONTINGENCIES (NOTE 23)

STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued		—			—
Series A Preferred Stock, 1,500 shares designated, 0 and 1,391 shares issued and outstanding, respectively		—			—
Common stock, $0.001 par value, 300,000,000 shares authorized, 23,603,996 and 14,852,023 shares issued and outstanding, respectively		23			15
Additional paid-in capital		118,374			58,581
Accumulated deficit		(50,290	)		(50,215	)
Accumulated other comprehensive (loss) income		151			28

Total Stockholders’ Equity		68,258			8,409

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	76,278		$	21,216

See accompanying notes to the unaudited condensed consolidated financial statements.

BYRNA TECHNOLOGIES INC.

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income

(Amounts in thousands except share and per share data)

(Unaudited)

	*For the Three Months Ended*						*For the Nine Months Ended*
	*August 31,*						*August 31,*
	*2021*			*2020*			*2021*			*2020*
Net revenue	$	8,703		$	4,198		$	30,997		$	5,537
Cost of goods sold		(3,815	)		(2,069	)		(13,807	)		(2,926	)
Gross profit		4,888			2,129			17,190			2,611
Operating expenses		6,692			2,686			17,382			5,644
LOSS FROM OPERATIONS		(1,804	)		(557	)		(192	)		(3,033	)
OTHER INCOME (EXPENSE)
Foreign currency transaction gain (loss)		(115	)		(9	)		78			(19	)
Accretion of debt discounts		—			—			—			(755	)
Interest income (expense)		13			—			(24	)		(233	)
Loss on extinguishment of debt		—			—			—			(6,027	)
Warrant inducement expense		—			—			—			(845	)
Other income - forgiveness of Paycheck Protection Program loan		—			—			190			—
Other financing costs		(9	)		—			(18	)		—
(LOSS) INCOME BEFORE INCOME TAXES		(1,915	)		(566	)		34			(10,912	)
Income tax (benefit) provision		(74	)		—			109			—
NET LOSS		(1,841	)		(566	)		(75	)		(10,912	)

Foreign exchange translation (loss) gain for the period		(55	)		20			123			116
COMPREHENSIVE (LOSS) INCOME	$	(1,896	)	$	(546	)	$	48		$	(10,796	)

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS	$	(1,841	)	$	(566	)	$	(1,118	)	$	(10,912	)

Net loss per share – basic and diluted	$	(0.08	)	$	(0.04	)	$	(0.06	)	$	(0.91	)
Weighted-average number of common shares outstanding - basic and diluted		22,047,571			13,493,676			18,269,360			12,015,065

See accompanying notes to the unaudited condensed consolidated financial statements.

BYRNA TECHNOLOGIES INC.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	*For the Nine Months Ended*
	*August 31,*
	*2021*			*2020*
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period	$	(75	)	$	(10,912	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Stock-based compensation expense		2,527			659
Forgiveness of Paycheck Protection Program loan		(190	)		—
Accretion of debt discounts		—			755
Loss on extinguishment of debt		—			6,027
Warrant inducement		—			845
Write-down of inventory		24			—
Issuance of common shares for services		—			119
Shares to be issued for services		—			43
Depreciation and amortization		353			153
Amortization of debt issuance costs		16			—
Operating lease costs		151			77
Selling loss on sales-type lease		33			—
Changes in assets and liabilities, net of acquisition:
Accounts receivable		394			(196	)
Deferred revenue		(4,182	)		9,266
Inventory		(2,303	)		(2,267	)
Prepaid expenses and other current assets		643			(1,814	)
Net investment in sales-type lease		9			—
Other assets		(2	)		(17	)
Accounts payable and accrued liabilities		(557	)		1,992
Operating lease liabilities		(117	)		(199	)
Accrued interest		—			233
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		(3,276	)		4,764

