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Dynamic quotes 
OFFON

BYRNA TECHNOLOGIES INC.

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

10/08/2021 | 11:56am EST
The Company had net loss of $0.08 million for the nine months ended August 31,
2021 compared to a net loss of $10.9 million for the nine months ended August
31, 2020. From inception to August 31, 2021, the Company had incurred a
cumulative loss of $50.3 million. The Company has funded operations through the
issuance of common stock, warrants, and convertible notes payable. The Company
continues to incur a loss from operations. It still is expected to incur
significant losses before the Company's revenues sustain its operations. The
Company's future success is dependent upon its ability to continue to generate
adequate revenue or raise sufficient capital, to cover its ongoing operating
expenses, and also to continue to develop and be able to profitably market its
products.



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



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



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3. BASIS OF PRESENTATION




The accompanying unaudited Condensed Consolidated Financial Statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
accounting principles generally accepted in the United States of America
("GAAP"); however, such information reflects all adjustments consisting solely
of normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods.
Certain prior year amounts have been reclassified to conform with the
presentation of amounts for the three and nine months ended August 31, 2021.



The unaudited Condensed Consolidated Financial Statements should be read in
conjunction with the Consolidated Financial Statements and notes thereto
together with management's discussion and analysis of financial condition and
results of operations contained in Byrna Technologies Inc.'s ("Byrna" or the
"Company") annual report on Form 10-K for the year ended November 30, 2020. In
the opinion of management, the accompanying unaudited Condensed Consolidated
Financial Statements, the results of its operations for the three and nine
months ended August 31, 2021 and 2020, and its cash flows for the nine months
ended August 31, 2021 and 2020 are not necessarily indicative of results to be
expected for the full year.




4. USE OF ESTIMATES




The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Future events and
their effects cannot be determined with certainty. Therefore, the determination
of estimates requires the exercise of judgment. Actual results could differ from
those estimates, and any such differences may be material to our Condensed
Consolidated Financial Statements. Significant estimates include assumptions
about collection of accounts receivable and the reserve for doubtful accounts,
stock-based compensation expense, fair value of equity instruments, valuation
for deferred tax assets, incremental borrowing rate on leases, valuation and
carrying value of goodwill and other identifiable intangible assets, estimates
for warranty costs, and useful life of fixed assets.



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5. RECENT ACCOUNTING GUIDANCE



Recently Adopted Accounting Guidance


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



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



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



Accounting Guidance Issued But Not Adopted


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



In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment ("ASU 2017-04"). The
FASB issued the update to simplify the measurement of goodwill by eliminating
step 2 from the goodwill impairment test. An entity should recognize an
impairment charge for the amount by which the carrying amount exceeds the
reporting unit's fair value. ASU 2017-04 will be effective for the Company so
long as it remains a smaller reporting company in the first quarter of 2024.
Early adoption is permitted. The Company is currently evaluating the impact of
adopting this update on the consolidated financial statements.



In 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU
2016-13"). The guidance changes the impairment model used to measure credit
losses for most financial assets. A new forward-looking expected credit loss
model will replace the existing incurred credit loss model and will impact the
Company's accounts and other receivables. This is expected to generally result
in earlier recognition of allowances for credit losses. ASU 2016-13 will be
effective for the Company in December 2023 as long as it remains a smaller
reporting company. Early adoption is permitted. The Company is currently
evaluating the impact of adopting this update on the consolidated financial
statements.




6. ACQUISITIONS




Asset Acquisition

On May 12, 2021, the Company entered into an asset purchase agreement to purchase certain assets used in the business of designing, developing, manufacturing, licensing, and selling of products and services for the Mission Less Lethal brand from Kore Outdoor (U.S.) Inc., ("Kore") a wholly owned subsidiary of Kore Outdoor, Inc.

                                       10
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The transaction was accounted for as an asset acquisition, with estimated $3.7
million total cost of which $0.2 million were acquisition-related expenses. The
estimated total cost of the acquisition has been allocated as follows (in
thousands):



