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Dynamic quotes 
OFFON

BYRNA TECHNOLOGIES INC.

(BYRN)
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Byrna Technologies : 2. OPERATIONS AND MANAGEMENT PLANS

07/01/2021 | 03:54pm EDT
From inception to May 31, 2021, the Company had incurred a cumulative loss of
$48.5 million. The Company has funded operations through the issuance of common
stock, warrants, and convertible notes payable. The Company generated $22.3
million in revenue and income from operations of $1.6 million for the six months
ended May 31, 2021. 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.



The rapid growth of revenues and development of the production capacity to
support them have substantially improved the Company's operations and financial
condition. Sales increased by $21.0 million for the six months ended May 31,
2021, as compared to the previous period ended May 31, 2020, cash increased by
$1.2 million and restricted cash has decreased by $5.5 million as of May 31,
2021 as compared to November 30, 2020. The decrease in restricted cash was due
to successful efforts to reduce the sales order backlog.



Since the order backlog has been eliminated, cash generation through sales will
be limited to the rate of incoming sales orders. Though growth in the rate of
new sales orders is expected to continue, cash flow from operations is expected
to be flat for the next several months. During this period, some loan financing
may be needed to sustain adequate levels of liquidity.



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. 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.



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 six months ended May 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 six months
ended May 31, 2021 and 2020, and its cash flows for the six months ended May 31,
2021 and 2020 are not necessarily indicative of results to be expected for
the
full year.



                                       8





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 and
notes.


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, which has not had a material impact on its financial
statements for share-based payments issued to nonemployees during fiscal 2020.



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 will apply
this update upon adoption.


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.



                                       9





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):



                          Assets
                         acquired
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.



The Company is still in the process of finalizing the working capital adjustments and tax impacts, and therefore, the allocation of the asset acquisition consideration is subject to change.

Business Combination


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, are restricted
and subject to a 15-month vesting schedule. 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 estimated fair value of assets acquired and liabilities assumed on May 5,
2020 is as follows:



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 )
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 $0.8 million and $6.4 million at May
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 May 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 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 May 31, 2021, approximately $0.06 million of these estimated costs
have been incurred or resolved.



                                      10




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 have been immaterial.



Revenue excludes taxes collected from customers and remitted to government
authorities related to sales of the Company's products. 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 Income (Loss). Commissions were $0 and $0.01 million for the three
months ended May 31, 2021 and 2020, respectively. Commissions were $0.3 million
and $0.01 million for the six months ended May 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 Income (Loss).
Shipping and handling costs were $0.6 million and approximately $0.003 million
for the three months ended May 31, 2021 and 2020, respectively. Shipping and
handling costs were $1.3 million and approximately $0.01 million for the six
months ended May 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 $0.01 million for May 31,
2021
and 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 six
months ended May 31, 2021 and the year ended November 30, 2020, are summarized
below (in thousands).



                                                                          November 30,
                                                        May 31, 2021          2020

Deferred revenue balance, beginning of period $ 4,902 $

11

Net additions to deferred revenue during the period            18,100      

18,826

Reductions in deferred revenue for revenue
recognized during the period                                  (21,327 )         (13,935 )
Deferred revenue balance, end of period                $        1,675$       4,902




                                      11





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




                                         Three Months Ended               Six Months Ended
                                               May 31,                        May 31,
Product type                            2021            2020            2021            2020
Byrna® HD                            $    13,356$     1,100$    22,249$    1,227
40mm                                          45              90              45            112
Total                                $    13,401$     1,190$    22,294$    1,339

                                         Three Months Ended               Six Months Ended
                                               May 31,                        May 31,
Distribution channel                    2021            2020            2021            2020
Wholesale (dealer/distributors and
large end-users)                     $     2,107$       356$     3,776$      290
E-commerce                                11,294             834          18,518          1,049
Total                                $    13,401$     1,190$    22,294$    1,339




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 May 31, 2021 and November 30,
2020, respectively (in thousands).



                                  May 31,      November 30,
                                    2021           2020

Computer equipment and software $ 259 $ 204 Furniture and fixtures

                 189               105
Leasehold improvements                 229               144
Machinery and equipment              1,252             1,324
                                     1,929             1,777
Less: accumulated depreciation         742               557
 Total                            $  1,187$       1,220

The Company recognized approximately $0.2 million and $0.01 million in depreciation expense during the six months ended May 31, 2021 and 2020, respectively. The Company recognized approximately $0.1 million and $0.01 million in depreciation expense during the three months ended May 31, 2021 and 2020, respectively.




At May 31, 2021 and November 30, 2020, the Company had deposits of $0.7 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 six months ended May 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 May 31, 2021 and November

       30, 2020, respectively (in thousands).




                  May 31,      November 30,
                    2021           2020
Raw materials     $  3,999$       2,901
Work in process        159               302
Finished goods       2,449             1,614
Total             $  6,607$       4,817

Inventory at May 31, 2021 and November 30, 2020, primarily relates to the

       Byrna® HD Personal Security Device.




                                      12




12. PREPAID EXPENSES AND OTHER CURRENT ASSETS

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



                                May 31,      November 30,
                                  2021           2020
VAT receivables                 $    562     $         572
Advance payment for inventory        232               677
Prepaid insurance                    245                16
Other                                243               126
Total                           $  1,282$       1,391




13. PATENT RIGHTS



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.



No amortization has been recorded for the patent rights during the three or six
months ended May 31, 2021 but will begin in June 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 May 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 $0.03 million and $ 0.03 million of patent rights during
six months ended May 31, 2021 and 2020. The Company recognized $0.01 million and
$0.02 million in amortization expense during the three months ended May 31, 2021
and 2020, respectively. The Company did not recognize any impairment losses
during the three and six months ended May 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):



                            May 31, 2021       November 30, 2020
Trade payables              $       1,925     $             3,475
Accrued sales and use tax             853                   1,050
Payroll accrual                       658                     904
Accrued commissions                     6                     375
Accrued professional fees             227                     217
Accrued royalties                     122                     180
Warranty                              213                     268
Income taxes payable                  350                       -
Other accrued liabilities             217                     160
Total                       $       4,571     $             6,629




                                      13





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. 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 Small Business Administration ("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 (Income) Loss during the six months ended May 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. The outstanding
balance on the revolving line of credit is $1.5 million as of May 31, 2021.



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. As of May 31, 2021, the Company had not drawn on the
equipment financing 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
May 31, 2021 is included in Interest expense in the Condensed Consolidated
Statements of Operations and Comprehensive (Income) Loss. Amortization of
approximately $0.01 million for the six months ended May 31, 2021 is included in
Other financing costs in the Condensed Consolidated Statements of Operations and
Comprehensive (Income) Loss.



  17. STOCKHOLDERS' EQUITY




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.



Each share of Series A Preferred Stock had a $0.005 million issue price.
Dividends accrued on the issue price at a rate of 10.0% per annum and were
payable to holders of Series A Preferred Stock as if declared by the Board. As
the Company did not pay the dividends in cash, the unpaid accrued dividends was
settled upon conversion to shares of common stock, the Company recorded
dividends distributable at the contractual dividend rate. The dividends were
cumulative and accrued starting from the April 8, 2020 issuance date.



Each share of Series A Preferred Stock was convertible into the number of shares
of common stock equal to the issue price divided by the conversion price of
$1.50. Upon conversion of the Series A Preferred Stock, all accrued and unpaid
dividends were converted to common stock utilizing the same conversion formula.
The conversion price was subject to proportional adjustment for certain
transactions relating to the Company's common stock, including stock splits,
stock dividends and similar transactions. Holders of Series A Preferred Stock
were entitled to a liquidation preference in the event of any liquidation,
dissolution or winding up of the Company.



On April 9, 2021, the Board of Directors 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 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.