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of patent rights		(70	)		(80	)
Cash paid for acquisitions, net of cash acquired		(4,044	)		(489	)
Purchases of property and equipment		(827	)		(1,023	)
NET CASH USED IN INVESTING ACTIVITIES		(4,941	)		(1,592	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from warrant exercises		1,277			6,751
Proceeds from stock option exercises		45			3
Proceeds from sale of common stock, net of underwriting discounts		56,753			—
Payment of offering costs		(801	)		—
Payment of debt issuance costs		(83	)		—
Proceeds from Roboro sellers for common stock		—			500
Proceeds from Paycheck Protection Program loan		—			190
Repayment of notes payable		—			(111	)
Proceeds from line of credit		1,500			—
Payments to line of credit		(1,500	)		—
NET CASH PROVIDED BY FINANCING ACTIVITIES		57,191			7,333
Effects of foreign currency exchange rate changes		(117	)		203
NET INCREASE IN CASH AND RESTRICTED CASH FOR THE PERIOD		48,857			10,708
CASH AND RESTRICTED CASH, BEGINNING OF PERIOD		9,656			1,174
CASH AND RESTRICTED CASH, END OF PERIOD	$	58,513		$	11,882

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	$	24		$	—

See accompanying notes to the unaudited condensed consolidated financial statements.

BYRNA TECHNOLOGIES INC.

Condensed Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF NON-CASH OPERATING, INVESTING AND FINANCING ACTIVITIES:

Nine months ended August 31, 2021 and 2020

The Company entered into an operating lease during the nine months ended August 31, 2021 resulting in $0.1 million of right-of-use asset and corresponding operating lease liability. See Note 21 “Leases” for additional information.

On April 9, 2021, the Board of Directors of the Company declared a cash dividend in the amount of $750 per share of Series A Convertible Preferred Stock, par value $0.001 per share, outstanding at the close of business on April 12, 2021 (the record date), in the aggregate amount of $1.0 million. In connection therewith, the Company and each holder of Series A Convertible Preferred Stock agreed that effective April 15, 2021, the Series A Convertible Stock, plus accrued and unpaid dividends thereon (including without limitation the dividend of $750 per share) be converted into common stock. Accordingly, on April 15, 2021, all of the Series A Convertible Preferred Stock outstanding was converted to 4,636,649 shares of common stock with an additional 695,498 shares of common stock issued in exchange for all accrued and unpaid dividends. See Note 17 “Stockholders’ Equity” for additional information.

Effective April 8, 2020, the Company exchanged an aggregate of approximately $6.95 million of all its outstanding convertible notes payable which were issued in October 2018, April 2019, May 2019, July 2019, and September 2019 (collectively the “Notes”), representing principal and accrued interest through April 7, 2020, for 1,391 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”). As the transaction was accounted for as a debt extinguishment, the shares of Series A Preferred Stock and Warrants issued were recorded in equity at fair value of $11.59 million (before reduction of $0.03 million related to issuance costs) and $0.2 million, respectively. See Note 17 “Stockholders’ Equity” for additional information.

During the nine months ended August 31, 2020, FinTekk AP, LLC (“FinTekk”) returned 369,999 shares associated with the Treasury Stock Receivable recorded in fiscal year 2019, which were subsequently retired in January 2020.

On January 6, 2020, the Company issued 386,681 shares of common stock with a value of $0.7 million in exchange for Patent Rights.

In January 2020, the Company issued 49,842 warrants to all noteholders as payment in kind to satisfy $0.1 million of accrued interest.

In February 2020, the Company issued 15,000 warrants with a value of approximately $0.01 million for marketing services.

See accompanying notes to the unaudited condensed consolidated financial statements.

BYRNA TECHNOLOGIES INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Three Months Ended August 31, 2021 and 2020

(Amounts in thousands except share numbers)

(Unaudited)

	*Shares*		$		*Shares*			$							*Additional*					*Accumulated Other*
	*Series A*									*Shares to*			*Treasury*		*Paid-in*		*Accumulated*			*Comprehensive*
	*Preferred Stock*				*Common Stock*					*be Issued*			*Stock*		*Capital*		*Deficit*			*(Loss) Income*			*Total*
Balance, May 31, 2021		—	$	—		20,693,521		$	20	$	—		$	—	$	61,374	$	(48,449	)	$	206		$	13,151
Stock-based compensation		—		—		—			—		—			—		981		—			—			981
Cancellation of shares		—		—		(485	)		—		—			—		—		—			—			—
Issuance of common stock pursuant to exercise of stock options		—		—		11,905			—		—			—		10		—			—			10
Warrant exercises		—		—		24,055			—		—			—		60		—			—			60
Sale of common stock, net of underwriting discount and offering costs		—		—		2,875,000			3		—			—		55,949		—						55,952
Net loss		—		—		—			—		—			—		—		(1,841	)		—			(1,841	)
Foreign currency translation		—		—		—			—		—			—		—		—			(55	)		(55	)
Balance, August 31, 2021		—	$	—		23,603,996		$	23	$	—		$	—	$	118,374	$	(50,290	)	$	151		$	68,258

