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BYRNA TECHNOLOGIES INC.

(BYRN)
  Report
Delayed Nasdaq  -  04:00 2022-12-07 pm EST
8.770 USD   +0.23%
12/06Byrna Technologies Inc. Provides Earnings Guidance for the Fourth Quarter Ended November 30, 2022 and Full Year of 2022
CI
12/06Byrna Technologies Announces Record Fourth Quarter Revenues of $16.0 Million up 43% from Q4 2021
PR
10/11BYRNA TECHNOLOGIES INC. Submission of Matters to a Vote of Security Holders (form 8-K/A)
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2. OPERATIONS AND MANAGEMENT PLANS

10/03/2022 | 04:10pm EST
From inception to August 31, 2022, the Company had incurred an
accumulated deficit of $61.3 million.  The Company has funded operations through
the issuance of common stock.  The Company generated $32.0 million in revenue
and net loss of $7.8 million for the nine months ended August 31, 2022.  It
still is expected to incur significant losses before the Company's revenues
sustain its operations. The Company's future success is dependent upon its
ability to continue to raise sufficient capital or generate adequate revenues,
to cover its ongoing operating expenses, and also to continue to develop and be
able to profitably market its products.



In July 2021, the Company issued and sold an aggregate of 2,875,000 registered
shares of its common stock (including 375,000 shares sold pursuant to the
exercise of the underwriters' overallotment option) at a price of $21.00 per
share. The net proceeds to the Company, after deducting $4.4 million in
underwriting discounts and commissions, and offering expenses, were
approximately $56.0 million.  Management projects that all cash needs will be
met beyond one year from the time these financial statements are issued.








3. BASIS OF PRESENTATION




These condensed consolidated financial statements for the three and nine months
ended August 31, 2022 and 2021 include the accounts of the Company and its
subsidiaries. These condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity generally
accepted accounting principles in the United States of America ("GAAP");
however, such information reflects all adjustments consisting solely of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair presentation of the results for the interim periods.  All significant
intercompany accounts and transactions have been eliminated in consolidation.



The unaudited condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
together with management's discussion and analysis of financial condition and
results of operations contained in the Company's annual report on Form 10-K for
the year ended November 30, 2021. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements, the results of its
operations for the three and nine months ended August 31, 2022 and 2021, and its
cash flows for the nine months ended August 31, 2022 and 2021 are not
necessarily indicative of results to be expected for the full year.

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4. USE OF ESTIMATES




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




5. RECENT ACCOUNTING GUIDANCE



Recently Adopted Accounting Guidance


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



Accounting Guidance Issued But Not Adopted


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



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




6. ACQUISITIONS




Asset Acquisition

On May 12, 2021, the Company entered into an asset purchase agreement to
purchase certain assets used in the business of designing, developing,
manufacturing, licensing, and selling of products and services for the Mission
Less Lethal brand from Kore Outdoor (U.S.) Inc., ("Kore") a wholly owned
subsidiary of Kore Outdoor, Inc.  The transaction was accounted for as an asset
acquisition, with estimated $3.7 million total cost of which $0.2 million were
acquisition-related expenses. The Company accounted for the transaction as an
asset acquisition where the assets acquired were measured based on the amount of
cash paid to Kore as well as transaction costs incurred as the fair value of the
assets given was more readily determinable than the fair value of the assets
received. The Company classified and designated identifiable assets acquired and
assessed and determined the useful lives of the acquired intangible assets
subject to amortization.



Business Combination

Fox Labs International

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

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



Cash                       $   241
Accounts receivable             48
Inventory                       36
Trademarks                     360
Customer list intangible        70
Accounts payable               (59 )
Deferred revenue               (14 )
Goodwill                     1,492
Total acquired assets      $ 2,173



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




Ballistipax®

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




7. RESTRICTED CASH




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



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8. REVENUE, DEFERRED REVENUE AND ACCOUNTS RECEIVABLE





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



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



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



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



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

Allowance for Doubtful Accounts


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



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Deferred Revenue


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



                                                          August 31,        November 30,
                                                             2022               2021
Deferred revenue balance, beginning of period            $       1,125     $        4,902
Net additions to deferred revenue during the period             21,844      

