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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, 2022

 

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:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, $0.001, par value per share

BYRN

The Nasdaq Stock Market LLC

 

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, 2022, the Company had 24,016,560 issued and 22,236,602 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, 2022 (unaudited) and November 30, 2021

2

     
 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Nine Months Ended August 31, 2022 and 2021 (unaudited)

3

     
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended August 31, 2022 and 2021 (unaudited)

4

     
 

Condensed Consolidated Statements of Changes in Stockholders Equity for the Three and Nine Months Ended August 31, 2022 and 2021 (unaudited)

5

     
 

Notes to Condensed Consolidated Financial Statements

6

     

Item 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

22

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

29

     

Item 4.

Controls and Procedures

29

     

PART II  OTHER INFORMATION

30

     

Item 1.

Legal Proceedings

30

     

Item 1A.

Risk Factors

30

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

30

     

Item 3.

Defaults Upon Senior Securities

30

     

Item 4.

Mine Safety Disclosures

30

     

Item 5.

Other Information

30

     

Item 6.

Exhibits

31

     

SIGNATURES

32

 

References in this Quarterly Report on Form 10-Q to the Company, we, us or our refer to Byrna Technologies Inc.

 

 

1

 

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,

 
  

2022

  

2021

 
  

Unaudited

     

ASSETS

        

CURRENT ASSETS

        

Cash and cash equivalents

 $24,457  $56,308 

Restricted cash

     92 

Accounts receivable, net

  2,673   1,658 

Inventory, net

  15,422   6,613 

Prepaid expenses and other current assets

  1,534   1,490 

Total current assets

  44,086   66,161 

LONG TERM ASSETS

        

Intangible assets, net

  3,952   3,668 

Deposits for equipment

  1,986   1,293 

Right-of-use asset, net

  2,393   1,086 

Property and equipment, net

  3,035   1,972 

Goodwill

  2,307   816 

Other assets

  154   318 

TOTAL ASSETS

 $57,913  $75,314 
         

LIABILITIES

        

CURRENT LIABILITIES

        

Accounts payable and accrued liabilities

 $6,849  $6,996 

Operating lease liabilities, current

  680   463 

Deferred revenue, current

  921   720 

Total current liabilities

  8,450   8,179 

LONG TERM LIABILITIES

        

Deferred revenue - non-current

  385   405 

Operating lease liabilities, non-current

  1,838   632 

Total liabilities

  10,673   9,216 
         

COMMITMENTS AND CONTINGENCIES (NOTE 21)

          
         

STOCKHOLDERS’ EQUITY

        

Preferred stock, $0.001 par value, 5,000,000 shares authorized, no shares issued

      

Common stock, $0.001 par value, 50,000,000 shares authorized. 24,016,612 shares issued and 22,236,602 outstanding as of August 31, 2022 and, 23,754,096 shares issued and outstanding as of November 30, 2021

  23   23 

Additional paid-in capital

  124,107   119,589 

Treasury stock (1,779,958 and 0 shares purchased as of August 31, 2022 and November 30, 2021, respectively)

  (15,000)   

Accumulated deficit

  (61,250)  (53,498)

Accumulated other comprehensive loss

  (640)  (16)
         

Total Stockholders’ Equity

  47,240   66,098 
         

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $57,913  $75,314 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

2

 

 

BYRNA TECHNOLOGIES INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Amounts in thousands except share and per share data)

(Unaudited)

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

August 31,

   

August 31,

 
   

2022

   

2021

   

2022

   

2021

 

Net revenue

  $ 12,422     $ 8,703     $ 32,018     $ 30,997  

Cost of goods sold

    5,545       3,815       14,403       13,807  

Gross profit

    6,877       4,888       17,615       17,190  

Operating expenses

    8,283       6,692       25,045       17,382  

LOSS FROM OPERATIONS

    (1,406 )     (1,804 )     (7,430 )     (192 )

OTHER INCOME (EXPENSE)

                               

Foreign currency transaction gain (loss)

    28       (115 )     (67 )     78  

Interest income (expense)

    (3 )     13       10       (24 )

Other income - forgiveness of Paycheck Protection Program loan

                      190  

Other expenses

    (3 )     (9 )     (183 )     (18 )

LOSS BEFORE INCOME TAXES

    (1,384 )     (1,915 )     (7,670 )     34  

Income tax benefit (provision)

    (150 )     74       (82 )     (109 )

NET LOSS

    (1,534 )     (1,841 )     (7,752 )     (75 )
                                 

Dividends on preferred stock

                      (1,043 )

NET LOSS AVAILABLE TO COMMON SHAREHOLDERS

  $ (1,534 )   $ (1,841 )   $ (7,752 )   $ (1,118 )
                                 

Foreign currency translation adjustment for the period

    (639 )     (55 )     (624 )     123  

COMPREHENSIVE INCOME (LOSS)

  $ (2,173 )   $ (1,896 )   $ (8,376 )   $ 48  
                                 

Net loss per share – basic and diluted

  $ (0.07 )   $ (0.08 )   $ (0.34 )   $ (0.06 )

Weighted-average number of common shares outstanding - basic and diluted

    21,751,879       22,047,571       22,704,565       18,269,360  

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3

 

 

BYRNA TECHNOLOGIES INC. 