Warrants

During the six months ended May 31, 2021, the Company raised $1.2 million through warrant exercises, where 486,684 warrants were exercised at a contractual price of $2.50 per warrant for 486,684 shares of common stock. During the three months ended May 31, 2021, the Company raised $1.0 million through warrant exercises, where 433,265 warrants were exercised at a contractual price of $2.50 per warrant for 433,265 shares of common stock.



                                      14





During March 2020, the Company raised approximately $3.2 million through early
warrant exercises, where 1,997,911 warrants were exercised for 1,997,911 shares
of common stock. The warrant exercise price was reduced from $2.50 to $1.60 per
warrant to induce warrant holders to exercise. The Company recorded warrant
inducement expense of $0.8 million, which represents the difference between fair
value at the reduced price of $1.60 per warrant and fair value at the
contractual price of $2.50. The fair values of the warrants at $1.60 and $2.50
were determined using a Monte Carlo simulation model.



During the six months ended May 31, 2020, a warrant holder exercised 11,792
warrants for 11,792 shares of common stock at an exercise price of $1.80 per
warrant for proceeds of $0.02 million. During the six months ended May 31, 2020,
the Company issued 49,842 warrants to those note holders who returned interest
checks and accepted payment in kind of units consisting of then convertible
notes with a face value of $0.1 million together with 400 warrants for every
$1,000 of accrued interest to satisfy $0.1 million of accrued interest that was
payable through October 31, 2019. The warrants are each exercisable for one
share of common stock at an exercise price of $2.50 per share on or before
October 22, 2023. The Company also issued 15,000 warrants as payment to a
consultant for marketing services. The warrants are each exercisable for one
share of common stock at an exercise price of $2.50 per share on or before
February 5, 2021.



The following table summarizes warrant activity, which includes the incentive warrants, during the six months ended May 31, 2021:



                                                   Weighted-Average
                                                       Exercise
                                   Number of            Price
                                    Warrants              $
Outstanding at November 30, 2020      585,739                   2.40
Granted                                     -                      -
Exercised                            (486,684 )                 2.50
Outstanding at May 31, 2021            99,055                   1.91
Exercisable at May 31, 2021            99,055                   1.91




18. 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 Equity Incentive Plan (defined below). In connection
with the adoption of the 2020 Plan, the Company cancelled outstanding option
awards granted under the 2017 Plan and replaced them with new award agreements
evidencing an equivalent award under the 2020 Equity Incentive Plan with no
change to any of the material provisions of the 2017 Plan option.



2020 Plan


On October 23, 2020, the Company adopted the Byrna Technologies Inc. 2020 Equity
Incentive Plan (the "2020 Equity Incentive Plan"). The aggregate number of
shares of common stock available for issuance in connection with options and
other awards granted under the 2020 Plan is 25,000,000. 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 Equity Incentive 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
Equity Incentive Plan. There were no substantive changes to the rights of any
holder of options granted under the 2017 plan by replacing their award
certificates with award agreements under the 2020 plan. The grant dates,
exercise prices, expiry dates, and vesting provisions if 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.



                                      15





The Company accounts for all stock-based payment awards granted to employees and
non-employees as stock-based compensation expense at their grant date fair
value. The Company's stock-based payments include stock options, RSUs, and
incentive warrants. The measurement date for employee awards is the date of
grant, and stock-based compensation costs are recognized as expense over the
employees' requisite service period, on a straight-line basis. The measurement
date for non-employee awards is generally the date the services were completed,
resulting in financial reporting period adjustments to stock-based compensation
during either the expected term or the contractual term. Stock-based
compensation costs for non-employees are recognized as expense over the vesting
period on a straight-line basis. Forfeitures are accounted for as they occur.



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



Restricted Stock Units

During the six months ended May 31, 2021 and 2020, the Company granted 174,493
and 0 RSUs, respectively. During the three months ended May 31, 2021 and 2020,
the Company granted 174,493 and 0 RSUs, respectively. 159,000 of the RSUs issued
have a "double trigger" for vesting based on stock price and time, as follows:
(1) one-third of the RSUs are not subject to any market trigger, the second
one-third of the RSUs will be triggered when the Company's stock trades above
$30.00 on a 20-day VWAP, and the final one-third of the RSUs will be triggered
when the stock trades above $40.00 on a 20-day VWAP and (2) the employee must
remain employed by the Company for three years from the effective date for the
RSUs to vest. 15,493 RSUs have a time trigger only and vest in approximately one
year. RSU's outstanding at December 1, 2020 totaling 300,000 met a market
condition for the first market condition trigger of vesting and are now subject
only to a time-trigger for final vesting.



Stock-based compensation expense for the RSUs for the three months ended May 31,
2021 and 2020 was $0.7 million and $0, respectively. Stock-based compensation
expense for the RSUs for the six months ended May 31, 2021 and 2020 was $1.4
million and $0, respectively. The Company recorded stock-based compensation
expense for restricted stock units granted to non-employees of approximately
$0.07 million and $0 million during the three and six months ended May 31,
2021
and 2020, respectively.



       The following table summarizes the RSU activity during the six months
       ended May 31, 2021:




                                                      RSUs

Unvested and outstanding as of November 30, 2020 1,573,500 Granted

                                                174,493
Exercised                                                    -
Cancelled                                                    -
Unvested and outstanding at May 31, 2021             1,747,993




Stock Options

During the six months ended May 31, 2021 and 2020, the Company granted options
to employees and directors to purchase 29,000 and 391,750 shares of common
stock, respectively. The options issued during the six months ended May 31, 2021
vest over three years. The Company recorded stock-based compensation expense for
options granted to its employees and directors of $0.17 million and $0.6 million
during the six months ended May 31, 2021 and 2020, respectively. The Company
recorded stock-based compensation expense for options granted to its employees
and directors of $0.09 million and $0.01 million during the three months ended
May 31, 2021 and 2020, respectively.



During the six months ended May 31, 2021, 82,250 stock options were forfeited
resulting in net benefit of stock-based compensation of approximately $0.093
million. During the three months ended May 31, 2021, 66,000 stock options were
forfeited resulting in net benefit of stock-based compensation of approximately
$0.06 million.



During the six months ended May 31, 2021 and 2020, the Company granted options
to purchase 0 and 11,000, shares of common stock to non-employee contractors,
respectively. The Company recorded stock-based compensation expense for options
granted to non-employees of approximately $0.02 million during the three and six
months ended May 31, 2021 and 2020, respectively.



Stock Option Valuation


The assumptions that the Company used to determine the grant-date fair value of
stock options granted to employees and non-employees for the six months ended
May 31, 2021 were as follows:



                                      16




Black-Scholes option pricing model



Risk free rate                                                           0.33  %
Expected dividends                                                       0.00
Expected volatility                                                  83 - 113 %
Expected life                                                     4 - 5 years

Market price of the Company's common stock on date of grant $ 14.74 - 19.70 Exercise price

                                                $ 14.90 - 17.00




       The following table summarizes option activity under the 2017 and 2020
       Plan during the six months ended May 31, 2021:




                                                             Weighted-Average
                                                         Exercise Price Per Stock
                                         Stock                    Option
                                        Options          CDN$                USD$
Outstanding, November 30, 2020 (1)       705,967             2.40          
     3.10
Granted                                   41,000            18.90               15.60
Exercised                                (22,667 )          (1.90 )             (1.50 )
Forfeited                                (82,250 )          (5.10 )             (4.20 )
Outstanding, May 31, 2021 (2)            642,050             3.60          

3.00

Exercisable, May 31, 2021 (2)            642,050             2.60          
     2.20



(1) As of November 30, 2020 all options were governed by the 2017 Plan.

(2) As of May 31, 2021 all options were governed by the 2020 Plan.




