AREB 10-Q
American Rebel Holdings Inc (AREB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
For
the Quarterly Period Ended
OR
for the transition period from ___ to ___
Commission
file number
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
| Registrant’s
telephone number, including area code: |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
| ||||
| The
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s common stock outstanding as of February 5, 2025 was .
AMERICAN REBEL HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| 2 |
Part I. Financial Information
Item 1.- Interim Condensed Consolidated Financial Statements (Unaudited)
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2024 | December 31, 2023 | |||||||
| ASSETS | (Unaudited) | |||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expense | ||||||||
| Inventory, net | ||||||||
| Inventory deposits | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| OTHER ASSETS: | ||||||||
| Lease deposits and other | ||||||||
| Right-of-use lease assets | ||||||||
| Intangible assets, net | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and other payables | $ | $ | ||||||
| Accrued expense and other | ||||||||
| Loan – Officers – related party | ||||||||
| Loans – Working capital, net | ||||||||
| Line of credit | ||||||||
| Right-of-use lease liability, current | ||||||||
| Total Current Liabilities | ||||||||
| Right-of-use lease liability, long-term | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock, $ par value; shares authorized; , and issued and outstanding, respectively at September 30, 2024 and December 31, 2023 | ||||||||
| Preferred Shares A | ||||||||
| Preferred Shares B | ||||||||
| Preferred Shares D | ||||||||
| Common Stock, $ par value; shares authorized; and issued and outstanding, respectively at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See Notes to Financial Statements and Note 1 regarding non-reliance on financial information.
| 3 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | |||||||||||||
| Revenue | ||||||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross margin | ( | ) | ||||||||||||||
| Expenses: | ||||||||||||||||
| Consulting/payroll and other costs | ||||||||||||||||
| Compensation expense – officers – related party | ( | ) | ||||||||||||||
| Compensation expense – officers – deferred comp – related party | ( | ) | ||||||||||||||
| Rental expense, warehousing, outlet expense | ||||||||||||||||
| Product development costs | ||||||||||||||||
| Marketing and brand development costs | ||||||||||||||||
| Administrative and other | ||||||||||||||||
| Depreciation and amortization expense | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense – pre-emptive rights release | ||||||||||||||||
| Interest income | ||||||||||||||||
| Employee retention credit funds, net of costs to collect | ||||||||||||||||
| Gain/(loss) on sale of equipment | ||||||||||||||||
| Tangible asset valuation adjustment | ||||||||||||||||
| Impairment adjustment – goodwill | ||||||||||||||||
| Gain/(loss) on settlement of debt instrument | ( | ) | ( | ) | ||||||||||||
| Gain on settlement of liability | ||||||||||||||||
| Net loss before income tax provision | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Basic and diluted loss per share | ) | ) | ) | ) | ||||||||||||
| Weighted average common shares outstanding - basic and diluted | ||||||||||||||||
See Notes to Financial Statements and Note 1 regarding non-reliance on financial information.