33,641

Reductions in deferred revenue for revenue recognized during the period

                                              (21,663 )          (37,418 )
Deferred revenue balance, end of period                          1,306      

1,125

Less current portion                                               921      

720

Deferred revenue, non-current                            $         385     $          405




Revenue Disaggregation

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



                                    Three Months Ended          Nine Months Ended
                                        August 31,                  August 31,
Distribution channel                 2022          2021         2022          2021
Wholesale (dealer/distributors)   $     4,312     $ 2,986     $  10,746     $  7,041
E-commerce                              8,110       5,717        21,272       23,956
Total                             $    12,422     $ 8,703     $  32,018     $ 30,997




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9. PROPERTY AND EQUIPMENT




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



                                   August 31,      November 30,
                                      2022             2021

Computer equipment and software $ 327 $ 275 Furniture and fixtures

                     359               208
Leasehold improvements                     729               157
Machinery and equipment                  2,297             1,738
                                         3,712             2,378
Less: accumulated depreciation             677               406
Total                             $      3,035     $       1,972



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




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




10. INVENTORY



The following table summarizes inventory (in thousands):



                   August 31,      November 30,
                      2022             2021
Raw materials     $      7,682     $       3,175
Work in process            968               428
Finished goods           6,772             3,010
Total             $     15,422     $       6,613




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11. INTANGIBLE ASSETS



The components of intangible assets were as follows:




                               Balance at August 31, 2022                                    Balance at November 30, 2021
                Gross Carrying          Accumulated         Net Carrying      Gross Carrying           Accumulated         Net Carrying
                    Amount              Amortization           Amount             Amount              Amortization            Amount
Patents         $         3,938       $           (405 )   $        3,533     $         3,895       $            (227 )   $        3,668
Trademarks                  360                      -                360                   -                       -                  -
Customer List                70                    (11 )               59                   -                       -                  -
Total           $         4,368       $           (416 )   $        3,952     $         3,895       $            (227 )   $        3,668



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




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



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




Fiscal Year Ending November 30,
2022 (three months)               $    68
2023                                  272
2024                                  252
2025                                  237
2026                                  237
Thereafter                          2,344
Total                             $ 3,410






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12. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES





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



                             August 31,      November 30,
                                2022             2021
Trade payables              $      3,363     $       2,793
Accrued sales and use tax            757               940
Accrued people costs               1,686             2,317
Accrued marketing                    364               185
Accrued professional fees            261               617
Other accrued liabilities            418               144
Total                       $      6,849     $       6,996





13. NOTES PAYABLE



Paycheck Protection Program ("PPP") Loan


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



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



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14. LINES OF CREDIT




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



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



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






15. STOCKHOLDERS' EQUITY



Authorized Shares and Increase in Stock Compensation Plan


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



Stock Buyback Plan


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



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



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



                                    Number of                           Average Cost
                                     Shares         Cost of Shares        per Share
Shares purchased - February 2022       296,168     $      2,653,571     $         9.0
Shares purchased - March 2022          754,081            7,346,422     $         9.7
Shares purchased - May 2022            729,709            4,999,993     $         6.9
Total                                1,779,958     $     14,999,986     $         8.4




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16. STOCK-BASED COMPENSATION




 2017 Plan

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



2020 Plan


On October 23, 2020, the Board approved and on November 19, 2020 the
stockholders approved the Byrna Technologies Inc. 2020 Equity Incentive Plan
(the "2020 Plan"). The aggregate number of shares of common stock available for
issuance in connection with options and other awards granted under the 2020 Plan
was 2,500,000. On April 26, 2022, the Company's Board of Directors approved and
on June 17, 2022 the Company's stockholders approved the increase of the number
of shares of common stock available for issuance under the 2020 Plan by
1,300,000 shares to a total of 3,800,000 shares. The 2020 Plan is administered
by the Compensation Committee of the Board. The Compensation Committee
determines the persons to whom options to purchase shares of common stock, stock
appreciation rights ("SARs"), restricted stock units ("RSUs"), and restricted or
unrestricted shares of common stock may be granted. Persons eligible to receive
awards under the 2020 Plan are employees, officers, directors, consultants,
advisors and other individual service providers of the Company. Awards are at
the discretion of the Compensation Committee.