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




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



Business Combination

Ballistipax

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




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



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




Roboro

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



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



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



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




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7. REVERSE STOCK SPLIT




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




8. RESTRICTED CASH




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



9. REVENUE, DEFERRED REVENUE AND ACCOUNTS RECEIVABLE





The Company generates revenue through the wholesale distribution of its products
and accessories to dealers/distributors, large end-users such as security
companies and law enforcement agencies, and through an e-commerce portal to
consumers. Revenue is recognized upon transfer of control of goods to the
customer, which generally occurs when title to goods is passed and risk of loss
transfers to the customer. Depending on the contract terms, transfer of control
is upon shipment of goods to or upon the customer's pick-up of the goods.
Payment terms to customers other than e-commerce customers are generally 30-60
days for established customers, whereas new wholesale and large end-user
customers have prepaid terms for their first order. The amount of revenue
recognized is net of estimated returns and discounts that the Company offers to
its customers. Products purchased include a standard warranty that cannot be
purchased separately. This allows customers to return defective products for
repair or replacement within one year of sale. The Company also sells an
extended warranty for the same terms over three years. The extended 3-year
warranty can be purchased separately from the product and therefore, must be
classified as a service warranty. Since a warranty for the first year after sale
is included and non-separable from all launcher purchases, the Company considers
this extended warranty to represent a service obligation during the second and
third years after sale. Therefore, the Company accumulates billings of these
transactions on the balance sheet as deferred revenue, to be recognized on a
straight-line basis during the second and third year after sale. The Company
recognizes an estimated reserve based on its analysis of historical experience,
and an evaluation of current market conditions. The Company's returns under
warranties have been immaterial. In February 2021, the Company identified
certain Byrna® HD launchers that may contain a wire that is not to specification
and offered customers a free factory service update for their launchers. The
Company established a reserve of $0.2 million as an estimate of future related
costs. As of August 31, 2021, approximately $0.1 million of these estimated
costs have been incurred or resolved.



The Company also has a 60-day money back guarantee, which allows for a full
refund of the purchase price, excluding shipping charges, within 60 days from
the date of delivery. The right of return creates a variable component to the
transaction price and needs to be considered for any possible constraints. The
Company estimates returns using the expected value method, as there will likely
be a range of potential return amounts. The Company's returns under the 60-day
money back guarantee for the three and nine months ended August 31, 2021 were
$0.4 million and $0.4 million, respectively. The Company's returns under the
60-day money back guarantee for the three and nine months ended August 31, 2020
have been immaterial.



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



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

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


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



Allowance for Doubtful Accounts


The Company provides an allowance for its accounts receivable for estimated
losses that may result from its customers' inability to pay. The Company
determines the amount of the allowance by analyzing known uncollectible
accounts, aged receivables, economic conditions, historical losses, and changes
in customer payment cycles and its customers' creditworthiness. Amounts later
determined and specifically identified to be uncollectible are charged or
written off against this allowance. A significant proportion of the Company's
sales are made via e-commerce. These orders are prepaid by credit card and
involve no credit risk. To minimize the likelihood of uncollectible debt, the
Company reviews its customers' creditworthiness periodically. Material
differences may result in the amount and timing of expense for any period if the
Company were to make different judgments or utilize different estimates. The
allowance for doubtful accounts was approximately $0.02 million as of  August
31, 2021 and $0.01 million as of  November 30, 2020.



Deferred Revenue


Changes in deferred revenue, which relate to unfulfilled e-commerce orders and
amounts to be recognized under extended 3-year service warranties, for the nine
months ended August 31, 2021 and the year ended November 30, 2020, are
summarized below (in thousands):



                                                       August 31,        November 30,
                                                          2021               2020

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

11

Net additions to deferred revenue during the period 23,957

18,826

Reductions in deferred revenue for revenue
recognized during the period                                (28,139 )          (13,935 )
Deferred revenue balance, end of period                         720         

4,902

Less current portion                                            417         

4,843

Deferred revenue, non-current                         $         303     $           59




Revenue Disaggregation

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




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




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




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10. PROPERTY AND EQUIPMENT




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



                                   August 31,      November 30,
                                      2021             2020

Computer equipment and software $ 275 $ 204 Furniture and fixtures

                     140               105
Leasehold improvements                     249               144
Machinery and equipment                  1,530             1,324
                                         2,194             1,777
Less: accumulated depreciation             801               557
Total                             $      1,393$       1,220




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



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



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




11. INVENTORY



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



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

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

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12. PREPAID EXPENSES AND OTHER CURRENT ASSETS

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



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





13. PATENT RIGHTS




On August 18, 2021, the Company acquired Ballistipax®. As part of the
transaction, the Company has acquired two patents with estimated fair value of
$0.06 million. No amortization has been recorded for the patent rights during
the three or nine months ended August 31, 2021 but will begin in September
2021. These patent rights have a maximum life of approximately 17 years,
expiring on 2038, and will be amortized on a straight-line basis.



On May 12, 2021, the Company entered into an asset purchase agreement with Kore,
pursuant to which the Company acquired the exclusive right to use the key
patents and intellectual property underpinning the acquired suite of products.
As consideration for the tangible and intangible assets included in the Kore
Portfolio, the Company paid Kore $3.5 million, and incurred $0.2 in legal costs
to transfer these patent rights. Of the $3.7 million consideration, $2.8 million
was capitalized relating to the key patents and intellectual property
acquired. Amortization of $0.04 million has been recorded for the patent rights
during the three and nine months ended August 31, 2021. These patent rights have
a maximum life of 20 years, expiring on various dates beginning from January
2037 to 2038, and will be amortized on a straight-line basis over a period of 15
years.



