Byrna Technologies Inc. (BYRN)

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 Securities Exchange Act of 1934, as amended, (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,” "opportunity," "could," “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 year ended November 30, 2025 filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 5, 2026, as amended on March 30, 2026 (the “2025 10-K”), and the Company’s subsequent filings with the SEC, all of 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 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, restrictions or prohibitions imposed by advertising platforms, 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 credit losses, determinations or audits by taxing authorities, changes in government regulations, including environmental and chemical regulation applicable to our chemical irritant products, 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 America and 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 unaudited condensed consolidated financial statements and the accompanying notes, which are included in Item 1 of this report.

Byrna Technologies Inc. designs, manufactures, retails and distributes less-lethal personal security solutions intended for situations that do not require the use of lethal force. Our mission is to empower individuals to protect themselves and others, and our product strategy emphasizes ease of use, effectiveness, and reliability in both consumer and professional safety environments. We also develop tools intended to serve as alternatives to traditional firearms for law enforcement and private security customers with the goal of reducing firearm related incidents and supporting de-escalation practices. Our strategy includes positioning Byrna® as a consumer lifestyle brand associated with personal confidence and safety, while expanding our product portfolio to broaden market reach and drive sales growth from both new and existing customers.

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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, less-lethal way to protect themselves and their loved ones from threats to their person or property.

We believe demand for less-lethal products in the United States and internationally continues to rise and that this category will remain a growing segment of the broader security market. We plan to meet this demand by manufacturing and distributing our Byrna® SD, Byrna LE and most recently our Byrna CL launchers, along with continued expansion of our accessory and ammunition offerings and our complementary personal safety products, including chemical irritant defense sprays and personal safety alarms.

On July 31, 2024, our Board of Directors approved a plan to buy back up to $10 million worth of shares of our common stock (the “Stock Buyback Program”).  The Stock Buyback Program is intended to return capital to shareholders and to minimize the dilutive impact of stock options and other share-based awards. The Stock Buyback Program expired by its own terms on July 31, 2026, the two-year anniversary of its initiation. As of its expiration, an aggregate of 0.5 million shares had been repurchased under the program for $5.8 million.

Beginning with our Annual Report on Form 10-K for fiscal 2025, we report our operations through two reportable sales channels, Direct-to-Consumer (“DTC”) and Wholesale (dealer/distributor), to align with our expanded omnichannel strategy, the opening of Company operated retail stores, and increased penetration into national retail chains and international distributors.

We operate primarily in the United States and, through a wholly owned subsidiary, in Canada. Our wholly owned South Africa subsidiary ceased manufacturing operations during the third quarter of fiscal 2025 and no longer conducts significant operating activities.

Recent Developments

In late September 2026, we determined that certain of our Fox Labs branded chemical irritant defense sprays are formulated by our contract filler with trichloroethylene, a solvent whose processing and distribution for consumer use has been prohibited under an Environmental Protection Agency (“EPA”) rule since June 2025. We suspended shipments of the affected Fox Labs products, instructed our dealers and distributors to suspend sales of them. On October 6, 2026, we voluntarily disclosed this matter to the EPA and we also intend to file a report with the Consumer Product Safety Commission (the “CPSC”). We expect to reformulate the affected products, and we expect revenue from those products to be reduced or eliminated until reformulated products are available. These products represented approximately 1.3% of our net revenue for the nine months ended August 31, 2026. We are not able to estimate at this time the costs of reformulation or any penalties or claims that may result from this matter. See Note 21 to the condensed consolidated financial statements and Part II, Item 1A of this Quarterly Report.

RESULTS OF OPERATIONS

Three months ended August 31, 2026 as compared to three months ended August 31, 2025:

Net Revenue

We present revenue net of returns, allowances, and discounts. Net revenues were $15.3 million in the third fiscal quarter of 2026 which represents a decrease of $12.9 million, or 45.7%, as compared to the prior year period revenues of $28.2 million. The decrease was primarily driven by lower Web (DTC) sales, via Amazon and the Company's website, which decreased by $6.3 million, or 38.6%, from $16.3 million in the third fiscal quarter of 2025 to $10.0 million in the same fiscal quarter of 2026, as well as lower domestic wholesale dealer and distributor sales, which decreased by $4.3 million, or 53.8%, from $7.9 million in the third fiscal quarter of 2025 to $3.7 million in the same fiscal quarter of 2026. International sales, including Canada (International (DTC) and International (Wholesale)), decreased from $2.9 million in the three months ended August 31, 2025 to $1.1 million in the three months ended August 31, 2026. In addition, we recognized no royalty revenue related to the LATAM Licensing Agreement in the third fiscal quarter of 2026, compared to $0.3 million in the prior year period. Revenue by reportable sales channel, discussed below, differs from the Web (DTC) and domestic wholesale amounts above because DTC revenue also includes International (DTC) sales and Company-operated retail store sales, and Wholesale revenue also includes International (Wholesale) sales and royalty revenue.