Incentive Warrants
During the six months ended May 31, 2021 and 2020, the Company issued 0 and
15,000 of warrants in exchange for services to a marketing consultant to
purchase common shares, respectively. The warrants were issued outside of the
2017 Plan and were not included under the 2020 Plan. Stock-based compensation
expense for the six months ended May 31, 2021 and 2020 was $0 and $0.02 million,
respectively. Stock-based compensation expense for the three months ended May
31, 2021 and 2020 was $0.


Stock-Based Compensation Expense


Total stock-based compensation expense was $1.5 million and $0.6 million for the
six months ended May 31, 2021 and 2020, respectively. Total stock-based
compensation expense was $0.8 million and $0.01 million for the three months
ended May 31, 2021 and 2020, respectively. Total stock-based compensation
expense was recorded in Operating expenses in the accompanying Condensed
Consolidated Statements of Operations and Comprehensive (Income) Loss.



19. INCOME (LOSS) PER SHARE



For the three and six months ended May 31, 2021, the Company recorded net income. As such, the Company used diluted weighted-average common shares outstanding when calculating diluted income per share for the three and six months ended May 31, 2021. Warrants, stock options, and RSUs that could potentially dilute basic earnings per share ("EPS") in the future are included in the computation of diluted income per share.

For the three and six months ended May 31, 2020, the Company recorded a net
loss. 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 six months ended May 31, 2020.
Preferred Stock, warrants, stock options, and RSUs that could potentially dilute
basic EPS in the future that were not included in the computation of diluted
loss per share were as follows:



                                   For the Three      For the Six
                                   Months Ended      Months Ended
                                   May 31, 2020      May 31, 2020
Series A Preferred Stock               4,636,667         4,636,667
Warrants                               2,783,702         2,783,702
Stock Options                            672,667           672,667
RSUs                                           -                 -
Total                                  8,093,036         8,093,036




                                      17




The following table sets forth the allocation of net income (loss) for the three and six months ended May 31, 2021 and 2020, respectively:

                                        For the Three Months Ended            For the Six Months Ended
                                                  May 31,                              May 31,
                                          2021               2020               2021             2020
Net income (loss)                   $       2,037$      (8,061 )$     1,765$   (10,346 )
Net income applicable to
preferred stock                            (1,043 )                -            (1,043 )              -
Income available to common
shareholders                        $         994       $      (8,061 )
$       722$   (10,346 )




The following table reconciles the weighted-average common shares outstanding
used in the calculation of basic EPS to the weighted-average common shares
outstanding used in the calculation of diluted EPS for the three and six months
ended May 31, 2021 and 2020:



                                        For the Three Months Ended          For the Six Months Ended
                                                  May 31,                            May 31,
                                           2021              2020             2021             2020
Weighted-average common shares
outstanding- basic                        17,800,749       12,068,759       16,359,496       11,271,719
Assumed conversion of:
Dilutive Stock Options                       597,214                -          600,918                -
Dilutive Warrants                            304,883                -          399,332                -
Dilutive RSUs                                286,385                -          244,385                -
Weighted-average common share
outstanding- diluted                      18,989,231       12,068,759       17,604,131       11,271,719





1,155,000 RSUs outstanding during the three and six months ended March 31, 2021,
were not included in the computation of diluted earnings per share because they
are contingently issuable shares.



The following were excluded from the calculation of diluted net income per share
for the three and six months ended May 31, 2021 because their effects are
anti-dilutive:



                                      For the Three Months          For the Six Months
                                       Ended May 31, 2021           Ended May 31, 2021
Antidilutive securities:
Options                                       638,000                      518,000
RSUs                                           50,000                       68,493
Total antidilutive securities                 688,000                     
586,493





20. RELATED PARTY TRANSACTIONS





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



The Company expensed $0.2 million and approximately $0.001 million for royalties
due to Buys, the Company's CTO, during the six months ended May 31, 2021 and
2020, respectively and had accrued royalties of $0.1 million and $0.3 million as
of May 31, 2021 and November 30, 2020, respectively. The Company also recorded
stock-based compensation expense of approximately $0.006 million and $0.008
million during the six months ended May 31, 2021 and 2020, related to stock
options granted to Buys in 2018 to acquire 150,000 shares of common stock.
Stock-based compensation expense was $0.002 million and $0.004 million during
the three months ended May 31, 2021 and 2020, respectively.



The Company issued 386,681 shares of common stock with a value of $0.7 million
in connection with the Second Payment to Buys for the portfolio of registered
patent rights (the "Buys Portfolio") during the six months ended May 31, 2021.
See Note 13, "Patent Rights," for additional information.



The Company leased office premises at Wakefield, Massachusetts for rent,
utilities and maintenance charge of approximately $0.002 million per month from
a corporation owned and controlled by Bryan Ganz ("Ganz"), President and,
effective April 1, 2019, Chief Executive Officer ("CEO") of the Company. This
lease was terminated June 30, 2020. The Company expensed $0.02 for these items
during the six months ended May 31, 2020. The Company expensed $0.01 million for
these items during the three months ended May 31, 2020.



21. 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
Wilmington/Andover, Massachusetts. The Company was involved in the construction
and design of the space and incurred construction costs, subject to an allowance
for tenant improvements of $0.2 million. The lease expiration date is August 31,
2026. The base rent is $0.1 million per year, subject to an annual upward
adjustment. The lease commencement date, for accounting purposes, was reached in
June 2020 when the Company was granted access to the premises and therefore the
lease is included in the Company's operating lease right-of-use asset and
operating lease liabilities as of June 2020.



The Company leased office and warehouse space in South Africa under a lease that
expired on November 30, 2020. The base rent was approximately $0.004 million per
month. In December 2020, the Company entered into a new lease for office and
warehouse space. The lease expires in November 2024. The base rent during the
six months ended May 31, 2021 was approximately $0.005 per month.



The Company leased real estate in Fort Wayne Indiana. The lease expires on
February 28, 2022. In February 2021, the Company entered into a lease
termination agreement with the landlord. Upon termination, the Company was
required to pay a termination fee of approximately $0.02 million. The Company
leases warehouse and manufacturing space in Fort Wayne, Indiana. The lease
expires on July 31, 2025. The base rent is approximately $0.008 million per
month. The Company also leases office space in Las Vegas, Nevada. The lease
expires on August 31, 2022. The base rent is approximately $0.004 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 May 31, 2021 and November 30, 2020, right-of-use assets of $1.2 million
and $1.2 million, current lease liabilities of $0.2 million and $0.3 million and
non-current lease liabilities of $0.9 million and $0.8 million, respectively,
are reflected in the accompanying Condensed Consolidated Balance Sheets. The
elements of lease expense were as follows (in thousands):



                                                                              Six Months
                                                      Three Months Ended         Ended
                                                                                May 31,
                                                         May 31, 2021            2021
Lease Cost:
Operating lease cost                                  $                87     $       179
Short-term lease cost                                                   5               5
Variable lease cost                                                     -               -
Total lease cost                                      $                92     $       184

Other Information:
Cash paid for amounts included in the measurement
of operating lease liabilities                                                $       156
Operating lease liabilities arising from obtaining
right-of-use assets                                                           $       182

Operating Leases:
                                                                                      4.7
Weighted-average remaining lease term (in years)                           

years

Weighted-average discount rate                                             
          9.3 %


Future lease payments under non-cancelable operating leases as of May 31,

       2021 are as follows (in thousands):




Fiscal Year Ending November 30,
2021 (six months)           $   161
2022                            315
2023                            282
2024                            290
2025                            187
Thereafter                      157
Total lease payments          1,392
Less: imputed interest          255
Total lease liabilities     $ 1,137




Sales-Type Leases

During the six months ended May 31, 2021, the Company entered into an equipment
lease as lessor. The lease is being accounted for as a sale-type lease. The term
of the lease is three years. For a sales-type lease, the carrying amount of the
asset is derecognized from property and equipment and a net investment in the
lease is recorded. The net investment in the lease is measured at commencement
date as the sum of the lease receivable and the estimated residual value of the
equipment. The unguaranteed residual value of the equipment is determined as the
estimated carrying value of the asset at the end of the lease term had the asset
been depreciated on a straight-line basis. Selling profit or loss arising from a
sales-type lease is recorded at lease commencement and presented on a gross
basis. Over the term of the lease, the Company recognizes interest income on the
net investment in the lease. At lease commencement, the Company determined the
unguaranteed residual value of the equipment was $0 and the selling profit
or
loss was immaterial.