On February 24, 2021, following the termination of the 2017 Plan, the Company
replaced outstanding options under the 2017 Plan with options under the
2020 Plan. In connection with the adoption of the 2020 Plan, the Company
cancelled outstanding option awards granted under the 2017 plan. There were no
substantive changes to the rights of any holder of options granted under the
2017 plan other than replacing their award certificates with award agreements
under the 2020 plan. The grant dates, exercise prices, expiration dates, and
vesting provisions of any of the new award agreements under the 2020 plan that
replace the certificates issued under the 2017 plan are identical for each grant
and no change in valuation or accounting was required. The Board also amended
the definition of Disability in the 2020 Plan to provide that "Disability" has
the meaning assigned to such term in any individual employment agreement or
award agreement with a plan participant and that if no such definition is
provided in an award or employment agreement "Disability" is defined as in the
2020 Plan.



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Stock-Based Compensation Expense


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



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



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



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



Restricted Stock Units


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



During the nine months ended August 31, 2022, the Company accelerated the
vesting of 3,874 RSUs to a former director and 8,392 RSUs to current board
members for 2021 services.  During the nine months ended August 31, 2022, 25,000
RSUs were forfeited due to a former employee who was terminated for cause.
These RSU's did not vest, as they were based on triggers and performance that
were not met.  As a result, no expenses were reversed, and going forward no
expenses will be recognized.  The forfeited RSUs were returned to the pool of
shares available for issuance under the 2020 Plan.



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

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




                                                      RSUs

Unvested and outstanding as of November 30, 2021 1,594,120 Granted

                                                376,555
Settled                                                (12,266 )
Cancelled                                             (778,750 )
Forfeited                                              (25,000 )

Unvested and outstanding at August 31, 2022 1,154,659








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Stock Options


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



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

Stock Option Valuation


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



Risk free rate                                                   3.34 %
Expected dividends                                                0.0
Expected volatility                                             78.44 %
Expected life (in years)                                          6.5

Market price of the Company's common stock on date of grant 5.51 Exercise price

                                                   7.70




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




                                                      Weighted-Average
                                    Stock         Exercise Price Per Stock
                                   Options                 Option
Outstanding, November 30, 2021       586,783     $                     3.48
Granted                              994,750                           7.70
Exercised                           (250,250 )                        (1.82 )
Forfeited                            (20,500 )                       (11.80 )
Outstanding, August 31, 2022       1,310,783     $                     6.83
Exercisable, August 31, 2022         274,534     $                     1.90








                                       16
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17. EARNINGS PER SHARE




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





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



                                        For the Three Months Ended          For the Nine Months Ended
                                                August 31,                          August 31,
                                           2022              2021             2022              2021
Net loss                              $       (1,534 )   $     (1,841 )   $      (7,752 )   $        (75 )
Preferred stock dividends                          -                -                 -           (1,043 )
Net loss available to common
shareholders                          $       (1,534 )   $     (1,841 )   $ 

(7,752 ) $ (1,118 )


Weighted-average number of shares
used in computing net loss per
share, basic and diluted                  21,751,879       22,047,571        22,704,565       18,269,360
Net loss per share -- basic           $        (0.07 )   $      (0.08 )   $       (0.34 )   $      (0.06 )




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



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




             For the Three Months Ended          For the Nine Months Ended
                     August 31,                          August 31,
                2022              2021              2022             2021
Warrants                -           75,000                  -          75,000
Options         1,310,783          617,712          1,310,783         617,712
RSUs            1,154,659        1,747,993          1,154,659       1,747,993
Total           2,465,442        2,440,705          2,465,442       2,440,705




18. RELATED PARTY TRANSACTIONS





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



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



The Company subleases office premises at its Massachusetts headquarters to a
corporation owned and controlled by the Chief Executive Officer ("CEO") of the
Company beginning July 1, 2020, with no stated termination date. Sublease
payments received were $0.03 million and $0.01 million for the nine months ended
August 31, 2022 and 2021, respectively.  Sublease payments received were $7.0
thousand and $8.0 thousand for three months ended August 31, 2022 and 2021.



                                       17
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19. LEASES




Operating Leases

The Company has operating leases for real estate in the United States and South Africa and does not have any finance leases.




