Goodwill resulting from a business combination is not amortized but is reviewed for impairment at least annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit may be less than its carrying amount. The Company performs its annual goodwill impairment assessment during the fourth quarter of each fiscal year.

During the three months ended May 31, 2026, the Company identified the cessation of ammunition production at its Fort Wayne, Indiana facility as a triggering event requiring an interim assessment of goodwill for impairment. In accordance with ASC 350-20-35-3A, the Company performed a qualitative assessment of relevant events and circumstances — including the nature and financial impact of the Fort Wayne cessation, the Company's overall financial performance, industry and market conditions, and other entity-specific factors — to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying amount. Based on this qualitative assessment, the Company concluded that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount, and therefore no quantitative impairment test was required and no impairment charge was recorded. As of November 30, 2025, the Company determined there were no indicators of goodwill impairment.

During the three months ended August 31, 2026, the Company evaluated whether events or changes in circumstances, including the continued decline in net revenue, the net loss for the period, and the decline in the Company's stock price, indicated that it was more likely than not that the fair value of its reporting unit was less than its carrying amount. As part of this evaluation, the Company compared its market capitalization of approximately $84.5 million as of August 31, 2026, based on the closing price of its common stock of $3.61 per share and 23,404,754 shares outstanding, to the carrying amount of its stockholders' equity of $55.1 million, which market capitalization exceeded by approximately 53%. Based on this evaluation, the Company concluded that it was not more likely than not that the fair value of its reporting unit was less than its carrying amount as of August 31, 2026, and no impairment charge was recorded. The Company will perform its annual goodwill impairment test during the fourth quarter of fiscal 2026. A continued decline in the Company's results of operations or stock price could result in an impairment of goodwill in future periods.

Goodwill increased from $2.3 million as of November 30, 2025 to $2.7 million as of August 31, 2026 as a result of $0.5 million of goodwill recognized in connection with the Hero Acquisition described below.

Hero Defense Systems Acquisition

On July 7, 2026, the Company entered into an Asset Purchase Agreement (the "Hero APA") with Hero Defense Systems, LLC, a Nevada limited liability company ("Hero"), pursuant to which the Company acquired substantially all of the assets used in or related to Hero's business of designing, developing, manufacturing, marketing, and selling less-lethal defense products and related accessories, including intellectual property, inventory, and equipment, tooling, and molds (the "Hero Acquisition"). The Hero Acquisition closed on August 6, 2026 (the "Hero Acquisition Date"). The Company did not assume any liabilities or contracts of Hero. The Hero Acquisition was accounted for as a business combination under ASC Topic 805, Business Combinations, using the acquisition method of accounting.

The contractual purchase price was $1.25 million, plus the contingent royalty payments described below, consisting of (i) $0.625 million in cash, of which $0.5 million was paid at closing and $0.125 million was held back for up to eighteen months as security for Hero's indemnification obligations, and (ii) $0.625 million payable in shares of the Company's common stock, with the number of shares determined based on the volume-weighted average price of the Company's common stock over the 60 trading days preceding closing, subject to a cap of 104,000 shares. At closing, the Company issued 104,000 shares of common stock, which had an acquisition-date fair value of $0.5 million based on the closing price of the Company's common stock of $4.36 per share on the Hero Acquisition Date. The shares issued as stock consideration are unregistered, subject to customary transfer restrictions, and subject to a six-month lock-up period following closing. The holdback consideration is included in accounts payable and accrued liabilities in the condensed consolidated balance sheet as of August 31, 2026.