Balance, May 31, 2020		1,391	$	—		12,629,957		$	12	$	63			—	$	53,653	$	(48,008	)	$	58		$	5,778
Issuance of common stock for services		—		—		7,200			—		(43	)		—		43		—			—			—
Stock-based compensation		—		—		—			—		—			—		11		—			—			11
Issuance of common stock pursuant to exercise of stock options		—		—		1,500			—		—			—		3		—			—			3
Warrant exercises		—		—		2,002,204			2		—			—		3,513		—			—			3,515
Net loss		—		—		—			—		—			—		—		(566	)		—			(566	)
Foreign currency translation		—		—		—			—		—			—		—		—			20			20
Balance, August 31, 2020		1,391	$	—		14,640,861		$	14	$	20			—	$	57,223	$	(48,574	)	$	78		$	8,761

See accompanying notes to the unaudited condensed consolidated financial statements.

BYRNA TECHNOLOGIES INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

For the Nine Months Ended August 31, 2021 and 2020

(Amounts in thousands except share numbers)

(Unaudited)

	*Shares*			$		*Shares*			$								*Additional*						*Accumulated Other*
	*Series A*										*Shares to*			*Treasury*			*Paid-in*			*Accumulated*			*Comprehensive*
	*Preferred Stock*					*Common Stock*					*be Issued*			*Stock*			*Capital*			*Deficit*			*(Loss) Income*			*Total*
Balance, November 30, 2020		1,391		$	—		14,852,023		$	15	$	—		$	—		$	58,581		$	(50,215	)	$	28		$	8,409
Stock-based compensation		—			—		—			—		—			—			2,527			—			—			2,527
Cancellation of shares		—			—		(485	)		—		—			—			—			—			—			—
Issuance of common stock pursuant to exercise of stock options		—			—		34,572			—		—			—			45			—			—			45
Warrant exercises		—			—		510,739			—		—			—			1,277			—			—			1,277
Dividends declared on preferred shares		—			—		—			—		—			—			(1,043	)		—			—			(1,043	)
Conversion of preferred shares and accrued dividends on preferred shares		(1,391	)		—		5,332,147			5		—			—			1,038			—			—			1,043
Sale of common stock, net of underwriting discount and offering costs		—			—		2,875,000			3		—			—			55,949			—			—			55,952
Net income		—			—		—			—		—			—			—			(75	)		—			(75	)
Foreign currency translation		—			—		—			—		—			—			—			—			123			123
Balance, August 31, 2021		—		$	—		23,603,996		$	23	$	—		$	—		$	118,374		$	(50,290	)	$	151		$	68,258

Balance, November 30, 2019		—		$	—		10,402,184		$	10	$	20		$	(888	)	$	36,595		$	(37,662	)	$	(38	)	$	(1,963	)
Issuance of common stock pursuant to exercise of stock options		—			—		1,500			—		—			—			3			—			—			3
Shares to be issued		—			—		—			—		43			—			—			—			—			43
Issuance of common stock for services		—			—		69,700			—		(43	)		—			161			—			—			118
Issuance of common stock for intellectual property		—			—		386,681			—		—			—			693			—			—			693
Issuance of common stock – Roboro acquisition		—			—		138,889			—		—			—			554			—			—			554
Issuance of warrants upon conversion of the convertible notes		—			—		—			—		—			—			240			—			—			240
Issuance of Series A preferred stock upon conversion of the convertible notes		1,391			—		—			—		—			—			11,562			—			—			11,562
Issuance of warrants for payment of accrued interest		—			—		—			—		—			—			125			—			—			125
Stock-based compensation		—			—		—			—		—			—			659			—			—			659
Cancellation of shares		—			—		(370,000	)		—		—			888			(884	)		—			—			4
Warrant exercises		—			—		4,011,907			4		—			—			7,515			—			—			7,519
Net loss		—			—		—			—		—			—			—			(10,912	)		—			(10,912	)
Foreign currency translation		—			—		—			—		—			—			—			—			116			116
Balance, August 31, 2020		1,391		$	—		14,640,861		$	14	$	20		$	—		$	57,223		$	(48,574	)	$	78		$	8,761

See accompanying notes to the unaudited condensed consolidated financial statements.