In 2019, the Company had entered into a real estate lease for office space in
Andover, Massachusetts. In August 2021, the lease was amended to include
additional space and extend the term of the existing space by one year. The new
lease expiration date is February 29, 2028.  The base rent is approximately
$0.02 million per month.



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



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



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




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



                                       18
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As of August 31, 2022 and 2021 the elements of lease expense were as follows (in
thousands):



                                                       Three Months Ended       Nine Months Ended
                                                         August 31, 2022         August 31, 2022
Lease Cost:
Operating lease cost                                   $               144     $               360
Short-term lease cost                                                    1                       9
Total lease cost                                       $               145     $               369

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

                            $               148     $               244

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

                                    $             1,047     $             1,557

Operating Leases:
Weighted-average remaining lease term (in years)                                               4.6
Weighted-average discount rate                                                                 9.5 %



Future lease payments under non-cancelable operating leases as of August 31, 2022 are as follows (in thousands):




Fiscal Year Ending November 30,
2022 (three months)               $   169
2023                                  679
2024                                  696
2025                                  594
2026                                  527
Thereafter                            451
Total lease payments                3,116
Less: imputed interest                598
Total lease liabilities           $ 2,518







20. INCOME TAXES




For the three months ended August 31, 2022 and 2021, the Company recorded an
income tax expense of $0.2 million and an income tax benefit of $0.1 million,
respectively. For the three months ended August 31, 2022 and 2021, the effective
tax rate was (10.8%) and 3.9%, respectively. For the nine months ended August
31, 2022 and 2021, the Company recorded an income tax expense of $0.1 million
and $0.1 million, respectively.  For the nine months ended August 31, 2022 and
2021 the effective tax rate was (1.1%) and 320.6%, 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
current period, and other effects.



                                       19
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21. COMMITMENTS AND CONTINGENCIES




Royalty Payment

Pursuant to the Purchase and Sale Agreement, dated April 13, 2018 and further
amended on December 19, 2019, the Company was committed to a minimum royalty
payment of $0.025 million per year.  Royalties on CO2 pistols were to be paid
for so long as patents remain effective beginning at 2 ½% of the agreed upon 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 would 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.



On January 7, 2022, the Company and the CTO agreed to waive all future rights
and entitlements under such agreement, including without limitation any right,
title, or interest in the intellectual property or royalty fees except for those
on the fintail projectiles.  In exchange for the royalty termination, the
Company agreed to grant 200,000 RSU's upon stockholder's approval and
renegotiation of the employment contract of the increase in the number of shares
of common stock available for issuance under the 2020 Plan.  The RSU's will vest
two years from January 7, 2022.  As a result, the Company did not recognize any
royalty expense in the first quarter of 2022 and recognized stock compensation
expense of $0.6 million associated with the RSUs during the three and nine
months ended August 31, 2022.



COVID-19 Pandemic and 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 2022.



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.



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.



                                       20
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22. 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, 2022 and 2021, respectively, by geographic region (in
thousands):



Revenue:
                                                          Europe/South
Three Months Ended       U.S.         South Africa        America/Asia          Canada            Total
August 31, 2022      $     10,347     $         704     $          1,342     $          29     $     12,422
August 31, 2021             7,140             1,563                    -                 -            8,703




                                                         Europe/South
Nine Months Ended       U.S.         South Africa        America/Asia      
   Canada            Total
August 31, 2022     $     27,140     $       2,061     $          2,765     $          52     $     32,018
August 31, 2021           28,465             2,532                    -                 -           30,997







23. 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 changes in economic
conditions.



During the three and nine months ended August 31, 2022, in comparison to the
prior year period, the U.S. dollar was weaker 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 loss of $0.6 million and
$0.06 million related to the South African rand during the three months ended
August 31, 2022 and 2021, respectively. The Company recorded a translation
adjustment loss of $0.6 million and translation adjustment gain of $0.1 million
during the nine months ended August 31, 2022 and 2021.



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 (deficit) 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, cash equivalents, 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.




                                       21
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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," "may," "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, 2021 filed with the
U.S. Securities and Exchange Commission (the "SEC") on February 11, 2022 (the
"2021 10-K"), the Company's subsequent filings with the SEC, which can be
accessed on the EDGAR section of the SEC's website at www.sec.gov. 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 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 Bureau of Alcohol, Tobacco, and Firearms, 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 condensed 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 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.