On April 13, 2018, the Company entered into a purchase and sale agreement with
Andre Buys ("Buys"), the Company's Chief Technology Officer ("CTO"), pursuant to
which the Company agreed to purchase the Buys Portfolio, provisional patent
rights, and other intellectual property relating to air and/or gas fired long
guns or pistols, including pump action launchers and munitions used with such
pistols and long guns, including self-stabilizing shaped or "finned" rounds. As
consideration for the Buys Portfolio, the Company paid Buys $0.1 million, and
incurred $0.01 in legal costs to transfer these patent rights. This
consideration of $0.1 million was capitalized and represents the minimum rights
to a license arrangement as patent rights as the Agreement included an option
for full acquisition of the rights, conditional upon certain future events
taking place. The Company also agreed to pay Buys either $0.5 million in cash or
$0.8 million worth of Company stock within two years at Buys' discretion, if the
Company elected to retain certain patents within the Buys Portfolio, which terms
were changed by subsequent amendment. Pursuant to an amendment of the Agreement
effective December 18, 2019, the Company made two additional payments to Buys
totaling of $0.8 million, consisting of the Second Payment of $0.7 million
through the issuance of 386,681 shares of common stock and Final Payment of $0.1
million in cash. The Final Payment was paid during the quarter ended August 31,
2020. Buys no longer retains any reversion rights or security interests in the
Buys Portfolio. These patent rights have a maximum life of 20 years, expiring on
various dates beginning from November 2033 to 2038, and are amortized on a
straight-line basis over a period of 15 years.



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



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14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





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



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





15. NOTES PAYABLE




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



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16. LINES OF CREDIT




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



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



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



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




17. STOCKHOLDERS' EQUITY




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



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



Series A Preferred Stock

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



                                       17
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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 when and if declared by the Board. 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.



Warrants


During the nine months ended August 31, 2021, the Company raised $1.3 million
through warrant exercises, where 510,739 warrants were exercised at a
contractual price of $2.50 per warrant for 510,739 shares of common stock.
During the three months ended August 31, 2021, the Company raised $0.1 million
through warrant exercises, where 24,055 warrants were exercised at a contractual
price of $2.50 per warrant for 29,055 shares of common stock.



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 nine months ended August 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 nine months ended August 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 were exercised at a price of
$2.50 per share on February 2, 2021.



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



                                                   Weighted-Average
                                                       Exercise
                                   Number of            Price
                                    Warrants
Outstanding at November 30, 2020      585,739                   2.40
Granted                                     -                      -
Exercised                            (510,739 )                 2.50
Outstanding at August 31, 2021         75,000                   1.55
Exercisable at August 31, 2021         75,000                   1.55




                                       18
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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 Board approved and on November 19, 2020 the
stockholders approved 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 2,500,000. On September 15, 2021, the Company's Board of
Directors approved to increase the number of shares of commons stock available
for issuance under the 2020 Plan by 1,400,000 shares. The 2020 Plan is
administered by the Compensation Committee of the Board. The Compensation
Committee determines the persons to whom options to purchase shares of common
stock, stock appreciation rights ("SARs"), restricted stock units ("RSUs"), and
restricted or unrestricted shares of common stock may be granted. Persons
eligible to receive awards under the 2020 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, expiration dates, and vesting provisions of any of the new
award agreements under the 2020 plan that replace the certificates issued under
the 2017 plan are identical for each grant and no change in valuation or
accounting was required. The Board also amended the definition of Disability in
the 2020 Plan to provide that "Disability" has the meaning assigned to such term
in any individual employment agreement or award agreement with a plan
participant and that if no such definition is provided in an award or employment
agreement "Disability" is defined as in the 2020 Plan.



                                       19
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Restricted Stock Units

During the nine months ended August 31, 2021 and 2020, the Company granted 174,493 and 0 RSUs, respectively. There were no RSUs granted during the three months ended August 31, 2021 and 2020.




Stock-based compensation expense for the RSUs for the three months ended August
31, 2021 and 2020 was $0.9 million and $0, respectively. Stock-based
compensation expense for the RSUs for the nine months ended August 31, 2021 and
2020 was $2.3 million and $0, respectively. The Company recorded stock-based
compensation expense for restricted stock units granted to non-employees of
approximately $0.1 million and $0.07 million during the three and nine months
ended August 31, 2021, respectively. The Company recorded no stock-based
compensation expense for restricted stock units granted to non-employees during
the three and nine months ended August 31, 2020, respectively.



As of August 31, 2021, there was $7.5 million of unrecognized stock-based
compensation cost related to unvested restricted stock units which is expected
to be recognized over a weighted average period of 2.3 years. As of August 31,
2021, there was $0.1 million of unrecognized stock-based compensation cost
related to unvested restricted stock units granted to non-employees which is
expected to be recognized over a weighted average period of 0.5 years. During
the nine months ended August 31, 2021, no shares subject to previously granted
restricted stock units vested.