BYRNA TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the three and nine months ended August 31, 2021 and 2020

1.	NATURE OF OPERATIONS

The Company was incorporated under the laws of the state of Delaware on March 1, 2005. On February 3, 2014, the Company incorporated a wholly-owned subsidiary in Canada, Security Devices International Canada Corp. (“SDI Canada”). SDI Canada was dissolved on December 19, 2019. On March 1, 2018, the Company acquired all the shares of a company in South Africa, Byrna South Africa (Pty) Ltd. (“Byrna South Africa”). On May 5, 2020, the Company acquired all the outstanding shares of Roboro Industries (“Roboro”), at that time, its exclusive manufacturer in South Africa. See Note 6, “Acquisitions: Business Combination.” 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: Asset Acquisition.” On August 18, 2021, the Company acquired Ballistipax®. See Note 6, "Acquisitions: Business Combination."

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. The Company’s primary product is its .68 caliber handheld personal security device called the Byrna® HD and Byrna® HD magazines and projectiles. The Company manufactured its Byrna HD launchers and magazines at Roboro until May 2020 when Roboro became a subsidiary and its operations were assumed by Byrna South Africa. On October 6, 2020, the Company opened a second manufacturing facility in Fort Wayne, Indiana. The Company has implemented manufacturing partnerships in the United States and South Africa, to assist in the deployment of its patented family of 40mm ammunition and its .68 caliber ammunition. The Company’s 40mm products are its Blunt Impact Projectile 40mm (“BIP®”) line of products.

2.	OPERATIONS AND MANAGEMENT PLANS

The Company had net loss of $0.08 million for the nine months ended August 31, 2021 compared to a net loss of $10.9 million for the nine months ended August 31, 2020. From inception to August 31, 2021, the Company had incurred a cumulative loss of $50.3 million. The Company has funded operations through the issuance of common stock, warrants, and convertible notes payable. The Company continues to incur a loss from operations. It still is expected to incur significant losses before the Company's revenues sustain its operations. The Company’s future success is dependent upon its ability to continue to generate adequate revenue or raise sufficient capital, to cover its ongoing operating expenses, and also to continue to develop and be able to profitably market its products.

On January 19, 2021, the Company entered into a $5.0 million revolving line of credit, secured by the Company’s accounts receivable and inventory, and a $1.5 million line of credit, secured by the Company’s equipment. On July 6, 2021, the Company entered into an agreement that modified the revolving line of credit and the line of credit. See Note 16, “Lines of Credit” for additional information. Management projects that all cash needs will be met beyond one year from the time these financial statements are issued.

In July 2021, the Company issued and sold an aggregate of 2,875,000 registered shares of its common stock (including 375,000 shares sold pursuant to the exercise of the underwriters' overallotment option) at a price of $21.00 per share. The net proceeds to the Company, after deducting $4.4 million in underwriting discounts and commissions, and offering expenses, were approximately $56.0 million. The Company intends to use the net proceeds from this offering for working capital and other general corporate purposes. See Note 17, “Stockholders' Equity” for additional information.

3.	BASIS OF PRESENTATION

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted 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. Certain prior year amounts have been reclassified to conform with the presentation of amounts for the three and nine months ended August 31, 2021.

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 Byrna Technologies Inc.’s (“Byrna” or the “Company”) annual report on Form 10-K for the year ended November 30, 2020. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements, the results of its operations for the three and nine months ended August 31, 2021 and 2020, and its cash flows for the nine months ended August 31, 2021 and 2020 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 collection of accounts receivable and the reserve for doubtful accounts, stock-based compensation expense, fair value of equity instruments, valuation for deferred tax assets, incremental borrowing rate on leases, valuation and carrying value of goodwill and other identifiable intangible assets, estimates for warranty costs, and useful life of fixed assets.

5.	RECENT ACCOUNTING GUIDANCE

Recently Adopted Accounting Guidance

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) (“ASU 2018-13”). The guidance improves the effectiveness of disclosures about fair value measurements required under ASC 820. ASU 2018-13 amends the disclosure requirements for recurring and nonrecurring fair value measurements by removing, modifying, and adding certain disclosures. The Company adopted ASU 2018-13 in the first quarter of fiscal 2021. The adoption of ASC 2018-13 did not have a material impact on the Company’s consolidated financial statements.