                                       22
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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® SD and expansion of
the Byrna product line.



RESULTS OF OPERATIONS



Results for the third quarter of 2022 demonstrate a continuing demand for our
Byrna SD personal security device and growth of the production capacity and
administrative and control structures necessary to supply that demand.  Revenue
increased to $12.4 million from $8.7 million in the third quarter of last year.
Most of the growth in revenue continues to be in high margin direct sales or
Amazon, as e-commerce orders accounted for 65.3% of total net revenue this
quarter.  In addition, the Company introduced products from Fox Labs, which the
Company acquired at the end of the second quarter of this year.  Sales related
to Fox Lab branded products totaled $0.4 million in the third quarter of 2022.



Over the past year, 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, 2022 as compared to three months ended August 31, 2021:




Net Revenue

Revenues were $12.4 million in the third quarter of 2022 which represents an
increase of $3.7 million or 42.7% as compared to the prior year period revenues
of $8.7 million.  Website sales, increased by $2.4 million from $5.7 million in
the third quarter of 2021 to $8.1 million in the third quarter of 2022.  This
increase includes a $1.7 million increase in Amazon sales.  Additionally, sales
through all other channels, with the exception of law enforcement, increased in
comparison with the same quarter of the prior year.  International
sales increased by $0.5 million from $1.6 million in the third quarter of 2021
to $2.1 million in the third quarter of 2022 due to a strong quarter for exports
to Asia and Latin America.  Sales to domestic dealers/distributors increased
from $1.2 million in the third quarter of 2021 to $1.7 million in the third
quarter of 2022.  In addition, Fox Labs, which was acquired on May 25, 2022,
added $0.4 million in sales pepper sprays the third quarter of 2022.



Cost of Goods Sold


Cost of goods sold was $5.5 million in the third quarter of 2022 compared to
$3.8 million in the prior year period. This $1.7 million increase is primarily
due to the increase in related sales volume.



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, and inspection costs. Gross profit
was $6.9 million in the third quarter of 2022, or 55.4% of net revenue, as
compared to gross profit of approximately $4.9 million, or 56.2% of net revenue,
in the prior year period.  While improvements in shipping efficiency lowered
freight costs and improved gross profit by approximately 1%, one-time increases
to inventory reserves decreased gross profit by approximately 2%.



                                       23
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Operating Expenses / Income (Loss) from Operations


Operating expenses were $8.3 million in the third quarter of 2022, an increase
of $1.6 million, as compared to the prior year period expenses of $6.7 million.
This increase is due to the growth of the Company.



During fiscal year 2021, management made the strategic decision to support
continued revenue growth through increased marketing expenditure which increased
$0.8 million to $1.4 million for the third quarter of 2022 as compared to $0.6
million in the third quarter of 2021.



The structural growth required to manage a larger business with higher sales
volumes drove up structural costs. Payroll related costs increased $0.3 million
from $3.6 million in the third quarter of 2021 to $3.9 million in the third
quarter of 2022, mainly due to the increase in stock compensation expense.  IT
subscriptions increased $0.1 million from $0.03 million in the third quarter of
2021 to $0.2 million in the third quarter of 2022.



Income Tax Provision


For the three months ended August 31, 2022 and 2021, the Company recorded an
income tax expense of $0.2 million and an income tax benefit of $0.1 million,
respectively. For the three months ended August 31, 2022 and 2021, the effective
tax rate was (10.8%) and 3.9%, 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 current
period, and other effects.



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 adjusted net loss, and non-GAAP adjusted
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.



                                       24
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Adjusted EBITDA



Adjusted EBITDA is defined as net (loss) income as reported in our condensed
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; and (v) other expenses. 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 net (loss) income, the most directly comparable GAAP measure, is as follows
(in thousands):



                                             For the Three Months Ended
                                                     August 31,
                                              2022                2021
Net loss                                  $      (1,534 )     $      (1,841 )

Adjustments:
Interest (income) expense                             3                 (13 )
Income tax provision (benefit)                      150                 (74 )
Depreciation and amortization                       250                 136
Non-GAAP EBITDA                                  (1,131 )            (1,792 )