The following table summarizes the RSU activity during the nine months ended August 31, 2021:




                                                      RSUs

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

                                                174,493
Exercised                                                    -
Cancelled                                                    -

Unvested and outstanding at August 31, 2021 1,747,993

                                       20
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Stock Options

During the nine months ended August 31, 2021 and 2020, the Company granted
options to employees and directors to purchase 41,000 and 391,750 shares of
common stock, respectively. The options issued during the nine months ended
August 31, 2021 vest over three years. The Company recorded stock-based
compensation expense for options granted to its employees and directors of $0.07
million and $0.6 million during the nine months ended August 31, 2021 and 2020,
respectively. The Company recorded stock-based compensation expense for options
granted to its employees and directors of $0.05 million and $0.01 million during
the three months ended August 31, 2021 and 2020, respectively.



During the nine months ended August 31, 2021, 94,683 stock options were
forfeited resulting in net benefit of stock-based compensation of approximately
$0.1 million. During the three months ended August 31, 2021, 12,433 stock
options were forfeited resulting in net benefit of stock-based compensation of
approximately $0.07 million.



During the nine months ended August 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 no stock-based compensation
expense for options granted to non-employees during the three months ended
August 31, 2021 and 2020. During the nine months ended August 31, 2021 and 2020,
the Company recorded $0.04 and $0.02, respectively, of stock-based compensation
expense for options granted to non-employees.



As of August 31, 2021, there was $0.3 million of unrecognized stock-based compensation cost related to unvested stock options which is expected to be recognized over a weighted average period of 2.5 years.

Stock Option Valuation


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



Black-Scholes option pricing model



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

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 nine months ended August 31, 2021:




                                                        Weighted-Average
                                       Stock        Exercise Price Per Stock
                                      Options                Option
Outstanding, November 30, 2020 (1)     705,967                           3.10
Granted                                 41,000                          15.60
Exercised                              (34,572 )                         1.30
Forfeited                              (94,683 )                         5.50
Outstanding, August 31, 2021 (2)       617,712                           

2.83

Exercisable, August 31, 2021 (2)       450,000                           1.96




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


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




                                       21
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Incentive Warrants

During the nine months ended August 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 nine months ended August 31, 2021 and 2020 was $0 and $0.02
million, respectively. Stock-based compensation expense for the three months
ended August 31, 2021 and 2020 was $0.



Stock-Based Compensation Expense


Total stock-based compensation expense was $2.5 million and $0.7 million for the
nine months ended August 31, 2021 and 2020, respectively. Total stock-based
compensation expense was $1.0 million and $0.01 million for the three months
ended August 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 (Loss) Income.




19. LOSS PER SHARE




For the three and nine months ended August 31, 2021 and 2020, the Company
recorded net loss available to common shareholders. As such, because the
dilution from potential common shares was antidilutive, the Company used basic
weighted-average common shares outstanding, rather than diluted weighted-average
common shares outstanding when calculating diluted loss per share for the three
and nine months ended August 31, 2021 and 2020.



The following table sets forth the allocation of net loss for the three and nine months ended August 31, 2021 and 2020, respectively:



                                        For the Three Months Ended          For the Nine Months Ended
                                                August 31,                          August 31,
                                           2021              2020             2021              2020
Net loss                              $       (1,841 )$       (566 )   $         (75 )   $    (10,912 )
Preferred stock dividends                          -                -            (1,043 )              -
Net loss available to common
shareholders                          $       (1,841 )$       (566 )   $ 

(1,118 ) $ (10,912 )


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




The Company's potential dilutive securities, which include stock options and
outstanding warrants to purchase shares of common stock, have been excluded from
the computation of diluted net loss per share as the effect would be to reduce
the net loss per share. Therefore, the weighted-average number of common shares
outstanding used to calculate both basic and diluted net loss per share
attributable to common stockholders is the same. The following potential common
shares, presented based on amounts outstanding at each period end, were excluded
from the calculation of diluted net loss per share attributable to common
stockholders for the periods indicated because including them would have had an
anti-dilutive effect:



                             For the Three Months Ended          For the Nine Months Ended
                                     August 31,                          August 31,
                                2021              2020              2021             2020
Series A Preferred Stock                -        4,636,649                  -       4,636,649
Warrants                           75,000          774,817             75,000         774,817
Stock Options                     617,712          713,667            617,712         713,667
RSUs                            1,747,993                -          1,747,993               -
Total                           2,440,705        6,125,133          2,440,705       6,125,133





                                       22
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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 $0.3 million and approximately $0.05 million for royalties
due to Buys, the Company's CTO, during the nine months ended August 31, 2021 and
2020, respectively and had accrued royalties of $0.1 million and $0.2 million as
of August 31, 2021 and November 30, 2020, respectively. The Company also
recorded stock-based compensation expense of approximately $0.006 million and
$0.01 million during the nine months ended August 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 million and $0.004 million during the
three months ended August 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 nine months ended August 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"), Chief Executive
Officer ("CEO") of the Company. This lease was terminated June 30, 2020. The
Company expensed $0.02 million for these items during the nine months ended
August 31, 2020. The Company expensed $0.01 million for these items during the
three months ended August 31, 2020.