Segment Results

Direct‑to‑Consumer (DTC)

DTC revenue, which includes Web (DTC), Company-operated retail store, and International (DTC) sales, decreased to $11.1 million in the third fiscal quarter of 2026 compared to $17.4 million in the prior year period, primarily driven by a decline in online conversion rates across the Company's direct-to-consumer channels, including both Amazon and the Company's website.

Wholesale (Dealer/Distributor)

Wholesale revenue, which includes royalty revenue, decreased $6.6 million, or 61.1%, to $4.2 million in the third fiscal quarter of 2026 compared to $10.8 million in the prior year period, primarily reflecting a $4.3 million decrease in sales to Byrna dedicated dealers, including chain store and distributor customers, a $2.0 million decrease in International (Wholesale) sales, and a $0.3 million decrease in royalty revenue. The prior year period included approximately $3.2 million of shipments to national chain store customers in August 2025 that did not recur in the current year period. The decrease in International (Wholesale) sales primarily reflects a $1.0 million decrease in sales to customers in South Africa and lower orders from international distributors in Europe, South America and Asia.

Cost of Goods Sold

Cost of goods sold was $3.1 million in the third fiscal quarter of 2026 compared to $11.3 million in the prior year period, a decrease of $8.1 million, or 72.1%, compared to a 45.7% decline in revenue over the same period. The dec

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes to those statements which are included in Item 8 of this report.  In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” and elsewhere in this report. Some of the numbers included herein have been rounded for the convenience of presentation.

OVERVIEW

Byrna Technologies Inc. designs, manufactures, retails, and distributes less‑lethal personal security solutions intended for situations that do not require the use of lethal force. Our mission is to empower individuals to protect themselves and others, and our product strategy emphasizes ease of use, effectiveness, and reliability in both consumer and professional safety environments. We also develop tools intended to serve as alternatives to traditional firearms for law enforcement and private security customers, with the goal of reducing firearm‑related incidents and supporting de‑escalation practices. Our strategy includes positioning Byrna® as a consumer lifestyle brand associated with personal confidence and safety, while expanding our product portfolio to broaden market reach and drive sales growth from both new and existing customers.

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, less-lethal way to protect themselves and their loved ones from threats to their person or property.

We believe demand for less‑lethal products in the United States and globally continues to rise and that this category will remain a growing segment of the broader security market. We plan to meet this demand by manufacturing and distributing our Byrna SD, Byrna LE, and most recently our Byrna CL launchers, along with continued expansion of our accessory and ammunition offerings.

On January 10, 2023, we acquired a 51% ownership interest in Byrna LATAM S.A. (“Byrna LATAM”), a corporate joint venture formed to expand our operations and presence in South American markets, for $0.5 million. We accounted for this investment using the equity method because we did not have voting control or substantive participating rights that would give us control over Byrna LATAM. On August 19, 2024, we sold our 51% ownership interest to Fusady S.A. for $1 pursuant to the LATAM Share Purchase Agreement and entered into an exclusive distribution, manufacturing, and licensing agreement with Byrna LATAM (the “LATAM Licensing Agreement”). Under this agreement, Byrna LATAM is authorized to exclusively manufacture the Byrna SD launcher and ammunition in certain South American countries and is required to pay us royalties on Byrna products manufactured. The LATAM Share Purchase Agreement also includes put and call rights based on defined triggers that expire on August 19, 2029.

Beginning in fiscal 2024 and continuing through fiscal 2025, we expanded our go‑to‑market strategy beyond our historical e‑commerce focus by adopting a broader omnichannel distribution model. These initiatives included the commercial launch of the Byrna CL, expansion of the Byrna LE and LE PRO platforms, the opening of Byrna‑branded retail locations, and onboarding national retail partners such as Sportsman’s Warehouse. In addition, we implemented an AI‑driven advertising engine and expanded our influencer‑based marketing program, both of which contributed to improved customer‑acquisition efficiency and increased brand reach. Beginning in fiscal 2025, we also reorganized our operations into two reportable sales channels, Direct‑to‑Consumer (“DTC”) and Wholesale (dealer/distributor), to align with our expanded omnichannel strategy, the opening of Company‑operated retail stores, and increased penetration into national retail chains and international distributors.

RESULTS OF OPERATIONS

Revenue of $118.1 million for the fiscal year ended November 30, 2025 increased $32.3 million, or 37.7%, compared to $85.8 million in the prior fiscal year. The increase was primarily driven by higher wholesale dealer and distributor sales, which increased by $21.6 million, as well as continued growth in direct‑to‑consumer e‑commerce sales. E‑commerce transactions through Amazon and our website remained the largest revenue contributor, accounting for 64.8% of total net revenue for fiscal year 2025 compared to 76.8% in fiscal year 2024. We also achieved growth in our dealer channel and experienced increased sales in Canada.

Gross margin declined by 1.0% compared to the prior year. Operating expenses increased due to higher marketing expenditures, personnel‑related costs, and professional fees. Although revenue growth resulted in higher gross profit, the increase in operating expenses partially offset these gains, resulting in profit from operations of $11.8 million for fiscal year 2025, compared to an operating profit of $6.7 million for fiscal year 2024. Gross margin declined primarily due to a higher proportion of Wholesale and Retail revenue, which are lower‑margin channels, partially offset by improved cost absorption in manufacturing and lower per‑unit freight costs.