Stock-based compensation expense                  2,689                 981
Non-cash incentive compensation expense          (1,415 )                 -
Other expenses                                        3                   9
Severance/Separation                                138                   -
Non-GAAP adjusted EBITDA                  $         284       $        (802 )



Non-GAAP adjusted net loss per share




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



                                                          For the Three Months Ended
                                                                  August 31,
                                                            2022              2021
Net loss                                               $       (1,534 )   $      (1,841 )

Adjustments:
Stock-based compensation                                        2,689               981
Non-cash incentive compensation expense                        (1,415 )               -
Other expenses                                                      3                 9
Severance/Separation                                              138                 -
NON-GAAP ADJUSTED NET (LOSS) INCOME                    $         (119 )   $        (851 )
Net income applicable to preferred stock                            -       

-

NON-GAAP ADJUSTED NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS                                    $         (119 )   $ 

(851 )


Non-GAAP adjusted net income (loss) per share -
basic and diluted                                      $        (0.01 )   $ 

(0.04 ) Weighted-average number of common shares outstanding during the period - basic and diluted

                      21,751,879        22,047,571



Nine months ended August 31, 2022 as compared to nine months ended August 31, 2021:




Net Revenue

Revenues were $32.0 million in the nine months ended August 31, 2022 which
represents an increase of $1.0 million as compared to the prior year period
revenues of $31.0 million.  The prior year period sales included the fulfillment
of approximately $4.0 million of backorders received in fiscal year 2020 and a
surge in the Company's website sales due to the Company's product being featured
on a national news program in April of 2021.  Thus, website sales (excluding
Amazon) decreased by $6.3 million from $23.9 million in nine months ended August
31, 2021 to $17.6 million in nine months ended August 31, 2022.  However, sales
through all other channels increased year over year.  International sales
increased by $2.4 million from $2.5 million in the nine months ended August 31,
2021 to $4.9 million in the nine months ended August 31, 2022.  This increase
was driven by new customers in South America and Asia. Sales via Amazon were
$3.7 million in the nine months ended August 31, 2022 compared to $0.05 million
in the nine months ended August 31, 2021, before that site had been established.
Sales to domestic dealers/distributors, and retail sales to large end-users such
as security companies and law enforcement agencies increased from $4.5 million
in the nine months ended August 31, 2021 to $5.5 million in the nine months
ended August 31, 2022. In addition, Fox Labs, which was acquired on May 25,
2022, added $0.4 million in sales of pepper sprays in the nine months ended
August 31, 2022.



Cost of Goods Sold

Cost of goods sold was $14.4 million in the nine months ended August 31, 2022
compared to $13.8 million in the prior year period. This $0.6 million increase
is primarily due to the increase in related sales volume.



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, and inspection costs. Gross profit
was $17.6 million in the nine months ended August 31, 2022, or 55.0% of net
revenue, as compared to gross profit of approximately $17.2 million, or 55.5% of
net revenue, in the prior year period.



                                       25
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Operating Expenses / Income (Loss) from Operations

Operating expenses were $25.0 million in the nine months ended August 31, 2022, as compared to the prior year period expenses of $17.4 million. This $7.7 million increase is due to the growth of the Company.

During fiscal year 2021, management made the strategic decision to support continued revenue growth through increased marketing expenditure which increased $2.6 million to $3.9 million for the nine months ended August 31, 2022 as compared to $1.3 million in 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 increased $3.0 million
from $9.6 million in the nine months ended August 31, 2021 to $12.6 million in
the nine months ended August 31, 2022. The increase was mostly due to an
increase in non-cash stock compensation which increased by $1.6 million from
$2.5 million in the nine months ended August 31, 2021 to $4.1 million in the
nine months ended August 31, 2022.  Salary, wages and bonuses increased by $1.2
million from $5.9 million in the nine months ended August 31, 2021 to
$7.1 million in the nine months ended August 31, 2022.



IT subscriptions increased $0.4 million from $0.06 million in the nine months ended August 31, 2021 to $0.5 million in the nine months ended August 31, 2022.




Income Tax Provision

For the nine months ended August 31, 2022 and 2021, the Company recorded an
income tax provision of $0.1 million and $0.1 million, respectively. For the
nine months ended August 31, 2022 and 2021, the effective tax rate was (1.1%)
and 320.6%, 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 current period, and other effects.