The receivable recorded as a result of the lease is collateralized by the underlying equipment and consist of the following components at May 31, 2021 (in thousands):

Net minimum lease payments to be received $ 121 Less: unearned interest income portion

                14
Net investment in sales-type leases                  107
Less: current portion                                 44

Net investment in sales-type leases, non-current $ 63




                                      19





The maturity schedule of future minimum lease payments under sales-type leases
and the reconciliation to the net investment in sales-type leases reported at
May 31, 2021 was as follows (in thousands):



Fiscal Year Ending November 30,
2021 (six months)                                $  27
2022                                                54
2023                                                40

Total future minimum sales-type lease payments 121 Less: unearned income

                               14

Total net investment in sales-type leases $ 107




22. INCOME TAXES




For the three months ended May 31, 2021 and 2020, the Company recorded an income
tax expense of $0.2 million and $0, respectively. For the six months ended May
31, 2021 and 2020, the Company recorded an income tax expense of $0.2 million
and $0, respectively. For the three months ended May 31, 2021 and 2020, the
effective tax rate was 8.2% and 0%, respectively. For the six months ended May
31, 2021 and 2020, the effective tax rate was 9.4% and 0%, respectively. The
Company's tax rate differs from the statutory rate of 21.0% due to the effects
of state taxes net of federal benefit, the foreign tax rate differential as a
result of Byrna South Africa, effects of permanent non-deductible expenses, the
recording of a valuation allowance against the deferred tax assets generated in
the prior period, utilization of Net Operating Loss ("NOL") and other effects.



The Company is subject to income tax in the U.S., as well as various state and
international jurisdictions. The federal and state tax authorities can generally
reduce a net operating loss (but not create taxable income) for a period outside
the statute of limitations in order to determine the correct amount of net
operating loss which may be allowed as a deduction against income for a period
within the statute of limitations. Additional information regarding the statutes
of limitations can be found in Note 23, "Income Taxes," in the Notes to
Consolidated Financial Statements included in Item 8 of our Annual Report on
Form 10-K for the year ended November 30, 2020.



On March 27, 2020, Congress signed into law the $2 trillion bipartisan
Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act
includes a variety of economic and tax relief measures intended to stimulate the
economy, including loans for small businesses, payroll tax credits/deferrals,
and corporate income tax relief. Due to the Company's history of net operating
losses and full valuation allowance, the CARES Act did not have a significant
effect to the income tax provision, as the corporate income tax relief was
directed towards cash taxpayers.



23. COMMITMENTS AND CONTINGENCIES




Royalty Payment
Pursuant to the amended agreement related to the Final Payment to Buys for the
Buys Portfolio, the Company is committed to a minimum royalty payment of $0.025
million per year. Royalties on CO2 pistols are to be paid for so long as patents
remain effective beginning at 2 ½% of the agreed upon a net price of $167.60
("Stipulated Net Price") for the first year and reduced by 0.1% each year
thereafter until it reaches 1%. For each substantially new product in this
category, the rate will begin again at 2 ½%. Royalties on the fintail
projectiles (and any improved versions thereof) will be paid so long as patents
remain effective at a rate of 4% of the agreed upon Stipulated Net Price for
fintail projectile products.



COVID-19 Pandemic and the Coronavirus Aid, Relief, and Economic Security ("CARES") Act


On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency because of a new strain of coronavirus originating in Wuhan,
China (the "COVID-19 outbreak") and the risks to the international community as
the virus spreads globally beyond its point of origin. In March 2020, the WHO
classified the COVID-19 outbreak as a pandemic, based on the rapid increase
in
exposure globally.


The full impact of the COVID-19 outbreak continues to evolve as of the date of
this report. As such, it is uncertain as to the full magnitude that the pandemic
may have on the Company's financial condition, liquidity, and future results of
operations. Management is actively monitoring the impact of the global situation
on its financial condition, liquidity, operations, suppliers, industry, and
workforce. Given the daily evolution of the COVID-19 outbreak and the global
responses to curb its spread, the Company is not able to estimate the effects of
the COVID-19 outbreak on its results of operations, financial condition, or
liquidity for fiscal year 2021.



The Company faces various risks related to COVID-19 outbreak. The Company is
dependent on its workforce to deliver its products. If significant portions of
the Company's workforce are unable to work effectively, or if customers'
operations are curtailed due to illness, quarantines, government actions,
facility closures, or other restrictions in connection with the COVID-19
pandemic, the Company's operations will likely be impacted. The Company may be
unable to perform fully on its contracts and costs may increase as a result of
the COVID-19 outbreak. These cost increases may not be fully recoverable or
adequately covered by insurance. Since the COVID-19 outbreak began, no
facilities have been fully shut down. Certain of the Company's vendors may be
unable to deliver materials on time due to the COVID-19 outbreak. Such delays
may negatively impact the Company's production, and the Company plans to
continue to monitor these and its other vendors and, if necessary, seek
alternative suppliers.



                                      20




On March 27, 2020, then President Trump signed into law the CARES Act. The CARES
Act, among other things, includes provisions relating to refundable payroll tax
credits, deferment of employer side social security payments, net operating loss
carryback periods, alternative minimum tax credit refunds, modifications to the
net interest deduction limitations, increased limitations on qualified
charitable contributions, and technical corrections to tax depreciation methods
for qualified improvement property. The CARES Act also appropriated funds for
the Small Business Administration (SBA) Paycheck Protection Program loans that
are forgivable in certain situations to promote continued employment, as well as
Economic Injury Disaster Loans to provide liquidity to small businesses harmed
by COVID-19.



Product Liability
In February 2021, the Company identified certain Byrna® HD launchers that may
contain a wire that is not to specification and, as a result, the Company
accrued a $0.2 million reserve for the possible costs related to updating
affected launchers. As of May 31, 2021, approximately $0.06 million of these
estimated costs have been incurred or resolved.



Legal Proceedings


In the ordinary course of our business, the Company may be subject to certain
other legal actions and claims, including product liability, consumer,
commercial, tax and governmental matters, which may arise from time to time. The
Company does not believe it is currently a party to any pending legal
proceedings. Notwithstanding, legal proceedings are subject-to inherent
uncertainties, and an unfavorable outcome could include monetary damages, and
excessive verdicts can result from litigation, and as such, could result in a
material adverse impact on the Company's business, financial position, results
of operations, and/or cash flows. Additionally, although the Company has
specific insurance for certain potential risks, the Company may in the future
incur judgments or enter into settlements of claims which may have a material
adverse impact on the Company's business, financial position, results of
operations, and/or cash flows.



24. EXCLUSIVE SUPPLY AND PURCHASE AGREEMENTS

The Company entered into a Development, Supply and Manufacturing Agreement with
the manufacturer of the 40mm blunt impact projectile ("BIP") on August 1, 2017.
This agreement requires the Company to order and purchase only from the BIP
manufacturer certain BIP assemblies and components for use by the Company to
produce less-lethal and training projectiles as described in the agreement. The
agreement is for a term of four years with an automatic extension for additional
one-year terms if neither party has given written notice of termination at least
60 days prior to the end of the then-current term. The agreement does not
contain any minimum purchase commitments. Purchases from the BIP manufacturer
were $0 and $0.07 million for the six months ended May 31, 2021 and 2020,
respectively. Purchases from the BIP manufacturer were $0 and $0.06 million for
the three months ended May 31, 2021 and 2020, respectively. Notice has been
provided and this Development, Supply and Manufacturing Agreement will not be
extended after August 1, 2021.