Condensed Consolidated Statements of Cash Flows 

(Amounts in thousands) 

(Unaudited)

 

  

For the Nine Months Ended

 
  

August 31,

 
  

2022

  

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

        

Net loss for the period

 $(7,752) $(75)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Stock-based compensation expense

  4,061   2,527 

Forgiveness of Paycheck Protection Program loan

     (190)

Depreciation and amortization

  638   369 

Operating lease costs

  360   184 

Changes in assets and liabilities:

        

Accounts receivable

  (1,003)  394 

Deferred revenue

  167   (4,182)

Inventory

  (8,917)  (2,279)

Prepaid expenses and other current assets

  (85)  643 

Other assets

  142   7 

Accounts payable and accrued liabilities

  (151)  (557)

Operating lease liabilities

  (244)  (117)

NET CASH USED IN OPERATING ACTIVITIES

  (12,784)  (3,276)
         

CASH FLOWS FROM INVESTING ACTIVITIES

        

Purchases of property and equipment

  (2,232)  (827)

Purchases of patent rights

  (44)  (70)

Cash paid for asset acquisition, net of cash acquired

  (1,933)  (4,044)

NET CASH USED IN INVESTING ACTIVITIES

  (4,209)  (4,941)
         

CASH FLOWS FROM FINANCING ACTIVITIES

        

Proceeds from warrant exercises

     1,277 

Proceeds from stock option exercises

  457   45 

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 line of credit

     1,500 

Payment to line of credit

     (1,500)

Repurchase of common stock

  (15,000)   

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

  (14,543)  57,191 

Effects of foreign currency exchange rate changes

  (407)  (117)

NET DECREASE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH FOR THE PERIOD

  (31,943)  48,857 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, BEGINNING OF PERIOD

  56,400   9,656 

CASH, CASH EQUIVALENTS, AND RESTRICTED CASH, END OF PERIOD

 $24,457  $58,513 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4

 

 

BYRNA TECHNOLOGIES INC. 

Condensed Consolidated Statements of Changes in Stockholders Equity

For the Three and Nine Months Ended August 31, 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, May 31, 2022

    $   24,008,219  $23   (1,779,958) $(15,000) $120,375  $(59,716) $(1) $45,681 

Stock-based compensation

                    2,689         2,689 

Issuance of common stock pursuant to vesting of restricted stock units

        8,393                      

Settlement of obligation to grant stock options

                    1,043         1,043 

Net loss

                       (1,534)     (1,534)

Foreign currency translation

                          (639)  (639)

Balance, August 31, 2022

    $   24,016,612  $23   (1,779,958) $(15,000) $124,107  $(61,250) $(640) $47,240 
                                         

Balance, May 31, 2021

    $   20,693,521  $20        $61,374  $(48,449) $206  $13,151 

Issuance of common stock pursuant to exercise of stock options

        11,905            10         10 

Stock-based compensation

                    981         981 

Cancellation of shares

        (485)                     

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 

 

  

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

        23,754,096  $23     $  $119,589  $(53,498) $(16) $66,098 

Issuance of common stock pursuant to exercise of stock options

        250,250            457         457 

Reclassification of stock-based compensation due to modification

                    (1,043)        (1,043)

Settlement of obligation to grant stock options

                    1,043         1,043 

Stock-based compensation

                    4,061         4,061 

Issuance of common stock pursuant to vesting of restricted stock units

        12,266                      

Repurchase of common shares under Stock Buyback Plan

              (1,779,958)  (15,000)           (15,000)

Net loss

                       (7,752)     (7,752)

Foreign currency translation

                          (624)  (624)

Balance, August 31, 2022

    $   24,016,612  $23   (1,779,958) $(15,000) $124,107  $(61,250) $(640) $47,240 
                                         

Balance, November 30, 2020

  1,391  $   14,852,023  $15     $  $58,581  $(50,215) $28  $8,409 

Issuance of common stock pursuant to exercise of stock options

        34,572            45         45 

Conversion of preferred shares and accrued dividends on preferred shares

  (1,391)     5,332,147   5         1,038         1,043 

Stock-based compensation

                    2,527         2,527 

Cancellation of shares

        (485)                     

Warrant exercises

        510,739            1,277         1,277 

Dividends declared on preferred shares

                    (1,043)        (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 

 

See accompanying notes to the unaudited condensed consolidated financial statements.
 