                                       23
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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
nine months ended August 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. In addition,
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.



                                       24
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As of  August 31, 2021 and November 30, 2020, right-of-use assets of $1.1
million and $1.2 million, current lease liabilities of $0.2 million and $0.3
million and non-current lease liabilities of $0.8 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):



                                                       Three Months Ended       Nine Months Ended
                                                         August 31, 2021         August 31, 2021
Lease Cost:
Operating lease cost                                   $                87     $               266
Short-term lease cost                                                    -                       5
Variable lease cost                                                      -                       -
Total lease cost                                       $                87     $               271

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

                                                    $               235

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

                                                            $               182

Operating Leases:
Weighted-average remaining lease term (in years)                                               4.5
Weighted-average discount rate                                                                 9.2 %



Future lease payments under non-cancelable operating leases as of August 31, 2021 are as follows (in thousands):




Fiscal Year Ending November 30,
2021 (three months)               $    80
2022                                  312
2023                                  279
2024                                  286
2025                                  187
Thereafter                            153
Total lease payments                1,297
Less: imputed interest                230
Total lease liabilities           $ 1,067




                                       25
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Sales-Type Leases

During the nine months ended August 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 August 31, 2021 (in thousands):

Net minimum lease payments to be received $ 102 Less: unearned interest income portion

                11
Net investment in sales-type leases                   91
Less: current portion                                 46

Net investment in sales-type leases, non-current $ 45





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
August 31, 2021 was as follows (in thousands):



Fiscal Year Ending November 30,
2021 (three months)                              $  13
2022                                                51
2023                                                38

Total future minimum sales-type lease payments 102 Less: unearned income

                               11

Total net investment in sales-type leases $ 91

                                       26
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22. INCOME TAXES




For the three months ended August 31, 2021 and 2020, the Company recorded an
income tax benefit of $0.1 million and $0, respectively. For the nine months
ended August 31, 2021 and 2020, the Company recorded an income tax expense of
$0.1 million and $0, respectively. For the three months ended August 31, 2021
and 2020, the effective tax rate was 4.5% and 0%, respectively. For the nine
months ended August 31, 2021 and 2020, the effective tax rate was 37.5% 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
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.



                                       27
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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 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 August 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 nine months ended August 31, 2021 and 2020,
respectively. Purchases from the BIP manufacturer were $0 and $0.06 million for
the three months ended August 31, 2021 and 2020, respectively. Notice was
provided and this Development, Supply and Manufacturing Agreement was not
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 nine months
ended August 31, 2021 and 2020, respectively, by geographic region (in
thousands):



Revenue:
Three Months Ended    U.S.       South Africa       Total
August 31, 2021      $ 7,140$       1,563$ 8,703
August 31, 2020        3,707               491       4,198




Nine Months Ended     U.S.       South Africa       Total
August 31, 2021     $ 28,465$       2,532$ 30,997
August 31, 2020        5,028               509        5,537




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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 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.



During the nine months ended August 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 $0.1 million and translation
adjustment gain of $0.1 million primarily related to the South African rand
during the nine months ended August 31, 2021 and 2020, respectively. The Company
recorded a translation adjustment loss of $0.06 and translation adjustment gain
of $0.02 million primarily related to the South African rand during the three
months ended August 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.




                                       29
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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") and the Company's Quarterly Report on Form 10-Q for the period
ended May 31, 2021 filed with the SEC on July 1, 2021 (the "2021 Q2 10-Q") 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. 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, the impact of new strains including Delta on
our personnel and operations, 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
storefronts, 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.



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



                                       30
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A number of events during the quarter ended August 31, 2021 and the subsequent
period impacted our results of operations. These included the exercise of all
remaining outstanding warrants from our 2018 and 2019 private placements of
convertible debt, the conversion of all outstanding Preferred Series A Stock for
common stock, our listing on the Nasdaq and subsequent decision to delist from
the Canadian Securities Exchange, the completion of a public offering of
2,875,000 shares of common stock, the introduction of a number of new products,
new marketing endeavors, expanded awareness of our products and expanded sales
volume, expansion of our brick and mortar outlets, and the onboarding of new
talent at the Company's highest management level.  The impact of these events
and associated expenses are highlighted below.



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.