25. SEGMENT AND GEOGRAPHICAL DISCLOSURES





The CEO, who is also the Chief Operating Decision Maker, evaluates the business
as a single entity, which includes reviewing financial information and making
business decisions based on the overall results of the business. As such, the
Company's operations constitute a single operating segment and one reportable
segment.



The tables below summarize the Company's revenue for the three and six months
ended May 31, 2021 and 2020, respectively, by geographic region (in thousands).



Revenue:
Three Months Ended       U.S.         South Africa       Total
May 31, 2021           $ 12,868       $         533     $ 13,401
May 31, 2020              1,077                 113        1,190

Six Months Ended         U.S.         South Africa       Total
May 31, 2021           $ 21,325       $         969     $ 22,294
May 31, 2020              1,321                  18        1,339




26. FINANCIAL INSTRUMENTS




The Company is exposed to risks that arise from its use of financial instruments. This note describes the Company's objectives, policies and processes for managing those risks and the methods used to measure them.



 i) Currency Risk




The Company held its cash balances within banks in Canada in both U.S. dollars
and Canadian dollars, with banks in the U.S. in U.S. dollars, and with banks in
South Africa in U.S. dollars and South African rand. The Company's operations
are conducted in the U.S. and South Africa. The value of the South African rand
against the U.S. dollar may fluctuate with the changes in economic conditions.



                                      21





During the six months ended May 31, 2021, in comparison to the prior year
period, the U.S. dollar strengthened in relation to the South African rand, and
upon the translation of the Company's subsidiaries' revenues, expenses, assets
and liabilities held in South African rand, respectively. As a result, the
Company recorded a translation adjustment gain of $0.2 million and $0.1 million
primarily related to the South African rand during the six months ended May 31,
2021 and 2020, respectively. The Company recorded a translation adjustment
gain/(loss) of $0.1 and $0.1 million primarily related to the South African rand
during the three months ended May 31, 2021 and 2020, respectively.



The Company's South African subsidiary revenues, cost of goods sold, operating
costs and capital expenditures are denominated in South African rand.
Consequently, fluctuations in the U.S. dollar exchange rate against the South
African rand increases the volatility of sales, cost of goods sold and operating
costs and overall net earnings when translated into U.S. dollars. The Company is
not using any forward or option contracts to fix the foreign exchange rates.
Using a 10% fluctuation in the U.S. exchange rate, the impact on the loss and
stockholders' equity is not material.



 ii) Credit Risk



Credit risk is the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation. The
financial instruments that potentially subject the Company to credit risk
consist of cash and accounts receivable. The Company maintains cash with high
credit quality financial institutions located in the U.S. and South Africa. The
Company maintains cash and cash equivalent balances with financial institutions
in the U.S. in excess of amounts insured by the Federal Deposit Insurance
Corporation.



The Company provides credit to its customers in the normal course of its operations. It carries out, on a continuing basis, credit checks on its customers.



                                      22





ITEM 2.   Management's Discussion and Analysis of Financial Condition and Results
          of Operations




References in this quarterly report on Form 10-Q (the "Quarterly Report") to
"we," "us" or the "Company" refer to Byrna Technologies Inc. References to our
"management" or our "management team" refer to our officers and directors. The
following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the financial statements and the
notes thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.



Special Note Regarding Forward-Looking Statements




This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Quarterly Report including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding our financial position, business strategy
and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important risk factors
that could cause actual results to differ materially from those anticipated in
the forward-looking statements, please refer to the Risk Factors section of our
Annual Report on Form 10-K for the period ended November 30, 2020 filed with the
U.S. Securities and Exchange Commission (the "SEC") on February 26, 2021 (the
"2020 10-K"), the Company's subsequent filings with the SEC, which can be
accessed on the EDGAR section of the SEC's website at www.sec.gov, and Section
1A of this Quarterly Report. Except as expressly required by applicable
securities law, we disclaim any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise, including but not limited to the potential global impact of the
COVID-19 pandemic, our ability to design, introduce and sell new products,
services and features, the impact of any regulatory proceedings or litigation,
our ability to protect our intellectual property and compete with existing and
new products, the impact of stock compensation expense, dividends, warrant
exercises and related accounting, impairment expense and income tax expense on
our financial results, our ability to manage our supply chain and avoid
production delays, shortages or other factors, including product mix, cost of
parts and materials and cost of labor that may impact our gross margins, our
ability to retain and incentivize key management personnel, product defects, the
success of our entry to new markets, customer purchase behavior and negative
media publicity or public perception of our brand or products, loss of customer
data, breach of security or an extended outage related to our e-commerce store,
including a breach or outage by our third party cloud based storage providers,
exposure to international operational risks, delayed cash collections or bad
debt, determinations or audits by taxing authorities, changes in government
regulations, the impact of existing or future regulation by the BATF, import and
export regulators, or other federal or state authority, or changes in
international law in key jurisdictions including South Africa or our inability
to obtain needed exemptions from such existing or future regulation.



OVERVIEW



The following discussion and analysis is intended to help you understand us, our
operations and our financial performance. It should be read in conjunction with
our consolidated financial statements and the accompanying notes, which are
included in Item 1 of this report.



We develop, manufacture and sell non-lethal ammunition and security devices.
These products are used by the military, correctional services, police agencies,
private security and consumers. We have two main product lines. Our first main
product line and primary focus is our Byrna® line of personal security devices
and related products. The Byrna® product line includes our Byrna® HD, our first
handheld personal security device, which has the size and form factor of a
compact handgun and is designed to be used by civilians and private security
professionals, as well as accessories and third-party products that are
compatible with the Byrna® HD, including the projectiles used in the Byrna® HD.
Our second, legacy, line of business is the sale of non-lethal munitions
designed for 40mm rifled launchers utilized by law enforcement, correctional
services and military markets. These less-lethal munitions include impact rounds
designed to stop an individual without causing permanent injury or death and
"payload" rounds carrying a variety of payload packages including chemical
irritants and various marking products designed to control or identify
instigators in riot situations. Our flagship product in this market is the 40mm
blunt impact projectile ("BIP"), which uses patented collapsible gel head
technology. In addition to our two main product lines, we are selling out
remaining inventory of two 12-gauge less-lethal impact rounds that we no longer
manufacture.



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



We believe that the United States, along with many other parts of the world, is
experiencing a significant spike in the demand for less-lethal products and that
the less-lethal market will be one of the faster growing segments of the
security market over the next decade, particularly given the fear caused by the
recent COVID-19 pandemic. The less lethal market has been projected to approach
$12 billion per year by 2023 (Statistics MRC. Non-Lethal Weapons - Global Market
Outlook (2017-2023)). We plan to respond to this demand for less-lethal products
through the serial production and distribution of the Byrna® HD and expansion of
the Byrna product line.



                                      23





RESULTS OF OPERATIONS



Results for the second quarter of 2021 demonstrate a continuing trend of rapid
sales growth due to increasing demand for our Byrna HD personal security device
and to growth of the production capacity and administrative and control
structures necessary to supply that demand. Revenues of $13.4 million are
significantly higher than in any past quarter. Most of the growth in revenue
continues to be in high margin direct sales through our website. E-commerce
orders account for 85% of total net revenue this quarter. The increasing excess
of revenue over fixed production costs drove improvement in our gross margin,
which was 56% of net revenue this quarter.



Though the COVID 19 pandemic continues to negatively affect efficiency in our
South African production facility and in some of our global supply lines, the
situation improved this quarter in our U.S. manufacturing and corporate office
facilities where there was no disruption of production or distribution and
employees were not required to work remotely.