| 4 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2024 AND 2023
| Common Stock | Common
Stock Amount | Preferred Stock | Preferred Stock Amount | Additional
Paid-in Capital | Accumulated
Deficit | Total | ||||||||||||||||||||||
| Balance – June 30, 2024 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Conversion of Series D Preferred Stock to Common Stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||||||||||
| Compensation expense – officers – deferred comp – related party | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of Common Stock in connection with the Amended Convertible Note Payable | ||||||||||||||||||||||||||||
| Issuance of Common Stock in connection with Amended VGR working capital loan - August 2024 | ||||||||||||||||||||||||||||
| Issuance of Common Stock in connection with Amended VGR working capital loan - September 2024 | ||||||||||||||||||||||||||||
| Net loss | - | - | - | - | (1,747,957 | ) | (1,747,957 | ) | ||||||||||||||||||||
| Balance – September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| Common
Stock | Common
Stock Amount | Preferred Stock | Preferred Stock Amount | Additional
Paid-in Capital | Accumulated
Deficit | Total | ||||||||||||||||||||||
| Balance – June 30, 2023 | ( | ) | ||||||||||||||||||||||||||
| Effect of reverse stock split round lot shares | ( | ) | ||||||||||||||||||||||||||
| Warrant inducement and exercise
of repriced common stock warrants at $ | ||||||||||||||||||||||||||||
| Warrant inducement offering costs and fees | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Exercise of prefunded common stock warrants at $ | ||||||||||||||||||||||||||||
| Common stock issued as compensation | ||||||||||||||||||||||||||||
| Net loss | - | - | (27,93,670 | ) | (27,93,670 | ) | ||||||||||||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||
| Common | Common Stock | Preferred | Preferred Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||
| Stock | Amount | Stock | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – December 31, 2023 | ( | ) | ||||||||||||||||||||||||||
| Issuance of Common Stock | ||||||||||||||||||||||||||||
| Compensation expense – officers – deferred comp – related party | - | - | ||||||||||||||||||||||||||
| Issuance of Common Stock in connection with the Amended Convertible Note Payable | ||||||||||||||||||||||||||||
| Issuance of Common Stock in connection with Amended VGR working capital loan - August 2024 | ||||||||||||||||||||||||||||
| Issuance of Common Stock in connection with Amended VGR working capital loan - September 2024 | ||||||||||||||||||||||||||||
| Series D Convertible Preferred Stock issued in connection with two amended Revenue Interest Agreements and subsequently converted to Common Stock | ||||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance – September 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||
| 5 |
| Common | Preferred | Additional | ||||||||||||||||||||||||||
| Common | Stock | Preferred | Stock | Paid-in | Accumulated | |||||||||||||||||||||||
| Stock | Amount | Stock | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance – December 31, 2022 | ( | ) | ||||||||||||||||||||||||||
| Sale of common stock, net | - | |||||||||||||||||||||||||||
| Sale of pre-funded common stock warrants $
per share, exercise price of $ | - | - | ||||||||||||||||||||||||||
| Prefunded common stock warrant offering costs and fee | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Effect of reverse stock split round lot shares | ( | ) | ||||||||||||||||||||||||||
| Warrant inducement and exercise
of repriced common stock warrants at $ | ||||||||||||||||||||||||||||
| Warrant inducement offering costs and fees | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Exercise of prefunded common stock warrants at $ | ||||||||||||||||||||||||||||
| Common stock issued as compensation | ||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | ( | ) | $ |
See Notes to Financial Statements and Note 1 regarding non-reliance on financial statements.
| 6 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Nine Months Ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | ( | ) | ( | ) | ||||
| Depreciation and amortization | ||||||||
| Gain on disposition of property | ( | ) | ( | ) | ||||
| Compensation paid through issuance of common stock | ||||||||
| Compensation paid through issuance of common stock – related parties | ||||||||
| Loss on settlement of debt instrument | ||||||||
| Adjustments to reconcile net loss to cash (used in) operating activities (net of acquired amounts from Champion): | - | |||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expense and other | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Inventory deposits | ( | ) | ||||||
| Lease deposits and other | ( | ) | ||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Right-of-use lease liabilities | ||||||||
| Net Cash (Used in) Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of Champion Entities | ( | ) | ||||||
| Disposition of property and equipment | ||||||||
| Net Cash (Used in) Investing Activities | ( | ) | ||||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the sale of common stock, prefunded warrants and warrant inducement, net of offering costs | ||||||||
| Proceeds from warrant exercise | ||||||||
| Proceeds from line of credit | ||||||||
| Principal payments on line of credit, net | ( | ) | ||||||
| Proceeds from loans - officer - related party | ||||||||
| Proceeds from working capital loans, net | ||||||||
| Principal payments on working capital loan | ( | ) | ||||||
| Net Cash Provided by Financing Activities | ||||||||
| CHANGE IN CASH | ( | ) | ||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | ||||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
See Notes to Financial Statements and Note 1 regarding non-reliance on financial information.
| 7 |
AMERICAN REBEL HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2024
(Unaudited)
NOTE 1 – PREVIOUSLY ISSUED FINANCIAL STATEMENTS
On May 3, 2024, the SEC entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC (“Borgers”) and its sole audit partner, Benjamin F. Borgers CPA, permanently barring Mr. Borgers and Borgers (collectively, “BF Borgers”) from appearing or practicing before the SEC as an accountant (the “Order”). As a result of the Order, BF Borgers may no longer serve as the Company’s independent registered public accounting firm, nor can BF Borgers issue any audit reports included in Commission filings or provide consents with respect to audit reports.