RESULTS OF OPERATIONS



Results for the third quarter of 2021 demonstrate a continuing 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. Most of
the growth in revenue continues to be in high margin direct sales through our
website. E-commerce orders account for 65.7% of total net revenue this quarter.
The increasing excess of revenue over fixed production costs drove improvement
in our gross margin, which was 56.2% 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 continues to improve 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, our efforts to increase brand awareness and accessibility,
and introduction of new products and accessories, 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.
We also incur expenses associated with operating as a public company, including
expenses related to compliance with the rules and regulations of the SEC and
Nasdaq, insurance expenses, audit expenses, investor relations activities,
Sarbanes-Oxley compliance expenses and other administrative expenses and
professional services.



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




Net Revenue

Revenues were $8.7 million in the third quarter of 2021 which represents an increase of $4.5 million or 107.3% as compared to the prior year period revenues of $4.2 million. This increase was due to higher e-commerce sales, international sales, expansion of brick and mortar sales channel and a growing market awareness of the Byrna® HD product and our expanded product line.

Cost of Goods Sold


Cost of goods sold was $3.8 million in the third quarter of 2021 compared to
$2.1 million in the prior year period. This $1.7 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 shipping and
handling costs. Gross profit was $4.9 million in the third quarter of 2021, or
56.2% of net revenue, as compared to gross profit of approximately $2.1 million,
or 50.7% 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 and our expanded
product line.



                                       31
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Operating Expenses / Loss from Operations


Operating expenses were $6.7 million in the third quarter of 2021, as compared
to the prior year period expenses of $2.7 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 $0.02 million in the third
quarter of 2020 to $0.4 million in the third quarter of 2021. The structural
growth required to manage a larger company with higher sales volumes drove up
structural costs. Payroll related costs were $2.6 million and stock compensation
costs were $1.0 million in the third quarter of 2021 as compared to $1.0 million
and $0.01 million, respectively, in the third quarter of 2020. Insurance expense
increased from $0.1 million in the third quarter of 2020 to $0.4 million in the
third quarter of 2021. Public company costs increased from $0.03 million in the
third quarter of 2020 to $0.1 million in the third quarter of 2021. Research and
development cost increased from $0.004 million in the third quarter of 2020 to
$0.1 million in the third quarter of 2021.



Interest Income (Expense)


Interest Income for the three months ended August 31, 2021 was $0.01 million.
This represents $0.02 million of interest income on our cash balance, offset by
$0.01 million of interest on the asset-based loan. Interest Expense for the
three months ended August 31, 2020 was $0.



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 August 31, 2021 and $0 for the same period
one year earlier.



Income Tax Provision

Our effective income tax rate was 6.7% and 0% for the three months ended August
31, 2021 and 2020, respectively. Our income tax provision was $0.1 million and
$0 for the three months ended August 31, 2021 and August 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.



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 loss, and non-GAAP net loss per share.
Management uses these non-GAAP financial measures, in addition to GAAP financial
measures, to understand and compare operating results across accounting periods,
for financial and operational decision making, for planning and forecasting
purposes and to evaluate our financial performance. We believe that these
non-GAAP financial measures help us to identify underlying trends in our
business that could otherwise be masked by the effect of certain expenses that
we exclude in the calculations of the non-GAAP financial measures.



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




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



                                       32
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Adjusted EBITDA



Adjusted EBITDA is defined as comprehensive (loss) income as reported in our
consolidated statements of operations and comprehensive (loss) income excluding
the impact of (i) depreciation and amortization; (ii) income tax provision
(benefit); (iii) interest income (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 (loss) income, the most
directly comparable GAAP measure, is as follows (in thousands):



                                      For the Three Months Ended
                                              August 31,
                                        2021                2020
Comprehensive (loss) income        $        (1,896 )$      (546 )

Adjustments:
Interest income                                (13 )               -
Income tax provision                           (74 )               -
Depreciation and amortization                  136                75
Non-GAAP EBITDA                             (1,847 )            (471 )

Stock-based compensation expense               981                11
Other financing costs                            9                 -
Non-GAAP adjusted EBITDA           $          (857 )     $      (460 )




                                       33
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Non-GAAP net loss and non-GAAP net loss per share




Non-GAAP net loss is defined as comprehensive (loss) income as reported in our
consolidated statements of operations and comprehensive (loss) 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 loss measure eliminates
potential differences in performance caused by certain non-cash and one-time
costs. We also provide non-GAAP net loss per share by dividing non-GAAP net
loss by the average basic shares outstanding for the period. Reconciliation of
Non-GAAP comprehensive (loss) income to Comprehensive (loss) income, the most
directly comparable GAAP measure, is as follows (in thousands):



                                                          For the Three Months Ended
                                                                  August 31,
                                                            2021              2020
Comprehensive (loss) income                            $       (1,896 )$        (546 )