As additional consideration, the Company will pay Hero a royalty equal to 3.5% of net sales of certain existing and successor products over a royalty term, subject to a guaranteed minimum aggregate royalty of $0.25 million, payable in five equal annual installments of $0.05 million, and subject to an overall cap equal to the earlier of $5.0 million in aggregate royalty payments or the fifth anniversary of closing. The Company recognized a contingent consideration liability for the royalty at its acquisition-date fair value of $0.6 million, determined as the present value of expected royalty payments using a probability-weighted expected cash flow model across three net sales scenarios for the acquired and successor products. The measurement was based upon Hero's future performance expectations and prior operating experience. In determining the probability of achieving certain net sales levels, the Company considered the operating history of Hero, current and expected revenue from existing and future customers, and a range of potential outcomes based on management's experience. Significant judgment was employed in determining the appropriateness of these assumptions as of the acquisition date. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration recorded. The liability consists of (i) the present value of the guaranteed minimum royalty of $195 thousand, discounted at approximately 8.35%, which is treated as fixed deferred consideration and accreted through interest expense, and (ii) the present value of expected royalty payments in excess of the guaranteed minimum of $454 thousand, discounted at approximately 14.0%. The fair value measurement of the contingent component is based on significant inputs not observable in the market and therefore represents a Level 3 measurement. Because no royalty payment is due within twelve months of August 31, 2026, the entire $0.6 million liability is classified as non-current in the condensed consolidated balance sheet as of August 31, 2026. The contingent component will be remeasured to fair value at each reporting date, with changes in fair value recognized in operating expenses in the condensed consolidated statements of operations and comprehensive (loss) income. The amount payable under the contingent royalty arrangement is based on 3.5% of net sales of certain existing and successor products over the royalty term, which ends on the earlier of the date aggregate royalty payments reach $5.0 million or the fifth anniversary of closing. As of the Hero Acquisition Date and August 31, 2026, the range of undiscounted amounts the Company could be required to pay under the arrangement was $0.25 million, representing the guaranteed minimum aggregate royalty, to $5.0 million, representing the aggregate royalty cap. See Note 7 for additional information regarding the fair value measurement of the contingent consideration liability.

The total acquisition-date fair value of consideration transferred was $1.7 million, consisting of cash paid at closing of $0.5 million, holdback consideration of $0.1 million, stock consideration of $0.5 million, and contingent royalty consideration of $0.6 million. The preliminary allocation of the purchase price to the assets acquired consisted of inventory of $0.1 million, property and equipment of $0.1 million, identifiable intangible assets of $1.1 million, and goodwill of $0.5 million. No liabilities were assumed. Identifiable intangible assets consist of trademarks and trade names of $0.1 million, which will be amortized over a one-year useful life, patents and patent applications of $0.9 million, which will be amortized over a ten-year useful life, and domain names of less than $0.1 million. No customer relationship intangible asset was recognized because Hero's sales were generated principally through marketplace and direct-to-consumer channels characterized by transactional consumer purchases, and no customer or supplier contracts were acquired. The acquired technology is reflected in the patents and patent applications recognized. The one-year useful life assigned to the acquired trademarks and trade names reflects the Company's plan to phase out the acquired trade names in connection with a planned product relaunch in fiscal 2027 (see Note 13). Acquired equipment, tooling, and molds will be depreciated over an estimated remaining useful life of 15 months, beginning September 2026. Goodwill represents the excess of consideration transferred over the fair value of the net identifiable assets acquired and is primarily attributable to the processes and know-how of Hero's founders accessed through the transition consulting arrangements described below, expected synergies from integrating Hero's products into the Company's existing distribution, marketing, and dealer network, and the acceleration of the Company's product development timeline.

The purchase price allocation is preliminary and subject to change as the Company finalizes the valuation of the acquired assets and the contingent consideration and the related income tax analysis, which is expected to be completed within the one-year measurement period. A portion of the goodwill is expected to be deductible for income tax purposes. Acquisition-related costs were not material. In connection with the Hero Acquisition, the Company engaged Hero's two founders under separate consulting agreements to provide transition services for three months following the Hero Acquisition Date at $10,000 per founder per month. These payments are for post-combination services, are recognized as compensation expense as the services are rendered, and are not included in consideration transferred. The results of operations of Hero have been included in the Company's condensed consolidated financial statements from the acquisition date and were not material. Pro forma results of operations have not been presented because the effects of the Hero Acquisition were not material to the Company's condensed consolidated financial statements.

The following table presents a reconciliation of the contingent consideration liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended August 31, 2026 (in thousands):