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 adjusted net loss, and non-GAAP adjusted
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.



                                       26
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Adjusted EBITDA



Adjusted EBITDA is defined as net (loss) income as reported in our condensed
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; and (v) other expenses. 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 net (loss) income, the most directly comparable GAAP measure, is as follows
(in thousands):



                                      For the Nine Months Ended
                                              August 31,
                                       2022                2021
Net loss                           $      (7,752 )     $        (75 )

Adjustments:
Interest expense (income)                    (10 )               24
Income tax provision (benefit)                82                109
Depreciation and amortization                638                369
Non-GAAP EBITDA                           (7,042 )              427

Stock-based compensation expense           4,061              2,527
Other expenses                               183                 18
Forgiveness of PPP loan                        -               (190 )
Severance/Separation                         556                  -
Non-GAAP adjusted EBITDA           $      (2,242 )     $      2,782



Non-GAAP adjusted net loss per share




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



                                                          For the Nine Months Ended
                                                                  August 31,
                                                            2022              2021
Net loss                                               $       (7,752 )   $         (75 )

Adjustments:
Stock-based compensation expense                                4,061             2,527
Other expenses                                                    183                18
Forgiveness of PPP loan                                             -              (190 )
Severance/Separation                                              556                 -
NON-GAAP ADJUSTED NET INCOME (LOSS)                            (2,952 )     

2,280

Net income applicable to preferred stock                            -            (1,043 )
NON-GAAP ADJUSTED NET INCOME (LOSS) AVAILABLE TO
COMMON SHAREHOLDERS                                    $       (2,952 )   $ 

1,237


Non-GAAP adjusted net income (loss) per share -
basic and diluted                                      $        (0.13 )   $ 

0.07

Weighted-average number of common shares outstanding during the period - basic and diluted

                      22,704,565        18,269,360




                                       27
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LIQUIDITY AND CAPITAL RESOURCES

Cash Flow Summary

Cash as of August 31, 2022 totaled $24.5 million a decrease of $31.9 million from $56.4 million of cash and restricted cash as of November 30, 2021.

Operating Activities


Cash used in operating activities was $12.8 million for the nine months ended
August 31, 2022 compared to cash used in operations of $3.3 million during the
prior year period. Net loss was $1.5 million and $7.8 million for the three and
nine months ended August 31, 2022. Net loss was $1.8 million and $0.1
million for the three and nine months ended August 31, 2021. 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, 2022. These include
stock-based expenses of $4.1 million, compared to $2.5 million for the nine
months ended August 31, 2021; depreciation and amortization of $0.6 million
compared to $0.4 million for the nine months ended August 31, 2021.



During the nine months ended August 31, 2022, the growth of the Company was
reflected in the use of cash for growing working capital needs. Inventory
increased during the nine months ended August 31, 2022 by $8.9 million, compared
to $2.3 million for the nine months ended August 31, 2021. The increase in
inventory is a planned measure to ensure we have the ability to meet demand
during the remainder of 2022.  Accounts receivable decreased by $1.0 million
during the nine months ended August 31, 2022 , due to decreased accounts
receivables in South Africa, as compared to an increase of $0.4 million for the
nine months ended August 31, 2021.  Deferred revenue increased $0.2 during the
nine months ended August 31, 2022, compared to a decrease of $4.2 million for
the nine months ended August 31, 2021 as we fulfilled backlogged e-commerce
orders.



Investing Activities

Cash used in investing activities was $4.2 million for the nine months ended
August 31, 2022, compared to $4.9 million for the nine months ended August 31,
2021. The current year investing activities relate to purchase of property and
equipment and the Fox Labs acquisition.  The prior year investing activities
relate to the Mission Less Lethal and Ballistipax acquisitions.



Financing Activities


Cash used by financing activities was $14.5 million during the nine months ended
August 31, 2022, compared to cash provided by $57.2 million for the nine months
ended August 31, 2021. The nine months ended August 31, 2022 amount was
primarily composed of stock repurchased of $15.0 million compared to $56.8
million from proceeds from the sale of common stock during the nine months ended
August 31, 2021.


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 2021 10-K. During the three and nine months ended August 31, 2022, there
were no significant changes to the Company's critical accounting policies from
those described in our 2021 10-K.



                                       28

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