Higher sales volumes drove up certain variable operating expenses such as the
cost of shipping product to customers and credit card sales transactions fees.
Meanwhile the structural growth required to manage a larger company with higher
sales volumes has required an increase in structural operating expenses such as
payroll, insurance and marketing expenses. However, the increase in gross profit
more than offsets this resulting in our first reported quarterly income from
operations of $2.0 million.


Three months ended May 31, 2021 as compared to three months ended May 31, 2020:




Net Revenue

Revenues were $13.4 million in the second quarter of 2021 which represents an
increase of $12.2 million as compared to the prior year period revenues of $1.2
million. This increase was due to sales of the Byrna® HD and driven by a growing
market awareness of the product.



Cost of Goods Sold

Cost of goods sold was $5.8 million in the second quarter of 2021 compared to
$0.7 million in the prior year period. This $5.1 million increase is primarily
due to the increase in related sales volume and also to the costs associated
with the manufacture and corresponding sales of the Byrna® HD and related
products.



Gross Profit

Gross profit is calculated as total revenue less cost of goods sold and gross
margin is calculated as gross profit divided by total revenue. Included as cost
of goods sold are costs associated with the production and procurement of
products, such as labor and overhead, inbound freight costs, manufacturing
depreciation, purchasing and receiving costs, inspection costs and the shipping
and handling costs. Gross profit was $7.6 million in the second quarter of 2021,
or 56% of net revenue, as compared to gross profit of approximately $0.5
million, or 43% of net revenue, in the prior year period. The increase in gross
profit is due to the increase in sales volume of Byrna® HD products.



Operating Expenses/Loss from Operations


Operating expenses were $5.5 million in the second quarter of 2021, as compared
to the prior year period expenses of $1.4 million. This increase is due to the
growth company. The growth of sales volumes drove increases in variable expenses
such as freight out, which increased from $0.003 million in the second quarter
of 2020 to $0.6 million in the second quarter of 2021 and bank fees which are
primarily transaction fees on customers' credit card orders and which grew from
$0.02 million in the three months ended May 31, 2020 to $0.4 million in the
three months ended May 31, 2021. The structural growth required to manage a
larger company with higher sales volumes drove up structural costs. Payroll
related costs were $0.6 million and stock compensation costs were $0.01 million
in the second quarter of 2020. These were $1.9 million and $0.9 million,
respectively, in the second quarter of 2021. Insurance expense increased from
$0.03 million in the second quarter of 2020 to $0.3 million in the second
quarter of 2021. Marketing cost increased from $0.1 million in the second
quarter of 2020 to $0.4 million in the second quarter of 2021.



The growth in revenue drove growth in gross profit greater than the increase in
variable and structural operating expenses which resulted in a significant
improvement in operating profit. The three months ended May 31, 2021 showed
income from operations of $2.0 million as compared to a loss from operations of
$0.9 million in the same period one year earlier.



Accretion of Debt Discounts

Accretion of debt discounts decreased $0.3 million in the second quarter of 2021
to $0 from $0.3 million in the prior year period. The 2020 charge resulted from
the April 8, 2020 exchange of an aggregate of approximately $6.95 million
outstanding convertible notes payable, representing principal and accrued
interest through April 7, 2020, for 1,391 shares of Series A Convertible
Preferred Stock. We no longer have any outstanding convertible notes payable.



Interest Expense
Interest Expense for the three months ended May 31, 2021 was $0.01 million. This
represents $0.01 million of interest on the asset-based loan net of $0.004
million imputed interest income from a sales financing lease. Interest Expense
for the three months ended May 31, 2020 was $0.08 million of interest accrued on
convertible notes payable.



                                      24




Income (Loss) on Extinguishment of Debt


Loss on extinguishment of debt was $0 and $6.0 million during the three months
ended May 31, 2021 and May 31, 2020, respectively. The 2020 charge relates to
the April 8, 2020 exchange of convertible notes payable for preferred stock.



Warrant Inducement Expense

Warrant inducement expense was $0 in the second quarter of 2021 and $0.8 million
in the second quarter of 2020. The 2020 charge reflects the difference in fair
value of warrants exercised at the reduced price of $0.16 per warrant as
compared to the $0.25 per warrant contractual exercise price.



Other Financing Costs


Other financing costs represents the cost to close the asset-based loan being
amortized over the three-year term of the loan agreement. This cost was $0.01
million for the three months ended May 31, 2021 and $0 for the same period
one
year earlier.



Income Tax Provision
Our effective income tax rate was 9% and 0% for the three months ended May 31,
2021 and May 31, 2020 respectively. Our income tax provision was $0.2 million
and $0 for the three months ended May 31, 2021 and May 31, 2020 respectively.
Our tax rate differs from the statutory rate of 21.0% due to the foreign tax
rate differential as a result of Byrna South Africa, effects of permanent
non-deductible expenses, the recording of a valuation allowance against the
deferred tax assets generated in the past period, and other effects.



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



Net Income (Loss)


The increased profitability from growing, high margin, revenues drove net income
to $2.0 million for the three months ended May 31, 2021. This is the first
quarter for which we have reported net income and compares to a net loss of $8.1
million for the three months ended May 31, 2020.



Non-GAAP Financial Measures

In addition to providing financial measurements based on generally accepted
accounting principles in the United States (GAAP), we provide the following
additional financial metrics that are not prepared in accordance with GAAP
(non-GAAP): adjusted EBITDA, non-GAAP net income (loss), and non-GAAP net income
(loss) per share (basic and diluted). Management uses these non-GAAP financial
measures, in addition to GAAP financial measures, to understand and compare
operating results across accounting periods, for financial and operational
decision making, for planning and forecasting purposes and to evaluate our
financial performance. We believe that these non-GAAP financial measures help us
to identify underlying trends in our business that could otherwise be masked by
the effect of certain expenses that we exclude in the calculations of the
non-GAAP financial measures.



Accordingly, we believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business and provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.




These non-GAAP financial measures do not replace the presentation of our GAAP
financial results and should only be used as a supplement to, not as a
substitute for, our financial results presented in accordance with GAAP. There
are limitations in the use of non-GAAP measures, because they do not include all
the expenses that must be included under GAAP and because they involve the
exercise of judgment concerning exclusions of items from the comparable non-GAAP
financial measure. In addition, other companies may use other non-GAAP measures
to evaluate their performance, or may calculate non-GAAP measures differently,
all of which could reduce the usefulness of our non-GAAP financial measures
as
tools for comparison.



                                      25





Adjusted EBITDA



Adjusted EBITDA is defined as comprehensive income (loss) as reported in our
consolidated statements of income excluding the impact of (i) depreciation and
amortization; (ii) income tax provision (benefit); (iii) interest expense;
(iv) stock-based compensation expense; (v) accretion of debt discounts; (vi)
loss on extinguishment of debt; (vii) warrant inducement expense; and (viii)
other financing costs. Our Adjusted EBITDA measure eliminates potential
differences in performance caused by variations in capital structures (affecting
finance costs), tax positions, the cost and age of tangible assets (affecting
relative depreciation expense) and the extent to which intangible assets are
identifiable (affecting relative amortization expense). We also exclude certain
one-time and non-cash costs. Reconciliation of Adjusted EBITDA to comprehensive
income (loss), the most directly comparable GAAP measure, is as follows (in
thousands):



                                      For the Three Months Ended
                                                May 31,
                                       2021                2020
Comprehensive income (loss)        $      2,157$       (7,929 )

Adjustments:
Interest expense                              9                   74
Income tax provision                        183                    -
Depreciation and amortization               129                   40
Non-GAAP EBITDA                           2,478               (7,815 )

Stock-based compensation expense            853                   11
Accretion of debt discounts                   -                  257
Loss on extinguishment of debt                -                6,027
Warrant inducement expense                    -                  845
Other financing costs                         8                    -

Non-GAAP adjusted EBITDA           $      3,339       $         (675 )