5

 

BYRNA TECHNOLOGIES INC. 

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the three and nine months ended August 31, 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. The Company recently added pepper sprays to their non-lethal defense product line due to an acquisition.  See Notes 6, "Acquisitions" for additional information.  These products are sold in both the consumer and security professional markets. The Company operates two manufacturing facilities, a 30,000 square foot facility in located in Fort Wayne, Indiana and a 10,000 square foot manufacturing facility located in Pretoria, South Africa.

 

The Company was incorporated under the laws of the state of Delaware on March 1, 2005.  

 

2.

OPERATIONS AND MANAGEMENT PLANS

 

From inception to August 31, 2022, the Company had incurred an accumulated deficit of $61.3 million.  The Company has funded operations through the issuance of common stock.  The Company generated $32.0 million in revenue and net loss of $7.8 million for the nine months ended August 31, 2022.  It still is expected to incur significant losses before the Company's revenues sustain its operations. The Company’s future success is dependent upon its ability to continue to raise sufficient capital or generate adequate revenues, to cover its ongoing operating expenses, and also to continue to develop and be able to profitably market its products. 

 

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.  Management projects that all cash needs will be met beyond one year from the time these financial statements are issued.

 

 

 

 

3.

BASIS OF PRESENTATION

 

These condensed consolidated financial statements for the three and nine months ended August 31, 2022 and 2021 include the accounts of the Company and its subsidiaries. These condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity generally accepted accounting principles 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 and nine months ended August 31, 2022 and 2021, and its cash flows for the nine months ended August 31, 2022 and 2021 are not necessarily indicative of results to be expected for the full year.

6

 

 

4.

USE OF ESTIMATES

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Future events and their effects cannot be determined with certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results could differ from those estimates, and any such differences may be material to our condensed consolidated financial statements. Significant estimates include assumptions about stock-based compensation expense, valuation for deferred tax assets, incremental borrowing rate on leases, valuation and carrying value of goodwill and other identifiable intangible assets, useful life of long-lived assets, and allowance for sales returns. 

 

 

5.

RECENT ACCOUNTING GUIDANCE

 

Recently Adopted Accounting Guidance

In 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The guidance simplifies the accounting for income taxes by primarily addressing the following: recognition of a deferred tax liability after transition to/from the equity method, evaluation when a step-up in the tax basis of goodwill should be related to a business combination or when it should be considered a separate transaction, inclusion of the amount of tax based on income in the income tax provision and any incremental amount as a tax not based on income, and recognition of the effect of an enacted change in tax laws or annual effective tax rates in the period the change was enacted. The guidance is effective for the Company in the first quarter of 2022. Several of the amendments in the update are required to be adopted using a prospective approach, while other amendments are required to be adopted using a modified-retrospective approach or retrospective approach.  The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

 

Accounting Guidance Issued But Not Adopted

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 $3.7 million total cost of which $0.2 million were acquisition-related expenses. The Company accounted for the transaction as an asset acquisition where the assets acquired were measured based on the amount of cash paid to Kore as well as transaction costs incurred as the fair value of the assets given was more readily determinable than the fair value of the assets received. The Company classified and designated identifiable assets acquired and assessed and determined the useful lives of the acquired intangible assets subject to amortization.

 

Business Combination

Fox Labs International

On May 25, 2022, the Company acquired Fox Labs International, a producer of defensive pepper sprays, catering primarily to law enforcement and other security professionals (domestically and internationally).  The cash consideration was $2.2 million.  There were no acquisition-related expenses.  As part of the transaction, the Company acquired 10 trademarks (including one pending). The Company classified and designated identifiable assets acquired and assessed and determined the useful lives of the acquired intangible assets subject to amortization.  

 

The estimated fair values of assets acquired and liabilities assumed on May 25, 2022 are as follows (in thousands):

 

Cash

  $ 241  

Accounts receivable

    48  

Inventory

    36  

Trademarks

    360  

Customer list intangible

    70  

Accounts payable

    (59 )

Deferred revenue

    (14 )

Goodwill

    1,492  

Total acquired assets

  $ 2,173  

 

Adjustments were made to the acquired assets and liabilities subsequent to the acquisition date. 

 

Ballistipax®

On August 18, 2021, the Company acquired Ballistipax®, a developer of single-handed rapidly deployable bulletproof backpacks.  The purchase price of $0.3 million was paid in cash. As part of the transaction, the Company has acquired two patents, finished goods and raw materials inventory. 

 

 

7.

RESTRICTED CASH

 

The Company’s restricted cash - current was $0 and $0.1 million at August 31, 2022 and November 30, 2021, respectively. The $0.1 million consists of cash that the Company was contractually obligated to maintain in accordance with the terms of its lease agreement.  The restricted cash was returned to the Company in January 2022. 