Adjustments:
Stock-based compensation                                          981                11
Other financing costs                                               9                 -
NON-GAAP NET LOSS                                      $         (906 )   $        (535 )

Non-GAAP net loss per share - basic                    $        (0.04 )$       (0.04 )
Weighted-average number of common shares outstanding
during the period - basic                                  22,047,571        13,493,676






                                       34
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Nine months ended August 31, 2021 as compared to nine months ended August 31, 2020:




Net Revenue

Revenues were $31.0 million for the nine months ended August 31, 2021, a
significant increase compared to the prior year period revenues of $5.5 million.
This increase was due to higher e-commerce sales, international sales, expansion
of brick and mortar sales channel and a growing market awareness of the Byrna®
HD product and our expanded product line.



Cost of Goods Sold


Cost of goods sold was $13.8 million for the nine months ended August 31, 2021
compared to $2.9 million in the prior year period. This $10.9 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 inbound freight costs, manufacturing depreciation, purchasing
and receiving costs, and inspection costs. Gross profit was $17.2 million for
the nine months ended August 31, 2021, a gross profit margin of 55.5% driven by
sales of Byrna® HD products and accessories. Gross profit in the prior year
period was $2.6 million with a gross profit margin of 47.2%. 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 / Loss from Operations


Operating expenses were $17.4 million for the nine months ended August 31, 2021,
as compared to the prior year period expenses of $5.7 million. This increase is
due to the growth of the Company, primarily increases in variable expenses due
to growth of sales volumes such as freight out, which increased from $0.03
million for the nine months ended August 31, 2020 to $1.4 million for the nine
months ended August 31, 2021 and bank fees which are primarily transaction fees
on customers' credit card orders and which grew from $0.04 million for the  nine
months ended August 31, 2020 to $0.8 million for the nine months ended August
31, 2021. The structural growth required to manage a larger business with higher
sales volumes drove up structural costs. Payroll related costs were $2.2 million
and stock compensation costs were $0.7 million for the nine months ended August
31, 2020. These were $7.0 million and $2.5 million respectively for the nine
months ended August 31, 2021. Insurance expense increased from $0.1 million for
the nine months ended August 31, 2020 to $0.9 million for the nine months ended
August 31, 2021. Marketing cost increased from $0.8 million for the nine months
ended August 31, 2020 to $1.3 million for the nine months ended August 31, 2021.



Accretion of Debt Discounts


Accretion of debt discounts decreased $0.8 million for the nine months ended
August 31, 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 nine months ended August 31, 2021 was $0.02 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 nine months ended August 31, 2020 was $0.2 million of interest accrued on
convertible notes payable. We no longer have any outstanding convertible notes
payable.



                                       35
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Income (Loss) on Extinguishment of Debt


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



Loss on extinguishment of debt was $6.0 million during the nine months ended August 31, 2020 and relates to the April 8, 2020 exchange of convertible notes payable for preferred stock.

Warrant Inducement Expense


Warrant inducement expense was $0 for the nine months ended August 31, 2021 and
$0.8 million for the nine months ended August 31, 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 $0.02
million for the nine months ended August 31, 2021 and $0 for the same period one
year earlier.



Income Tax Provision

Our income tax provision was $0.3 million and $0 for the nine months ended
August 31, 2021 and 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.



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 loss, and non-GAAP net loss per share.
Management uses these non-GAAP financial measures, in addition to GAAP financial
measures, to understand and compare operating results across accounting periods,
for financial and operational decision making, for planning and forecasting
purposes and to evaluate our financial performance. We believe that these
non-GAAP financial measures help us to identify underlying trends in our
business that could otherwise be masked by the effect of certain expenses that
we exclude in the calculations of the non-GAAP financial measures.



                                       36
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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 (loss) income as reported in our
consolidated statements of operations and comprehensive (loss) income excluding
the impact of (i) depreciation and amortization; (ii) income tax provision
(benefit); (iii) interest (income) 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 August 31, 2020 because it was not applicable to such
period. We also exclude certain one-time and non-cash costs. Reconciliation of
Adjusted EBITDA to comprehensive (loss) income the most directly comparable GAAP
measure, is as follows (in thousands):



                                           For the Nine Months Ended
                                                   August 31,
                                           2021                2020
Comprehensive (loss) income             $        48$      (10,796 )

Adjustments:
Interest expense                                 24                  233
Income tax provision                            109                    -
Depreciation and amortization                   353                  153
Non-GAAP EBITDA                                 534              (10,410 )

Stock-based compensation expense              2,527                  659
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                            18                    -
Non-GAAP adjusted EBITDA                $     2,889$       (2,124 )




                                       37
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Non-GAAP net income (loss) and non-GAAP comprehensive (loss) income per share