Non-GAAP net income (loss) and non-GAAP net income (loss) per share




Non-GAAP net income (loss) is defined as comprehensive income (loss) as reported
in our consolidated statements of income excluding the impact of (i) stock-based
compensation expense; (ii) accretion of debt discounts; (iii) loss on
extinguishment of debt; (iv) warrant inducement expense; and (v) other financing
costs. Our non-GAAP net income (loss) measure eliminates potential differences
in performance caused by certain non-cash and one-time costs. We also provide
non-GAAP net income (loss) per share by dividing non-GAAP net income (loss) by
the average basic or diluted shares outstanding for the period. Reconciliation
of Non-GAAP comprehensive income (loss) to Comprehensive income (loss), the most
directly comparable GAAP measure, is as follows (in thousands):



                                                For the Three Months Ended
                                                          May 31,
                                                   2021              2020
Comprehensive income (loss)                   $        2,157$     (7,929 )

Adjustments:
Stock-based compensation                                 853               11
Accretion of debt discounts                                -              257
Loss on extinguishment of debt                             -            6,027
Warrant inducement expense                                 -              845
Other financing costs                                      8                -
Non-GAAP net income (loss)                             3,018             (789 )
Net income applicable to preferred stock              (1,043 )              -
NON-GAAP NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS                           $        1,975     $       

(789 )


Non-GAAP net income (loss) per share -
basic                                         $         0.11     $      (0.07 )
Non-GAAP net income (loss) per share -
diluted                                       $         0.10     $      (0.07 )
Weighted-average number of common shares
outstanding during the period - basic             17,800,749       

12,068,759

Weighted-average number of common shares
outstanding during the period - diluted           18,989,231       12,068,759



Six months ended May 31, 2021 as compared to six months ended May 31, 2020:

Net Revenue


Revenues were $22.3 million in the first half of 2021, a significant increase
compared to the prior year period revenues of $1.3 million. This increase was
driven by revenues from the Byrna® HD which began shipping in April 2019, and
growing market awareness of and demand for our product.



Cost of Goods Sold

Cost of goods sold was $10.0 million in the first half of 2021 compared to $0.9
million in the prior year period. The increase is primarily due to the extreme
growth in sales volumes.



                                      26





Gross Profit

Gross profit is calculated as total revenue less cost of goods sold and gross
margin is calculated as gross profit divided by total revenue. Included as cost
of goods sold are costs associated with the production and procurement of
products, such as inbound freight costs, manufacturing depreciation, purchasing
and receiving costs, and inspection costs. Gross profit was $12.3 million in the
first half of 2020, a gross profit margin of 55% driven by sales of Byrna® HD
products and accessories. Gross profit in the prior year period was $0.5 million
with a gross profit margin of 36%. The improvement in gross margin profitability
is due to increased production efficiency and due to the improved ratio of sales
volume to fixed overhead costs.



Operating Expenses, Profit/Loss from Operations


Operating expenses were $10.7 million in the first half of 2021, as compared to
the prior year period expenses of $3.0 million. This increase is due to the
growth of the company. The growth of sales volumes drove increases in variable
expenses such as freight out, which increased from $0.01 million in the first
half of 2020 to $1.1 million in the first half of 2021 and bank fees which are
primarily transaction fees on customers' credit card orders and which grew from
$0.04 million in the first six months of 2020 to $0.6 million in the first six
months of 2021. The structural growth required to manage a larger business with
higher sales volumes drove up structural costs. Payroll related costs were $1.1
million and stock compensation costs were $0.6 million in the first half of
2020. These were $4.2 million and $1.5 million respectively in the first half of
2021. Insurance expense increased from $0.1 million in the first half of 2020 to
$0.7 million in the first half of 2021. Marketing cost increased from $0.2
million in the first half of 2020 to $0.5 million in the first half of 2021.
Legal and other consulting costs increased from $0.2 million in the first half
of 2020 to $0.4 million in the first half of 2021.



The growth in revenue drove growth in gross profit greater than the increase in
variable and structural operating expenses which resulted in a significant
improvement in operating profit. The first six months of 2021 showed income from
operations of $1.6 million as compared to a loss from operations of $2.5 million
in the same period one year earlier.



Accretion of Debt Discounts


Accretion of debt discounts decreased $0.8 million in the first half of 2021 to
$0 from $0.8 million in the prior year period. The 2020 charge resulted from the
April 8, 2020 exchange of an aggregate of approximately $6.95 million
outstanding convertible notes payable, representing principal and accrued
interest through April 7, 2020, for 1,391 shares of Series A Convertible
Preferred Stock. We no longer have any outstanding convertible notes payable.



Interest Expense

Interest Expense for the six months ended May 31, 2021 was $0.04 million. This
represents interest on the asset-based loan and imputed net interest expense
from the establishment of a sales financing lease. Interest Expense for the six
months ended May 31, 2020 was $0.2 million of interest accrued on convertible
notes payable.


Income (Loss) on Extinguishment of Debt


Income on extinguishment of debt was $0.2 million and $0 during the six months
ended May 31, 2021 and May 31, 2020, respectively and relates to the forgiveness
of the $0.2 million of funding under the Paycheck Protection Program ("PPP").



Loss on extinguishment of debt was $0 and $6.0 million during the six months
ended May 31, 2021 and May 31, 2020, respectively. The 2020 charge relates to
the April 8, 2020 exchange of convertible notes payable for preferred stock.



Warrant Inducement Expense

Warrant inducement expense was $0 in the first half of 2021 and $0.8 million in
the first half of 2020. The 2020 charge reflects the difference in fair value of
warrants exercised at the reduced price of $0.16 per warrant as compared to the
$0.25 contractual exercise price.



Other Financing Costs


Other financing costs represents the cost to close the asset-based loan being
amortized over the three-year term of the loan agreement. This cost was $0.01
million for the six months ended May 31, 2021 and $0 for the same period one
year earlier.



Income Tax Provision

Our income tax provision was $0.2 million and $0 for the six months ended May
31, 2021 and May 31, 2020 respectively. Our tax rate differs from the statutory
rate of 21.0% due to the foreign tax rate differential as a result of ByrnaSouth Africa, effects of permanent non-deductible expenses, the recording of a
valuation allowance against the deferred tax assets generated in the past
period, and other effects.



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



Net Income (Loss)


The increased profitability from growing, high margin, revenues drove net income
to $1.8 million for the six months ended May 31, 2021. This compares to a net
loss of $10.3 million for the six months ended May 31, 2020.



                                      27





Non-GAAP Financial Measures
In addition to providing financial measurements based on generally accepted
accounting principles in the United States (GAAP), we provide the following
additional financial metrics that are not prepared in accordance with GAAP
(non-GAAP): adjusted EBITDA, non-GAAP net income (loss), and non-GAAP net income
(loss) per share (basic and diluted). Management uses these non-GAAP financial
measures, in addition to GAAP financial measures, to understand and compare
operating results across accounting periods, for financial and operational
decision making, for planning and forecasting purposes and to evaluate our
financial performance. We believe that these non-GAAP financial measures help us
to identify underlying trends in our business that could otherwise be masked by
the effect of certain expenses that we exclude in the calculations of the
non-GAAP financial measures.



Accordingly, we believe that these non-GAAP financial measures reflect our ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business and provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects.




These non-GAAP financial measures do not replace the presentation of our GAAP
financial results and should only be used as a supplement to, not as a
substitute for, our financial results presented in accordance with GAAP. There
are limitations in the use of non-GAAP measures, because they do not include all
the expenses that must be included under GAAP and because they involve the
exercise of judgment concerning exclusions of items from the comparable non-GAAP
financial measure. In addition, other companies may use other non-GAAP measures
to evaluate their performance, or may calculate non-GAAP measures differently,
all of which could reduce the usefulness of our non-GAAP financial measures
as
tools for comparison.