 

7

 

 

 

8.

REVENUE, DEFERRED REVENUE AND ACCOUNTS RECEIVABLE

 

The Company generates revenue through the wholesale distribution of its products and accessories to dealers/distributors, and sales to large end-users such as retail stores, security companies and law enforcement agencies, and through e-commerce portals to consumers. Revenue is recognized upon transfer of control of goods to the customer, which generally occurs when title to goods is passed and risk of loss transfers to the customer. Depending on the contract terms, transfer of control is upon shipment of goods to or upon the customer’s pick-up of the goods. Payment terms to customers other than e-commerce customers are generally 30-60 days for established customers, whereas new wholesale and large end-user customers have prepaid terms for their first order. The amount of revenue recognized is net of returns and discounts that the Company offers to its customers. Products purchased include a standard warranty that cannot be purchased separately. This allows customers to return defective products for repair or replacement within one year of sale. The Company also sells an extended warranty for the same terms over three years. The extended 3-year warranty can be purchased separately from the product and are classified as a service warranty. Since a warranty for the first year after sale is included and non-separable from all launcher purchases, the Company considers this extended warranty to represent a service obligation during the second and third years after sale. Therefore, the Company accumulates billings of these transactions on the balance sheet as deferred revenue, to be recognized on a straight-line basis during the second and third year after sale. The Company recognizes an estimated reserve based on its analysis of historical experience, and an evaluation of current market conditions. 

 

The Company also has a 14-day money back guarantee, which allows for a full refund of the purchase price, excluding shipping charges, within 14 days from the date of delivery.  The right of return creates a variable component to the transaction price and needs to be considered for any possible constraints. The Company estimates returns using the expected value method, as there will likely be a range of potential return amounts. The Company’s reserve for returns under the 14-day money back guarantee for the three and nine months ended August 31, 2022 and 2021 were immaterial.

 

The Company sells to dealers and retailers for whom there is no money back guarantee but who may request a return or credit for unforeseen reasons or who may have agreed discounts or allowances to be netted from amounts invoiced. The company reserves for returns, discounts and allowances based on past performance and on agreement terms and reports revenue net of the estimated reserve.  The Company's reserve for returns, discounts, and allowances for the three and nine months ended August 31, 2022 and 2021 were immaterial.

 

The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. Shipping and handling costs associated with the distribution of finished products to customers, are recorded in operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss and are recognized when the product is shipped to the customer.

 

Included as cost of goods sold are costs associated with the production and procurement of products, such as labor and overhead, inbound freight costs, manufacturing depreciation, purchasing and receiving costs, and inspection costs.

 

Allowance for Doubtful Accounts

The Company provides an allowance for its accounts receivable for estimated losses that may result from its customers’ inability to pay. The Company determines the amount of the allowance by analyzing known uncollectible accounts, aged receivables, economic conditions, historical losses, and changes in customer payment cycles and its customers’ creditworthiness. Amounts later determined and specifically identified to be uncollectible are charged or written off against this allowance.  To minimize the likelihood of uncollectible debt, the Company reviews its customers’ creditworthiness periodically. Material differences may result in the amount and timing of expense for any period if the Company were to make different judgments or utilize different estimates. The allowance for doubtful accounts was approximately $0.01 million as of  August 31, 2022 and  November 30, 2021.

 

8

 

Deferred Revenue

Changes in deferred revenue, which relate to unfulfilled e-commerce orders and amounts to be recognized under extended 3-year service warranty, for the nine months ended August 31, 2022 and the year ended November 30, 2021, are summarized below (in thousands):

 

  

August 31,

  

November 30,

 
  

2022

  

2021

 

Deferred revenue balance, beginning of period

 $1,125  $4,902 

Net additions to deferred revenue during the period

  21,844   33,641 

Reductions in deferred revenue for revenue recognized during the period

  (21,663)  (37,418)

Deferred revenue balance, end of period

  1,306   1,125 

Less current portion

  921   720 

Deferred revenue, non-current

 $385  $405 

 

Revenue Disaggregation

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

 

  

Three Months Ended

  

Nine Months Ended

 
  

August 31,

  

August 31,

 

Distribution channel

 

2022

  

2021

  

2022

  

2021

 

Wholesale (dealer/distributors)

 $4,312  $2,986  $10,746  $7,041 

E-commerce

  8,110   5,717   21,272   23,956 

Total

 $12,422  $8,703  $32,018  $30,997 

 

9

 
 

9.