Non-GAAP comprehensive (loss) income is defined as comprehensive (loss) income
as reported in our consolidated statements of operations and
comprehensive (loss) 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 (loss) income to
comprehensive (loss) income, the most directly comparable GAAP measure, is as
follows (in thousands):



                                                          For the Nine Months Ended
                                                                  August 31,
                                                            2021              2020
Comprehensive (loss) income                            $           48     $     (10,796 )

Adjustments:
Stock-based compensation                                        2,527               659
Accretion of debt discounts                                         -       

755

Loss on extinguishment of debt                                      -             6,027
Warrant inducement expense                                          -               845
Other income                                                     (190 )               -
Other financing costs                                              18                 -
NON-GAAP NET INCOME (LOSS)                                      2,403            (2,510 )
Preferred stock dividends                                      (1,043 )               -
Non-GAAP net (loss) income available to common
shareholders                                           $        1,360     $ 

(2,510 )


Non-GAAP net income (loss) per share - basic           $         0.07     $       (0.21 )
Weighted-average number of common shares outstanding
during the period - basic                                  18,269,360        12,015,065




                                       38
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LIQUIDITY AND CAPITAL RESOURCES




During the third quarter of 2021, we received approximately $56.0 million in
cash proceeds from the sale of equity securities. See Note 17, Stockholders'
Equity, in the "Notes to the Condensed Consolidated Financial Statements" in
this Form 10-Q.



Cash Flow Summary

Cash and balances of restricted cash as of August 31, 2021 totaled $58.5
million, an increase of $48.9 million from $9.7 million as of November 30, 2020.
There was $0 million of current restricted cash at August 31, 2021 as compared
to $6.4 million for the period ended November 30, 2020 as we fulfilled our
backlogged e-commerce orders and our merchant services vendor no longer
has holds placed on orders prepaid by credit cards.



Operating Activities


Cash used in operating activities was $2.4 million for the nine months ended
August 31, 2021 compared to cash provided by operations of $4.8 million during
the prior year period. Net loss was $1.7 million and $0.004 million for the
three and nine months ended August 31, 2021, respectively. Net loss was $0.6
million and $10.9 million for the three and nine months ended August 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 loss to calculate
cash used in operations in the nine months ended August 31, 2021. These include
stock-based expense of $2.5 million, compared to $0.7 million for the nine
months ended August 31, 2020; depreciation and amortization of $0.4 million
compared to $0.2 million for the nine months ended August 31, 2020; and lease
accounting expenses of $0.2 million compared to $0.08 for the nine months ended
August 31, 2020. These added back amounts were partially offset by backing out
non-cash income on forgiveness of debt of $0.2 million. Additionally, non-cash
activity during the nine months ended August 31, 2020 included $6.0 million loss
on extinguishment of debt.



During the nine months ended August 31, 2021, the growth of the company was
reflected in the use of cash for growing working capital needs. Inventory
increased during the third quarter by $2.3 million, compared to $2.3 million for
the nine months ended August 31, 2020. Deferred revenue decreased $4.2 million
during the nine months ended August 31, 2021 compared to an increase
of $9.3 million for the nine months ended August 31, 2020 as we fulfilled
backlogged e-commerce orders. Additionally, for the nine months ended August 31,
2021 accounts payable and accrued expenses increased by $0.1 million, compared
to $2.0 million for the nine months ended August 31, 2020. This decrease was
only partially offset by decreases in accounts receivable and prepaid expenses
of $1.0 million, compared to increases of $2.0 million for the nine months ended
August 31, 2020.



Investing Activities

Cash used in investing activities was $5.4 million for the nine months ended
August 31, 2021 compared to $1.6 for the nine months ended August 31, 2020. For
the nine months ended August 31, 2021, $4.0 million was attributable to the
acquisition of assets and approximately $0.8 million for purchases of property
and equipment. For the nine months ended August 31, 2020, $0.5 million was in
connection with Roboro acquisition, and approximately $1.0 million for purchases
of property and equipment.



Financing Activities

Cash provided by financing activities was $57.2  million during the nine months
ended August 31, 2021. This amount was comprised primarily of the proceeds from
2,875,000 shares of our common stock (including 375,000 shares sold pursuant to
the exercise of the underwriters' overallotment option) at a price of $21.00 per
share that we issued and sold during the third quarter of 2021. The net proceeds
to use, after deducting $4.4 million in underwriting discounts and commissions
and offering expenses, were approximately $55.9 million. Additionally, we had
$1.3 million in proceeds from warrant exercises. Cash provided by financing
activities was $7.3 million during the nine months ended August 31, 2020, and
included $6.8 million proceeds from warrant exercises, $0.5 million from
Roboro's sellers and $0.2 million from the Paycheck Protection Program.



                                       39
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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 nine months ended August 31, 2021, there
were no significant changes to the Company's critical accounting policies from
those described in our 2020 10-K.

© Edgar Online, source Glimpses

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