As reported in the Current Report on Form 8-K filed with the Commission on May 6, 2024, in light of the Order, the Audit Committee (the “Committee”) of the Board of Directors of the Company on May 6, 2024, unanimously approved to dismiss, and dismissed BF Borgers as the Company’s independent registered public accounting firm.
On May 14, 2024, the Committee approved the engagement of GBQ Partners LLC (“GBQ”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2024 and the reaudits of the years ended December 31, 2023 and 2022.
The Company filed its Form 10-K/A with the reaudits of the years ended December 31, 2023 and 2022 with the SEC on January 29, 2025.
The Company has included the comparative three and nine months ended September 30, 2023 in this filing; however, these figures have not been restated due to the undue burden it would place on the Company. Additionally, the Company has not restated its Form 10-Qs for the periods ended March 31, 2024 and June 30, 2024 due to the undue burden this would also have on the Company. The impact of any adjustments to the quarters ended March 31, 2024 and June 30, 2024 have been included in the three months ended September 30, 2024. Accordingly, the accompanying consolidated statements of operations for the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2023, the consolidated statements of stockholders’ equity/(deficit) for the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2023, the consolidated statement of cash flows for the nine months ended September 30, 2023, and the accompanying notes for the three months ended September 30, 2024 and 2023 and nine months ended September 30, 2023 should not be relied upon.
NOTE 2 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The
Company was incorporated on
Nature of Operations
The Company develops and sells branded products in the beverage, self-defense, safe storage and other patriotic product areas using a wholesale distribution network, utilizing personal appearances, musical venue performances, as well e-commerce and television. The Company’s products are marketed under the American Rebel Brand and are proudly imprinted with such branding. Through its “Champion Entities” (which consists of Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC, and Champion Safe De Mexico, S.A. de C.V.) the Company promotes and sells its safe and storage products through a growing network of dealers, in select regional retailers and local specialty safe, sporting goods, hunting and firearms retail outlets, as well as through online avenues, including website and e-commerce platforms. The Company sells its products under the Champion Safe Co., Superior Safe Company and Safe Guard Safe Co. brands as well as the American Rebel Brand. On August 9, 2023, the Company entered into a Master Brewing Agreement (the “Brewing Agreement”) with Associated Brewing Company, a Minnesota limited liability company (“Associated Brewing”). Under the terms of the Brewing Agreement, Associated Brewing has been appointed as the exclusive producer and seller of American Rebel branded spirits, with the initial product being the American Rebel Light Beer (“American Rebel Beer”). The Company established American Rebel Beverages, LLC as a wholly-owned subsidiary to hold the licenses with respect to the beer business. American Rebel Beer launched regionally in 2024.
To varying degrees, the development of geopolitical conflicts, supply chain disruptions, government actions to slow rapid inflation in recent years and predictable sales cycles have produced varying effects on the business. The economic effects from these events over the long term cannot be reasonably estimated at this time. Accordingly, estimates used in the preparation of the financial statements, including those associated with the evaluation of certain long-lived assets, goodwill and other intangible assets for impairment, expected credit losses on amounts owed to the Company (through accounts receivable) and the estimations of certain losses assumed under warranty and other liability contracts, may be subject to significant adjustments in future periods.
Interim Financial Statements and Basis of Presentation
The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the SEC set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by the U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read along with the Amended Annual Report filed on Form 10-K/A of the Company for the period ended December 31, 2023, and notes thereto contained, filed on January 29, 2025.
| 8 |
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, American Rebel, Inc., American Rebel Beverages, LLC, and the Champion Entities. All significant intercompany accounts and transactions have been eliminated.