PROPERTY AND EQUIPMENT

 

The following table summarizes cost and accumulated depreciation (in thousands):

 

  

August 31,

  

November 30,

 
  

2022

  

2021

 

Computer equipment and software

 $327  $275 

Furniture and fixtures

  359   208 

Leasehold improvements

  729   157 

Machinery and equipment

  2,297   1,738 
   3,712   2,378 

Less: accumulated depreciation

  677   406 

Total

 $3,035  $1,972 

 

The Company recognized approximately $0.4 million and $0.3 million in depreciation expense during the nine months ended August 31, 2022 and 2021, respectively.  The Company recognized approximately $0.2 million and $0.1 million in depreciation expense during the three months ended August 31, 2022 and 2021, respectively.  Depreciation expense is presented in the operating expenses and within cost of goods sold in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

At August 31, 2022 and November 30, 2021, the Company had deposits of $2.0 million and $1.3 million, respectively, with vendors primarily for supply of machinery (molds) and equipment where the vendors have not completed the supply of these assets and is presented as Deposits for equipment in the Condensed Consolidated Balance Sheets.

 

 

10.

INVENTORY

 

The following table summarizes inventory (in thousands):

 

   

August 31,

   

November 30,

 
   

2022

   

2021

 

Raw materials

  $ 7,682     $ 3,175  

Work in process

    968       428  

Finished goods

    6,772       3,010  

Total

  $ 15,422     $ 6,613  

 

10

 

 

 

11.

INTANGIBLE ASSETS

 

The components of intangible assets were as follows:

 

   

Balance at August 31, 2022

   

Balance at November 30, 2021

 
   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

   

Gross Carrying Amount

   

Accumulated Amortization

   

Net Carrying Amount

 

Patents

  $ 3,938     $ (405 )   $ 3,533     $ 3,895     $ (227 )   $ 3,668  

Trademarks

    360             360                    

Customer List

    70       (11 )     59                    

Total

  $ 4,368     $ (416 )   $ 3,952     $ 3,895     $ (227 )   $ 3,668  

 

The trademarks have an indefinite life and will be assessed annually for impairment.  All other intangible assets are finite-lived.

 

Intangible assets amortization expenses are recorded within operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.  Total intangible assets amortization expense for the nine months ended August 31, 2022 and 2021 were $0.2 million and $0.1 million, respectively.  Total intangible assets amortization expense for the three months ended August 31, 2022 and 2021 were $0.1 million and $0.1 million, respectively. 

 

Estimated future amortization expense related to intangible assets as of August 31, 2022 are as follows (in thousands):

 

Fiscal Year Ending November 30,

       

2022 (three months)

  $ 68  

2023

    272  

2024

    252  

2025

    237  

2026

    237  

Thereafter

    2,344  

Total

  $ 3,410  

 

 

11

 
 

12.

ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

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

 

   

August 31,

   

November 30,

 
   

2022

   

2021

 

Trade payables

  $ 3,363     $ 2,793  

Accrued sales and use tax

    757       940  

Accrued people costs

    1,686       2,317  

Accrued marketing

    364       185  

Accrued professional fees

    261       617  

Other accrued liabilities

    418       144  

Total

  $ 6,849     $ 6,996  

 

 

13.

NOTES PAYABLE

 

Paycheck Protection Program (PPP) Loan

The Company received $0.2 million of funding under the Paycheck Protection Program (“PPP”) 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.

 

The SBA reserves the right to audit any PPP loan, regardless of size.  These audits may occur after forgiveness has been granted.  In accordance with the CARES Act, all borrowers are required to maintain the PPP loan documentation for six years after the PPP loan was forgiven or repaid in full and to provide that documentation to the SBA upon request. 

 

12

 
 

14.

LINES OF CREDIT

 

On January 19, 2021, the Company entered into a $5.0 million revolving line of credit with a bank ("Revolving Note"). The revolving line of credit bears interest at a rate equal to the Wall Street Journal Prime Rate plus 0.50%, subject to a floor of 4.00%. The interest rate on the revolving line of credit was 6.0% on August 31, 2022. The revolving line of credit is secured by the Company’s accounts receivable and inventory. The line of credit is subject to an unused fee of 0.25% paid once annually. The line of credit expires on January 19, 2024.

 

Also on January 19, 2021, the Company entered into a $1.5 million equipment financing line of credit with a bank ("Nonrevolving Equipment Line"). The line of credit bears interest at a rate equal to the Wall Street Journal Prime Rate plus 0.50%, subject to a floor of 4.00%. The interest rate on the equipment financing line of credit was 6.0% on  August 31, 2022. The line of credit is secured by the Company’s equipment. The line of credit is subject to an unused fee of 0.25% paid once annually. The line of credit expires on January 19, 2024.

 

As of  August 31, 2022, there was no outstanding balance on the Revolving Note and the Company had not drawn on the Nonrevolving Equipment Line.  Debt issuance costs related to the line of credit were approximately $0.1 million presented as part of Other Assets in the Condensed Consolidated Balance Sheets.  Amortization of $0.02 million for the nine months ended August 31, 2022 and 2021 and $0.01 million for the three months ended August 31, 2022 and 2021 is included in Interest expense in the Condensed Consolidated Statements of Operations and Comprehensive Loss. 