In June 2018, the FASB issue ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). FASB issued the update to include share-based payment transaction for acquiring goods or services from nonemployees in Topic 718, Compensation – Stock Compensation. The Company adopted ASU 2018-07 in the first quarter of fiscal 2020 prospectively. The adoption of ASC 2018-07 did not have a material impact on the Company's consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic: 260), Distinguishing Liabilities from Equity (Topic: 480), Derivatives and Hedges (Topic 815). The FASB issued the update to simplify the accounting for certain financial instruments with down round features. The Company adopted ASU 2017-11 in the first quarter of fiscal 2020. Currently, the Company does not have financial instruments with down round features but will apply this update prospectively.

Accounting Guidance Issued But Not Adopted

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. Early adoption is permitted. 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 Company is currently evaluating the impact of adopting this update on the consolidated financial statements.

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 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 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 $3.7 million total cost of which $0.2 million were acquisition-related expenses. The estimated total cost of the acquisition has been allocated as follows (in thousands):

Accounts receivable	$	465
Prepaid expenses		165
Inventory		82
Property and equipment		180
Intangible assets		2,810
Total acquired assets	$	3,702

The Company accounted for the transaction as an asset acquisition where the assets acquired were measured based on the amount of cash paid to Kore as well as transaction costs incurred as the fair value of the assets given was more readily determinable than the fair value of the assets received. The Company classified and designated identifiable assets acquired and assessed and determined the useful lives of the acquired intangible assets subject to amortization.

Business Combination

Ballistipax

On August 18, 2021, the Company acquired Ballistipax®, a developer of single-handed rapidly deployable bulletproof backpacks. As part of the transaction, the Company has acquired two patents, finished goods and raw materials inventory.

The estimated fair value of assets acquired on August 18, 2021 is as follows (in thousands):

Inventory	$	117
Patents		60
Goodwill		165
Total acquired assets	$	342

Roboro

On May 5, 2020, the Company acquired 100% of the equity interests in Roboro, its exclusive manufacturer in South Africa, in order to reduce its dependence on third parties for production. As a result of this acquisition, operations were assumed by Byrna South Africa.

The acquisition date fair value of the consideration was $0.6 million, including $0.5 million paid in cash. In addition, Roboro’s sellers purchased 138,889 shares of the Company’s common stock for $0.5 million at a contractual price of $3.60 per share. These shares, which were issued on May 27, 2020, were restricted and subject to a 15-month vesting schedule and are vested. The fair market value of the common stock of $0.6 million was based on the stock’s closing price of $4.00 on May 5, 2020. The difference between the fair market value plus approximately $0.002 million of transaction costs and the amount paid, was treated as an additional consideration for the acquisition.

The fair value of assets acquired and liabilities assumed on May 5, 2020 is as follows (in thousands):

Property and equipment	$	67
Goodwill		651
Right-of-use asset, net		54
Loan payable		(123	)
Operating lease liability, current		(35	)
Operating lease liability, noncurrent		(19	)
Other net asset (liabilities)		(38	)
Total acquired net assets	$	557

7.	REVERSE STOCK SPLIT

On April 27, 2021, the Company effected a 1-for-10 reverse stock split. All owners of record as of April 27, 2021 received one issued and outstanding share of the Company’s common stock in exchange for 10 outstanding shares of the Company’s common stock. No fractional shares were issued in connection with the reverse stock split. All fractional shares created by the one-for-ten exchange were rounded down to the next whole share, with cash paid in lieu of fractional shares. The reverse stock split had no impact on the par value per share of the Company’s common stock, which remains at $0.001. All share and per share information has been retroactively adjusted to reflect the impact of the Reverse Stock Split.

8.	RESTRICTED CASH

The Company’s restricted cash - current was $0.0 million and $6.4 million at August 31, 2021 and November 30, 2020, respectively. This amount is due to holds placed on its use by the Company’s merchant services vendor pending fulfillment of backorders prepaid by credit cards. The Company’s long-term restricted cash of $0.1 million at August 31, 2021 and November 30, 2020, consists of cash that the Company is contractually obligated to maintain in accordance with the terms of its lease agreement.

9.	REVENUE, DEFERRED REVENUE AND ACCOUNTS RECEIVABLE

The Company generates revenue through the wholesale distribution of its products and accessories to dealers/distributors, large end-users such as security companies and law enforcement agencies, and through an e-commerce portal 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 estimated 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’s returns under warranties have been immaterial. In February 2021, the Company identified certain Byrna® HD launchers that may contain a wire that is not to specification and offered customers a free factory service update for their launchers. The Company established a reserve of $0.2 million as an estimate of future related costs. As of August 31, 2021, approximately $0.1 million of these estimated costs have been incurred or resolved.