Year-end
The Company’s year-end is December 31.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Inventory and Inventory Deposits
Inventory consists of beer, backpacks, jackets, safes, other storage products and accessories manufactured to the Company’s design and held for resale and are carried at the lower of cost (First-in, First-out Method) or net realizable value. The Company determines an estimate for the reserve of slow moving or obsolete inventories by regularly evaluating individual inventory levels, projected sales and current economic conditions. The Company makes deposit payments on certain inventory to be manufactured that are carried separately until the manufactured goods are received into inventory.
Fixed Assets and Depreciation
Property and equipment are stated at cost, net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded using the straight-line method over the estimated useful life of the asset, which ranges from five to seven years.
Revenue Recognition
In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of the promised goods or services is transferred to customers, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods and services. To achieve this core principle, the Company applies the following five steps: (1) Identify the contract with a client; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to performance obligations in the contract; and (5) Recognize revenues when or as the company satisfies a performance obligation.
These steps are met when an order is received, a price is agreed to, and the product is shipped or delivered to that customer.
The following table sets forth the approximate percentage of revenue by primary category:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| Percentage of revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Safes | % | % | % | % | ||||||||||||
| Soft goods | % | % | % | % | ||||||||||||
| Beverages | % | % | % | % | ||||||||||||
| Total | % | % | % | % | ||||||||||||
Accounts
receivable totaled $
The carrying amount of accounts receivables is reduced by a valuation allowance for expected credit losses, as necessary, that reflects management’s best estimate of the amount that will not be collected. This estimation takes into consideration historical experience, current conditions and, as applicable, reasonable supportable forecasts. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. The allowance for doubtful accounts was not material as of September 30, 2024 and December 31, 2023.
Advertising Costs
Advertising
costs are expensed as incurred. Marketing costs, which we consider to be advertising costs, incurred were $
| 9 |
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2024, and December 31, 2023, respectively. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, and accounts payable, and the line of credit. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Fair value is defined as the exchange value that would be received on the measurement date to sell an asset or to value the amount paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. The three levels of the fair value hierarchy are as follows:
Level 1: Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 1 inputs provide the most reliable measure of fair value as of the measurement date.
Level 2: Inputs are based on significant observable inputs, including unadjusted quoted market prices for similar assets and liabilities in active markets, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3: Inputs are significant unobservable inputs for the asset or liability.
The level of the fair value hierarchy within which the fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
| 10 |
The Company records stock-based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expense related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by ASC 260, Earnings per Share. Basic losses per common share (“EPS”) calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. Dilutive common share equivalents are negligible or immaterial as dilutive shares to be issued during net loss years were non-existent. For the three months and nine months ended September 30, 2024 and 2023, net loss per share was $ and $ (for 2024), and $ and $ (for 2023), respectively.
Fully diluted shares outstanding is the total number of shares that the Company would theoretically have if all dilutive securities were exercised and converted into shares. Dilutive securities include options, warrants, convertible debt, preferred stock and anything else that can be converted into shares. Potential dilutive shares consist of the incremental common shares issuable upon the exercise of dilutive securities, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
Income Taxes
The Company follows ASC Topic 740 for recording provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the changes in the asset or liability for each period. If available evidence suggests that it is more likely than not that some portion or the entire deferred tax asset will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income tax in the period of change.
Deferred income tax may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
The
Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of
tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities. As of September
30, 2024, and December 31, 2023, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax
positions with
The Company classifies tax-related penalties and net interest as income tax expense. For the three and nine-month periods ended September 30, 2024, and 2023, respectively, income tax benefit has been recorded due to the recognition of a full valuation allowance.
| 11 |
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Right of Use Assets and Lease Liabilities
ASC 842, Leases requires lessees to recognize almost all leases on the balance sheet as a Right-of-use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.
Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
Operating leases are included in operating lease Right-of-use assets and operating lease liabilities, current and non-current, on the Company’s condensed consolidated balance sheets.
Recent Pronouncements
The Company evaluated recent accounting pronouncements through September 30, 2024, and believes that none have a material effect on the Company’s financial statements.
Concentration Risks
The Company did not have any vendor or customer concentrations as of September 30, 2024 and December 31, 2023.