 

 

 

15.

STOCKHOLDERS EQUITY

 

Authorized Shares and Increase in Stock Compensation Plan

At the Company's 2022 annual meeting of stockholders held on June 17, 2022 (the "Annual Meeting"), the Company's stockholders approved a decrease in the amount of authorized common stock from 300,000,000 to 50,000,000.  The decrease became effective upon filing of a Certificate of Amendment to the Company's Certificate Incorporation on June 17, 2022.  Additionally, following approval of the Company's stockholders at the Annual Meeting, the total number of shares of common stock authorized for issuance of the Company's 2020 Equity Incentive Plan increased by 1,300,000 from 2,500,000 to 3,800,000.  

 

Stock Buyback Plan

On February 15, 2022, the Company's Board of Directors approved a plan to buy back up to $10.0 million worth of shares of the Company's common stock from the open market (“Stock Buyback Plan”).  The Company's Stock Buyback Plan was used to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards.  The Company completed the full $10.0 million for the repurchases under the Stock Buyback Plan during March 2022. 

 

On April 28, 2022, the Company's Board of Directors approved a plan to buy back up to an additional $5.0 million worth of shares of the Company's common stock.  The Company completed the full $5.0 million repurchase of shares during May 2022.   

 

The following table summarizes the treasury stock activity during the nine months ended August 31, 2022:

 

   

Number of

         

Average Cost

 
   

Shares

   

Cost of Shares

   

per Share

 

Shares purchased - February 2022

    296,168     $ 2,653,571     $ 9.0  

Shares purchased - March 2022

    754,081       7,346,422     $ 9.7  

Shares purchased - May 2022

    729,709       4,999,993     $ 6.9  

Total

    1,779,958     $ 14,999,986     $ 8.4  

 

13

 
 

16.

STOCK-BASED COMPENSATION

 

  2017 Plan

The Company has granted stock options and other stock-based awards under its 2017 Stock Option Plan (the “2017 Plan”). The maximum number of shares of common stock which could have been reserved for issuance under the 2017 plan was 1,899,327. The 2017 Plan was administered by the Compensation Committee of the Board. The Compensation Committee determined the persons to whom options to purchase shares of common stock, and other stock-based awards may be granted. Persons eligible to receive awards under the 2017 Plan were employees, officers, directors, and consultants of the Company. Awards were at the discretion of the Compensation Committee. On February 24, 2021, the Company terminated the 2017 Plan and adopted the 2020 Plan (defined below). 

 

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 Plan”). The aggregate number of shares of common stock available for issuance in connection with options and other awards granted under the 2020 Plan was 2,500,000. On April 26, 2022, the Company’s Board of Directors approved and on June 17, 2022 the Company's stockholders approved the increase of the number of shares of common stock available for issuance under the 2020 Plan by 1,300,000 shares to a total of 3,800,000 shares. The 2020 Plan is administered by the Compensation Committee of the Board. The Compensation Committee determines the persons to whom options to purchase shares of common stock, stock appreciation rights (“SARs”), restricted stock units (“RSUs”), and restricted or unrestricted shares of common stock may be granted. Persons eligible to receive awards under the 2020 Plan are employees, officers, directors, consultants, advisors and other individual service providers of the Company. Awards are at the discretion of the Compensation Committee.

 

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 Plan. In connection with the adoption of the 2020 Plan, the Company cancelled outstanding option awards granted under the 2017 plan.  There were no substantive changes to the rights of any holder of options granted under the 2017 plan other than replacing their award certificates with award agreements under the 2020 plan. The grant dates, exercise prices, expiration dates, and vesting provisions of any of the new award agreements under the 2020 plan that replace the certificates issued under the 2017 plan are identical for each grant and no change in valuation or accounting was required. The Board also amended the definition of Disability in the 2020 Plan to provide that “Disability” has the meaning assigned to such term in any individual employment agreement or award agreement with a plan participant and that if no such definition is provided in an award or employment agreement “Disability” is defined as in the 2020 Plan.

 

14

           

Stock-Based Compensation Expense

Total stock-based compensation expense was $4.1 million and $2.5 million for the nine months ended August 31, 2022 and 2021, respectively. Total stock-based compensation expense was $2.7 million and $1.0 million for the three months ended August 31, 2022 and 2021, respectively.  Total stock-based compensation expense was recorded in Operating expenses in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.