The Company also has a 60-day money back guarantee, which allows for a full refund of the purchase price, excluding shipping charges, within 60 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 60-day money back guarantee for the three and nine months ended August 31, 2021 were $0.4 million and $0.4 million, respectively. The Company’s returns under the 60-day money back guarantee for the three and nine months ended August 31, 2020 have been immaterial.

Revenue excludes taxes collected from customers and remitted to government authorities related to sales of the Company’s products. The Company elected the practical expedient under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers that allows an entity to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. Costs to obtain a contract consist of commissions paid to employees and are included in operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

Commissions were $0.05 million and $0.1 million for the three months ended August 31, 2021 and 2020, respectively. Commissions were $0.4 million and $0.1 million for the nine months ended August 31, 2021 and 2020, respectively.

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.

The Company charges certain customers shipping and handling fees. Shipping and handling costs, which includes outbound freight associated with the distribution of finished products to customers, are recognized when the product is shipped to the customer and are included in Operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. Shipping and handling costs were $0.4 million and approximately $0.03 million for the three months ended August 31, 2021 and 2020, respectively. Shipping and handling costs were $1.4 million and approximately $0.03 million for the nine months ended August 31, 2021 and 2020, respectively.

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. A significant proportion of the Company’s sales are made via e-commerce. These orders are prepaid by credit card and involve no credit risk. To minimize the likelihood of uncollectible debt, the Company reviews its customers’ creditworthiness periodically. Material differences may result in the amount and timing of expense for any period if the Company were to make different judgments or utilize different estimates. The allowance for doubtful accounts was approximately $0.02 million as of August 31, 2021 and $0.01 million as of November 30, 2020.

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 nine months ended August 31, 2021 and the year ended November 30, 2020, are summarized below (in thousands):

	*August 31,*			*November 30,*
	*2021*			*2020*
Deferred revenue balance, beginning of period	$	4,902		$	11
Net additions to deferred revenue during the period		23,957			18,826
Reductions in deferred revenue for revenue recognized during the period		(28,139	)		(13,935	)
Deferred revenue balance, end of period		720			4,902
Less current portion		417			4,843
Deferred revenue, non-current	$	303		$	59

Revenue Disaggregation

The following table presents disaggregation of the Company’s revenue by product type and distribution channel (in thousands):

	*Three Months Ended*				*Nine Months Ended*
	*August 31,*				*August 31,*
*Product type*	*2021*		*2020*		*2021*		*2020*
Byrna® HD	$	8,702	$	4,084	$	30,951	$	5,312
40mm		1		114		46		225
Total	$	8,703	$	4,198	$	30,997	$	5,537

	*Three Months Ended*				*Nine Months Ended*
	*August 31,*				*August 31,*
*Distribution channel*	*2021*		*2020*		*2021*		*2020*
Wholesale (dealer/distributors and large end-users)	$	2,986	$	1,053	$	7,041	$	1,343
E-commerce		5,717		3,145		23,956		4,194
Total	$	8,703	$	4,198	$	30,997	$	5,537

10.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost and reflected net of accumulated depreciation and amortization. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets, primarily three to seven years for computer equipment and software, furniture and fixtures, and machinery and equipment. Leasehold improvements are amortized over the lesser of the useful lives of three to seven years or lease terms. The following table summarizes cost and accumulated depreciation as of August 31, 2021 and November 30, 2020, respectively (in thousands):

	*August 31,*		*November 30,*
	*2021*		*2020*
Computer equipment and software	$	275	$	204
Furniture and fixtures		140		105
Leasehold improvements		249		144
Machinery and equipment		1,530		1,324
		2,194		1,777
Less: accumulated depreciation		801		557
Total	$	1,393	$	1,220

The Company recognized approximately $0.4 million and $0.2 million in depreciation expense during the nine months ended August 31, 2021 and 2020, respectively. The Company recognized approximately $0.1 million and $0.1 million in depreciation expense during the three months ended August 31, 2021 and 2020, respectively.

At August 31, 2021 and November 30, 2020, the Company had deposits of $1.1 million and $0.6 million, respectively, with vendors primarily for supply of machinery (molds) and equipment where the vendors have not completed the supply of these assets and is presented as Deposits for equipment in the Condensed Consolidated Balance Sheets.