Year ended November 30, 2025, as compared to year ended November 30, 2024:

Net Revenue

We present revenue net of returns, allowances, and discounts. Net revenue for the year ended November 30, 2025 was $118.1 million, an increase of $32.3 million, or 37.7%, compared to $85.8 million in the prior year. Direct‑to‑consumer revenue, including sales through Amazon and our website, increased by $10.7 million, or 16.3%, from $65.9 million in fiscal year 2024 to $76.6 million in fiscal year 2025. Domestic dealer and retail sales increased by $14.0 million, or 108.4%, from $12.9 million in fiscal year 2024 to $26.9 million in fiscal year 2025. International revenue, including Canada, increased from $6.8 million to $12.1 million year‑over‑year. We recognized $1.6 million in royalty revenue related to the LATAM Licensing Agreement during fiscal year 2025.

Segment Results

Direct‑to‑Consumer (DTC)

DTC revenue increased to $76.6 million in fiscal year 2025, driven by increased web sessions and expanded consumer reach, expanded digital‑marketing initiatives, enhanced influencer partnerships, and the launch of new Byrna‑operated retail locations. These efforts increased overall brand visibility and market reach.

Wholesale (Dealer/Distributor)

Wholesale revenue increased to $41.5 million in fiscal year 2025, reflecting (i) expanded relationships with national and regional retailers, (ii) enhanced engagement with distributors, (iii) increased law‑enforcement interest, and (iv) the first year of royalty revenue under the LATAM Licensing Agreement.

Cost of Goods Sold

Cost of goods sold was $46.7 million for fiscal year 2025, compared to $33.0 million in fiscal year 2024. The $13.7 million increase was driven primarily by higher sales volume. Cost of goods sold attributable to Direct‑to‑Consumer (“DTC”) was $26.5 million in fiscal year 2025, compared to $22.9 million in fiscal year 2024. Cost of goods sold attributable to Wholesale was $20.2 million in fiscal year 2025, compared to $10.1 million in fiscal year 2024.

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 $71.5 million, or 60.5% of net revenue, for fiscal year 2025, compared to $52.8 million, or 61.5%, in the prior year. The decline in gross margin resulted from an increased proportion of wholesale revenue relative to DTC revenue as well as manufacturing inefficiencies. The broader shift toward Wholesale and Retail channels reduced the proportion of higher‑margin DTC revenue, contributing to the decline in consolidated gross margin for the year. Because wholesale transactions generally carry lower average selling prices relative to DTC sales, the higher wholesale mix contributed to the decline in consolidated gross margin during the period.

Operating Expenses

Operating expenses were $59.6 million for the fiscal year ended November 30, 2025, compared to $46.1 million in the prior fiscal year. The $13.5 million increase was primarily driven by higher marketing expenditures, personnel‑related costs, and variable selling expenses. Marketing expenditures increased by $5.5 million, from $12.4 million in fiscal year 2024 to $17.9 million in fiscal year 2025. Total employee compensation costs decreased by $0.7 million, from $17.8 million in fiscal year 2024 to $17.1 million in fiscal year 2025. Variable selling expenses increased by $3.6 million, from $7.8 million in fiscal year 2024 to $11.4 million in fiscal year 2025. Professional fees increased by $0.1 million, from $2.0 million in fiscal year 2024 to $2.1 million in fiscal year 2025. Other operating costs, including administrative expenses, increased by $2.0 million, from $6.1 million in fiscal year 2024 to $8.1 million in fiscal year 2025. The increase was primarily driven by higher insurance costs—including D&O, umbrella, general liability, and cyber coverage—along with increases in facility expenses, repairs and maintenance, depreciation and amortization, and production‑related operating expenses. These increases were partially offset by lower research and development expenses. In addition, the overall increase in operating expenses reflects higher spending on influencer‑marketing programs, expanded creative‑content production to support AI‑assisted advertising initiatives, and initial occupancy and labor costs associated with new Company‑operated retail stores.

Profit from Operations

The increase in revenue, off-set by the increase in operating expenses resulted in an increase of $5.1 million in profit from operations of $11.8 million in fiscal year 2025, compared to a profit from operations of $6.7 million in fiscal year 2024.

Interest Income/Expense

Interest income for the fiscal year ended November 30, 2025 was $0.4 million compared to $1.0 million for the fiscal year ended November 30, 2024. The decrease in interest income is primarily due to a decrease in the amount of interest-earning funds held in cash and cash equivalents, marketable securities, and accrued interest receivable on loan receivable.

Income Tax Provision (Benefit)

Our effective income tax rate was 17.49% for the year ended November 30, 2025, compared to an effective income tax rate of (80.31)% for the year ended November 30, 2024. Our income tax expense was $2.1 million for the fiscal year ended November 30, 2025 compared to an income tax benefit of $5.7 million for the fiscal year ended November 30, 2024. Our tax rate differs from the statutory rate of 21.0% primarily due to the release of the valuation allowance, the impact of stock compensation, as well as state income taxes, tax credits, the foreign tax rate differential for Byrna South Africa, and effects of permanent non-deductible expenses 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

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