 

During the first half of 2022, the Board of Directors authorized granting of restricted stock unit awards (" RSUs") in excess of the limit stipulated under the 2020 Plan. Additionally, the Company agreed to grant 200,000 RSUs to the Chief Technology Officer ("CTO") in exchange for his waiver of rights to future royalty payments. See Note 21, "Commitments and Contingencies - Royalty Payments," for additional information. Because these awards were contingent on shareholder approval at the next annual shareholder meeting, these RSUs were not considered granted under Accounting Standards Codification ("ASC") 718, Compensation - Stock Compensation ("ASC 718") and were treated as obligation to issue RSU's and were remeasured at the end of each reporting period until the settlement date on June 17, 2022 and August 3, 2022 (for the RSUs to the CTO).  

 

Additionally, on March 23, 2022, the Board of Directors approved the issuance of RSU Amendment Agreements to each grantee of the double trigger RSUs in which 50% of the RSUs (778,750 RSUs) were exchanged for stock options. In accordance with ASC 718a cancellation of an award accompanied by the concurrent grant of a replacement award shall be accounted for as a modification of the terms of the cancelled award.  Similarly, because these stock options were not considered granted under ASC 718, they were therefore treated as obligation to issue stock options and were remeasured at the end of each reporting period until the settlement date on June 17, 2022.  

 

On June 17, 2022, the stockholders approved to increase the stock compensation plan by 1,300,000 shares to 3,800,000 shares.  Consequently, the Company settled the obligation to issue RSUs and options by issuing the related RSUs and stock options and reclassified the fair value of the issuances at June 17, 2022 of $1.0 million from accounts payable and accrued liabilities to additional paid-in capital.  Additionally, the amounts recognized as employee incentive expense for the three months ended August 31, 2022 and 2021 of $0 and $1.4 million, respectively, were reclassified to stock compensation expense.  The non-cash expense associated with these rewards were valued at the grant date of June 17, 2022, using a Monte Carlo model for double trigger RSUs and a Black Scholes model for simple employment period vesting stock options. 

 

Restricted Stock Units

During the nine months ended August 31, 2022 and 2021, the Company granted 376,555 and 174,493 RSUs, respectively. Stock-based compensation expense for the RSUs for the nine months ended August 31, 2022 and 2021, was $2.3 million for each of the years. Stock-based compensation expense for the RSUs for the three months ended August 31, 2022 and 2021, was $1.0 million and $0.9 million, respectively.  

 

During the nine months ended August 31, 2022, the Company accelerated the vesting of 3,874 RSUs to a former director and 8,392 RSUs to current board members for 2021 services.   During the nine months ended August 31, 202225,000 RSUs were forfeited due to a former employee who was terminated for cause.  These RSU's did not vest, as they were based on triggers and performance that were not met.  As a result, no expenses were reversed, and going forward no expenses will be recognized.  The forfeited RSUs were returned to the pool of shares available for issuance under the 2020 Plan.  

 

As of  August 31, 2022, there was $5.2 million of unrecognized stock-based compensation cost related to unvested RSUs which is expected to be recognized over a weighted average of 1.1 years. 

 

The following table summarizes the RSU activity during the nine months ended August 31, 2022:

 

  

RSUs

 

Unvested and outstanding as of November 30, 2021

  1,594,120 

Granted

  376,555 

Settled

  (12,266)

Cancelled

  (778,750)

Forfeited

  (25,000)

Unvested and outstanding at August 31, 2022

  1,154,659 

 

 

 

15

 

Stock Options

During the nine months ended August 31, 2022 and 2021, the Company granted options to employees and directors to purchase 994,750 and 41,000 shares of common stock, respectively.  The Company recorded stock-based compensation expense for options granted to its employees and directors of $1.7 million and $0.06 million during the nine months ended August 31, 2022 and 2021, respectively.  The Company recorded stock-based compensation expense for options granted to its employees and directors of $1.7 million and $0.05 million during the three months ended August 31, 2022 and 2021, respectively.

 

As of August 31, 2022, there was $3.6 million of unrecognized stock-based compensation cost related to unvested stock options which is expected to be recognized over a weighted average period of 2.5 years.

 

Stock Option Valuation

The fair value of stock options at the date of grant was estimated using the Black Scholes option pricing model.  The expected volatility is based upon historical volatility of the Company's stock.  The expected term for the options is based upon observation of actual time elapsed between employees.  The assumption that the Company used to determine the grant-date fair value of stock options granted for the nine months ended nine months ended August 31, 2022 were as follows:

 

Risk free rate

  3.34%

Expected dividends

  0.0 

Expected volatility

  78.44%

Expected life (in years)

  6.5 

Market price of the Company’s common stock on date of grant

  5.51 

Exercise price

  7.70 

 

The following table summarizes option activity under the 2020 Plan during the nine months ended August 31, 2022:

 

        
      

Weighted-Average

 
  

Stock

  

Exercise Price Per Stock

 
  

Options

  

Option

 

Outstanding, November 30, 2021

  586,783  $3.48 

Granted

  994,750   7.70 

Exercised

  (250,250)  (1.82)

Forfeited

  (20,500)  (11.80)

Outstanding, August 31, 2022

  1,310,783  $6.83 

Exercisable, August 31, 2022

  274,534  $1.90 

 

 

 

16

 

 

 

17.