During the nine months ended August 31, 2021, the Company transferred equipment with a net book value of $0.1 million to a lessee under a sales-type lease. See Note 21, “Leases” for additional information.

11.

INVENTORY

The following table summarizes inventory as of August 31, 2021 and November 30, 2020, respectively (in thousands):

	*August 31,*		*November 30,*
	*2021*		*2020*
Raw materials	$	3,975	$	2,901
Work in process		168		302
Finished goods		3,408		1,614
Total	$	7,551	$	4,817

Inventory at August 31, 2021 and November 30, 2020, primarily relates to the Byrna® HD Personal Security Device.

12.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

The following table summarizes prepaid expenses and other current assets as of August 31, 2021 and November 30, 2020, (in thousands):

	*August 31,*		*November 30,*
	*2021*		*2020*
VAT receivables	$	98	$	572
Advance payment for inventory		540		677
Prepaid insurance		236		16
Other		119		126
Total	$	993	$	1,391

13.

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 $0.06 million. No amortization has been recorded for the patent rights during the three or nine months ended August 31, 2021 but will begin in September 2021. These patent rights have a maximum life of approximately 17 years, expiring on 2038, and will be amortized on a straight-line basis.

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 $3.5 million, and incurred $0.2 in legal costs to transfer these patent rights. Of the $3.7 million consideration, $2.8 million was capitalized relating to the key patents and intellectual property acquired. Amortization of $0.04 million has been recorded for the patent rights during the three and nine months ended August 31, 2021. These patent rights have a maximum life of 20 years, expiring on various dates beginning from January 2037 to 2038, and will be amortized on a straight-line basis over a period of 15 years.

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 agreed to purchase the Buys Portfolio, provisional patent rights, and other 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 consideration for the Buys Portfolio, the Company paid Buys $0.1 million, and incurred $0.01 in legal costs to transfer these patent rights. This consideration of $0.1 million was capitalized and represents the minimum rights to a license arrangement as patent rights as the Agreement included an option for full acquisition of the rights, conditional upon certain future events taking place. The Company also agreed to pay Buys either $0.5 million in cash or $0.8 million worth of Company stock within two years at Buys’ discretion, if the Company elected to retain certain patents within the Buys Portfolio, which terms were changed by subsequent amendment. Pursuant to an amendment of the Agreement effective December 18, 2019, the Company made two additional payments to Buys totaling of $0.8 million, consisting of the Second Payment of $0.7 million through the issuance of 386,681 shares of common stock and Final Payment of $0.1 million in cash. The Final Payment was paid during the quarter ended August 31, 2020. Buys no longer retains any reversion rights or security interests in the Buys Portfolio. These patent rights have a maximum life of 20 years, expiring on various dates beginning from November 2033 to 2038, and are amortized on a straight-line basis over a period of 15 years.

The Company amortized $0.1 million and $0.05 million of patent rights during nine months ended August 31, 2021 and 2020. The Company recognized $0.06 million and $0.02 million in amortization expense during the three months ended August 31, 2021 and 2020, respectively. The Company did not recognize any impairment losses during the three and nine months ended August 31, 2021 and 2020, respectively.

14.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

The Company’s accounts payable and accrued liabilities consist of the following (in thousands):

	*August 31,*		*November 30,*
	*2021*		*2020*
Trade payables	$	3,019	$	3,475
Accrued sales and use tax		702		1,050
Payroll accrual		1,328		904
Accrued commissions		47		375
Accrued professional fees		741		217
Accrued royalties		81		180
Warranty		117		268
Income taxes payable		142		—
Other accrued liabilities		56		160
Total	$	6,233	$	6,629

15.

NOTES PAYABLE

The Company received $0.2 million of funding under the Paycheck Protection Program (“PPP”) on May 4, 2020. The PPP loan was disbursed by the Coronavirus Aid Relief and Economic Security (“CARES”) Act as administered by the U.S. Small Business Administration ("SBA"). The loan was made pursuant to a PPP Promissory Note and Agreement. Loans obtained through the PPP are eligible to be forgiven as long as the proceeds are used for qualifying purposes and certain other conditions are met. The receipt of these funds, and the forgiveness of the loan was dependent on the Company having initially qualified for the loan and qualifying for the forgiveness of such loan based on its adherence to the forgiveness criteria. In June 2020, Congress passed the Payroll Protection Program Flexibility Act that made several significant changes to PPP loan provisions, including providing greater flexibility for loan forgiveness. On February 10, 2021, the Company received approval from the SBA for $0.2 million of PPP loan forgiveness. This amount was recorded as Forgiveness of Paycheck Protection Program loan in the accompanying Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income during the nine months ended August 31, 2021.