Adjusted EBITDA



Adjusted EBITDA is defined as comprehensive income (loss) as reported in our
consolidated statements of income excluding the impact of (i) depreciation and
amortization; (ii) income tax provision (benefit); (iii) interest expense;
(iv) stock-based compensation expense; (v) accretion of debt discounts; (vi)
loss on extinguishment of debt; (vii) warrant inducement expense; (viii) other
income (forgiveness of PPP loan); and (ix) other financing costs. Our Adjusted
EBITDA measure eliminates potential differences in performance caused by
variations in capital structures (affecting finance costs), tax positions, the
cost and age of tangible assets (affecting relative depreciation expense) and
the extent to which intangible assets are identifiable (affecting relative
amortization expense). The adjustment for other income (forgiveness of PPP loan)
was not included in our Adjusted EBITDA metric for the three months ended May
31, 2021 because it was not applicable to such period. We also exclude certain
one-time and non-cash costs. Reconciliation of Adjusted EBITDA to comprehensive
income (loss) the most directly comparable GAAP measure, is as follows (in
thousands):



                                            For the Six Months Ended
                                                    May 31,
                                           2021                2020
Comprehensive income (loss)             $     1,943$      (10,250 )

Adjustments:
Interest expense                                 37                  233
Income tax provision                            183                    -
Depreciation and amortization                   217                   78
Non-GAAP EBITDA                               2,380               (9,939 )

Stock-based compensation expense              1,546                  648
Accretion of debt discounts                       -                  755
Loss on extinguishment of debt                    -                6,027
Warrant inducement expense                        -                  845
Other income: forgiveness of PPP loan          (190 )                  -
Other financing costs                             9                    -
Non-GAAP adjusted EBITDA                $     3,745$       (1,664 )

Non-GAAP net income (loss) and non-GAAP comprehensive income (loss) per share




Non-GAAP comprehensive income (loss) is defined as comprehensive income (loss)
as reported in our consolidated statements of income excluding the impact of (i)
stock-based compensation expense; (ii) accretion of debt discounts; (iii) loss
on extinguishment of debt; and (iv) warrant inducement expense. Our non-GAAP net
income (loss) measure eliminates potential differences in performance caused by
certain non-cash and one-time costs. We also provide non-GAAP net income (loss)
per share by dividing non-GAAP net income (loss) by the average basic or diluted
shares outstanding for the period. Reconciliation of Non-GAAP comprehensive
income (loss) to comprehensive income (loss), the most directly comparable GAAP
measure, is as follows (in thousands):



                                                For the Six Months Ended
                                                         May 31,
                                                  2021             2020
Comprehensive income (loss)                   $      1,943$    (10,250 )

Adjustments:
Stock-based compensation                             1,546              648
Accretion of debt discounts                              -              755
Loss on extinguishment of debt                           -            6,027
Warrant inducement expense                               -              845
Other income                                          (190 )              -
Other financing costs                                    9                -
Non-GAAP net income (loss)                           3,308           (1,975 )
Net income applicable to preferred stock            (1,043 )              -
NON-GAAP NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS                           $      2,265$     (1,975 )

Non-GAAP net income (loss) per share -
basic                                         $       0.14$      (0.18 )
Non-GAAP net income (loss) per share -
diluted                                       $       0.13$      (0.18 )
Weighted-average number of common shares
outstanding during the period - basic           16,359,496       11,271,719
Weighted-average number of common shares
outstanding during the period - diluted         17,604,131       11,271,719



                                      28




LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary


Cash and balances of restricted cash as of May 31, 2021 totaled $5.3 million, a
decrease of $4.3 million from $9.7 million as of November 30, 2020.
Approximately $0.9 million of the cash on hand at May 31, 2021 was restricted
due to holds placed on its use by our merchant services vendor pending
fulfillment of backorders prepaid by credit cards.



Operating Activities

Cash used in operating activities was $2.9 million during the first half of 2021
compared to $1.6 million during the prior year period. Net income was $2.0
million and $1.8 million for the three and six months ended May 31, 2021,
respectively. Net loss was $8.1 million and $10.3 million for the three and six
months ended May 31, 2020, respectively. Significant changes in noncash and
working capital activity are as follows:



Our non-cash activity adds back several non-cash items to net income to
calculate cash from operations in the first half 2021. These include stock-based
expense of $1.5 million, compared to $0.6 million for the first half of 2020;
increase of reserves against inventory value of $0.2 million, compared to $0.003
million for the first half of 2020; depreciation and amortization of $0.2
million compared to $0.1 million for the first half of 2020; and lease
accounting expenses of $0.1 million compared to $0.03 for the first half of
2020. These added back amounts were partially offset by backing out non-cash
income on forgiveness of debt of $0.2 million.



During the six months ended May 31, 2021, the growth of the company was
reflected in the use of cash for growing working capital needs. Though inventory
levels decreased during the second quarter, this decrease did not fully offset
the increase of the first quarter so that, during the six months ended May 31,
2021, inventory increased by $1.4 million, compared to $0.2 million for the six
months ended May 31, 2020. Deferred revenue decreased $3.2 million during the
six months ended May 31, 2021 to $1.7 million as we fulfilled backlogged
e-commerce order. Additionally, for the six months ended May 31, 2021 accounts
payable and accrued expenses decreased by $2.4 million, compared to an increase
of $0.1 million for the six months ended May 31, 2020. This decrease was only
partially offset by decreases in accounts receivable and prepaid expenses of
$0.6 million, compared to $0.03 million for the six months ended May 31, 2020.



Investing Activities

Cash used in investing activities was $3.9 million in the first half of 2021
compared to $0.7 for the first half of 2020. For the six months ended May 31,
2021, $3.7 million was attributable to the acquisition of assets from Kore. For
the six months ended May 31, 2020, $0.5 million was in connection with Roboro
acquisition, and approximately $0.2 million for purchases of property and
equipment.



Financing Activities

Cash provided by financing activities was $2.7 million during the six months
ended May 31, 2021. This amount was comprised primarily of the $1.5 million
drawn on the revolving line of credit as well as $1.2 million in proceeds from
warrant exercises. Cash provided by financing activities was $3.9 million during
the six months ended May 31, 2020, and included $3.2 million proceeds from
warrant exercises, $0.5 million from Roboro's sellers and $0.2 million from
the
Paycheck Protection Program.


Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

RECENT ACCOUNTING PRONOUNCEMENTS

See Note 5, "Recent Accounting Guidance," in the Notes to Condensed Consolidated Financial Statements included in Item 1 of this report for a discussion of recently issued and adopted accounting standards.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's Condensed Consolidated Financial Statements are based on the
selection and application of significant accounting policies, which require
management to make significant estimates and assumptions. Our significant
accounting policies are outlined in Note 4, "Summary of Significant Accounting
Policies," in the Notes to Consolidated Financial Statements included in Item 8
of the 2020 10-K. During the three and six months ended May 31, 2021, there were
no significant changes to the Company's critical accounting policies from those
described in our 2020 10-K.



                                      29

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Financials (USD)
Sales 2021 40,9 M - -
Net income 2021 1,18 M - -
Net Debt 2021 - - -
P/E ratio 2021 257x
Yield 2021 -
Capitalization 537 M 537 M -
Capi. / Sales 2021 13,1x
Capi. / Sales 2022 9,08x
Nbr of Employees 169
Free-Float 69,5%
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Byrna Technologies Inc. Technical Analysis Chart | BYRN | US12448X2018 | MarketScreener
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus BUY
Number of Analysts 3
Last Close Price 23,15 $
Average target price 32,83 $
Spread / Average Target 41,8%
EPS Revisions
Managers and Directors
Bryan Scott Ganz Chairman, President & Chief Executive Officer
David North Chief Financial Officer
André Buys Chief Technology Officer
Michael Gillespie Chief Operating Officer
Paul C. Jensen Independent Director
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