EARNINGS PER SHARE

 

For the three and nine months ended August 31, 2022 and 2021, the Company recorded net loss available to common shareholders. As such, because the dilution from potential common shares was antidilutive, the Company used basic weighted-average common shares outstanding, rather than diluted weighted-average common shares outstanding when calculating diluted loss per share for the three and nine months ended August 31, 2022

 

 

The following table sets forth the allocation of net loss for the three and nine months ended August 31, 2022 and 2021, respectively:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

August 31,

   

August 31,

 
   

2022

   

2021

   

2022

   

2021

 

Net loss

  $ (1,534 )   $ (1,841 )   $ (7,752 )   $ (75 )

Preferred stock dividends

                      (1,043 )

Net loss available to common shareholders

  $ (1,534 )   $ (1,841 )   $ (7,752 )   $ (1,118 )
                                 

Weighted-average number of shares used in computing net loss per share, basic and diluted

    21,751,879       22,047,571       22,704,565       18,269,360  

Net loss per share -- basic

  $ (0.07 )   $ (0.08 )   $ (0.34 )   $ (0.06 )

 

The Company’s potential dilutive securities, which may include stock options, unvested restricted stock units, convertible preferred stock, and outstanding warrants to purchase shares of common stock, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. 

 

The following potential common shares, presented based on amounts outstanding at each period end, were excluded from the calculation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

August 31,

   

August 31,

 
   

2022

   

2021

   

2022

   

2021

 

Warrants

          75,000             75,000  

Options

    1,310,783       617,712       1,310,783       617,712  

RSUs

    1,154,659       1,747,993       1,154,659       1,747,993  

Total

    2,465,442       2,440,705       2,465,442       2,440,705  

 

 

18.

RELATED PARTY TRANSACTIONS 

 

The following transactions are in the normal course of operations and are measured at the amount of consideration established and agreed to by related parties. Amounts due to related parties are unsecured, non-interest bearing and due on demand.

 

The Company expensed $0 and approximately $0.3 million for royalties due to the Company’s CTO, during the nine months ended August 31, 2022 and 2021, respectively.  Balances payable to the CTO for royalties were $0 and $0.1 million as of August 31, 2022 and November 30, 2021, respectively.  The Company terminated the royalty payments in December 2021 and the Company granted 200,000 RSUs during the three months ended August 31, 2022 in exchange to waive all future rights and entitlements to the CTO.  Refer to Note 21, "Commitments and Contingencies - Royalty Payments," for additional information.    

 

The Company subleases office premises at 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 $0.03 million and $0.01 million for the nine months ended August 31, 2022 and 2021, respectively.  Sublease payments received were $7.0 thousand and $8.0 thousand for three months ended August 31, 2022 and 2021.

 

17

 
 

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 February 29, 2028.  The base rent is approximately $0.02 million per month. 

 

The Company leases office and warehouse space in South Africa that expires in November 2024. The base rent during the nine months ended August 31, 2022 is approximately $0.01 million per month.  In October 2021, the Company entered into an additional lease in South Africa for a storage facility. The lease expires October 31, 2022.

 

The Company leases warehouse and manufacturing space in Fort Wayne, Indiana. The lease expires on July 31, 2025. The base rent is approximately $0.01 million per month. The Company sub-leases the former Fort Wayne facility which commenced in August 2022.  In November 2021, the Company entered into a lease which commenced in August 2022.  The lease expires July 31, 2027The base rent is approximately $0.02 million per month.

 

The Company also leases office space in Las Vegas, Nevada, which expires on January 31, 2027.  The base rent is less than $0.01 million per month. 

 

Certain of the Company’s leases contain options to renew and extend lease terms and options to terminate leases early. Reflected in the right-of-use asset and lease liability on the Company’s balance sheets are the periods provided by renewal and extension options that the Company is reasonably certain to exercise, as well as the periods provided by termination options that the Company is reasonably certain to not exercise.

 

18

 

As of August 31, 2022 and 2021 the elements of lease expense were as follows (in thousands):

 

  Three Months Ended  Nine Months Ended 
  

August 31, 2022

  

August 31, 2022

 

Lease Cost:

        

Operating lease cost

 $144  $360 

Short-term lease cost

  1   9 

Total lease cost

 $145  $369 
         

Other Information:

        

Cash paid for amounts included in the measurement of operating lease liabilities

 $148  $244 

Operating lease liabilities arising from obtaining right-of-use assets

 $1,047  $1,557 
         

Operating Leases:

        

Weighted-average remaining lease term (in years)

  &