16.

LINES OF CREDIT

On January 19, 2021, the Company entered into a $5.0 million revolving line of credit with a bank. The revolving line of credit bears interest at a rate equal to the Wall Street Journal Prime Rate plus 0.50%, subject to a floor of 4.00%. The revolving line of credit is secured by the Company’s accounts receivable and inventory. The line of credit is subject to an unused fee of 0.25% paid once annually. The line of credit expires on January 19, 2024.

On January 19, 2021, the Company entered into a $1.5 million equipment financing line of credit with a bank. The line of credit bears interest at a rate equal to the Wall Street Journal Prime Rate plus 0.50%, subject to a floor of 4.00%. The line of credit is secured by the Company’s equipment. The line of credit is subject to an unused fee of 0.25% paid once annually. The line of credit expires on January 19, 2024.

On July 6, 2021, the Company entered into a First Omnibus Loan Modification Agreement (the “Amendment”) with Needham Bank, a Massachusetts co-operative bank (the “Lender”) that modifies that certain Commercial Loan and Security Agreement dated as of January 19, 2021 (the “Loan Agreement”). Pursuant to the Loan Agreement, the Lender established a revolving line of credit of up to $5.0 million as evidenced by a Secured Revolving Line of Credit Note executed by the Company in favor of the Bank (the “Revolving Note”) and a non-revolving equipment line of credit of up to $1.5 million as evidenced by equipment term notes in the principal amounts drawn from time to time. Pursuant to the Amendment, the Lender and Company agreed to (i) temporarily for a 150-day period increase the Company’s principal amount on the Revolving Note from $5.0 million to $7.5 million, (ii) temporarily for a 150-day period increase the credit limit under the Loan Agreement from $5.0 million to $7.5 million, and (iii) a one-time non-refundable modification fee payable to Lender by the Company for the increased borrowing ability of $0.02 million, with one-half paid upon execution of the Agreement and one-half due only if the Company’s aggregate outstanding principal balance exceeds $5.0 million. In addition, the Company agreed that upon the expiration of the 150-day period it would use the proceeds of any equity raise consummated during such time to make payments under the Revolving Note such that the aggregate principal balance of outstanding advances under the Revolving Note are equal or less to $5.0 million. As of August 31, 2021, there was no outstanding balance on the Revolving Note and the Company had not drawn on the non-revolving equipment line of credit.

Debt issuance costs related to the lines of credit were approximately $0.1 million. Debt issuance costs are being amortized over the term of the debt and are presented as part of Other Assets in the Condensed Consolidated Balance Sheets. Amortization of approximately $0.01 million for the three months ended August 31, 2021 is included in Interest expense in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income. Amortization of approximately $0.02 million for the nine months ended August 31, 2021 is included in Other financing costs in the Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income.

17.

STOCKHOLDERS’ EQUITY

On April 9, 2021, the Board of Directors declared a dividend in the amount of $750 per share of Series A Convertible Preferred Stock, par value $0.001 per share, outstanding at the close of business on April 12, 2021 (the record date), in the aggregate amount of $1.0 million. In connection therewith, the Company and each holder of Series A Convertible Preferred Stock agreed that effective April 15, 2021, the Series A Convertible Preferred Stock, plus accrued unpaid dividends thereon be converted to 4,636,649 shares of common stock, with an additional 695,498 shares of common stock issued in exchange for all accrued and unpaid dividends.

Series A Preferred Stock

Effective April 8, 2020, the Company exchanged an aggregate of approximately $7.0 million of all its then-outstanding notes, representing principal and accrued interest through April 7, 2020, for 1,391 shares Series A Preferred Stock. The shares of Series A Preferred Stock were recorded at fair value of $11.6 million (before reduction of $0.029 million related to issue costs) based on a per share fair value of $0.008 million. The per share fair value was determined using the number of common stock shares in a conversion (3,333 = $0.005 million original issue price divided by $1.50 conversion price) multiplied by the $2.50 market price of a share of common stock.