NOTE 3 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the
recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is in the
growth and acquisition stage and, accordingly, has not yet reached profitability from its operations. Since inception, the Company has
been engaged in financing activities and executing its plan of operations and incurring costs and expenses related to product development,
branding, inventory buildup and product launch. As a result, the Company has continued to incur significant net losses for the nine months
ended September 30, 2024, and 2023 of ($
The ability of the Company to continue as a going concern is dependent upon its ability to raise capital from the sale of its equity and, ultimately, the achievement of significant operating revenues and profitability.
Management believes that sufficient funding can be secured through the obtaining of loans, as well as future offerings of its preferred and common stock. However, no assurance can be given that the Company will obtain this additional working capital, or if obtained, that such funding will not cause substantial dilution to its existing stockholders. As indicated in the footnotes to the consolidated financial statements, most of the current debt instruments are charging high interest rates. These interest payments and/or premium repayments and prepayments may make it difficult for the Company to enter into new debt agreements. If the Company is unable to secure such additional funds from these sources, it may be forced to change or delay some of its business objectives and efforts. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
| 12 |
NOTE 4 – INVENTORY AND DEPOSITS
Inventory and deposits include the following:
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Inventory – raw materials | $ | $ | ||||||
| Inventory – finished goods | ||||||||
| Less reserve for excess and obsolete inventory | ( | ) | ( | ) | ||||
| Total Inventory | $ | $ | ||||||
The Company accounts for excess or obsolete inventory with a reserve that is established based on management’s estimates of the net realizable value of the related products. These reserves are product specific and are based upon analyses of product lines that are slow moving or expected to become obsolete due to significant product enhancements.
Included
in inventory – finished goods and work in progress is approximately $
When
inventory is physically disposed of, the Company accounts for the write-offs by making a debit to the reserve and a credit to inventory
for the standard cost of the inventory item. The valuation reserve is applied as an estimate to specific product lines. Since the inventory
item retains its standard cost until it is either sold or written off, the reserve estimates will differ from the actual write-off. There
were
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment include the following:
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Plant, property and equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
For
the three months ended September 30, 2024 and 2023, the Company recognized $
NOTE 6 – RELATED PARTY NOTES PAYABLE AND RELATED PARTY TRANSACTIONS
Employment Agreements
Charles
A. Ross, Jr. serves as the Company’s Chief Executive Officer. Compensation for Mr. Ross was $
Doug
E. Grau serves as the Company’s President and Interim Principal Accounting Officer. Compensation for Mr. Grau was $
Both
Messrs. Ross and Grau serve as the Company’s Chief Executive Officer and President, respectively. Compensation for both, Messrs.
Ross and Grau, includes a base salary and a bonus based upon certain performance measures approved by the board of directors. Three of
the Company’s officers lent the Company approximately $
Corey
Lambrecht serves as the Company’s Chief Operating Officer. Mr. Lambrecht and the Company entered into an employment agreement on
November 20, 2023. Mr. Lambrecht’s employment agreement provides for an initial annual base salary of $
Series A Preferred Stock
The Company, in connection with its employment agreements, as amended, reserved for issuance of shares of its common stock that are convertible under the Series A preferred stock conversion terms.
Per
Mr. Lambrecht’s employment agreement entered into on November 20, 2023, the share-award grant is to vest 1/4th upon
the signing of Mr. Lambrecht’s employment, another 1/4th on January 1, 2024, another 1/4th on January 1,
2025 and the remaining 1/4th on January 1, 2026. Mr. Lambrecht’s employment agreement has a term running from November
20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company on November 20, 2023 for Mr. Lambrecht recognized $
Mr.
Ross’s amended employment agreement had an effective date of November 20, 2023.The share-award grant will vest 1/5th
on January 1, 2024, another 1/5th on January 1, 2025, 1/5th on January 1, 2026, 1/5th on January 1,
2027 and the remaining 1/5th on January 1, 2028. Mr. Ross’s amended employment agreement has an effective term running
from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. On October 31, 2023, the Company recognized $
Mr.
Grau’s amended employment agreement had an effective date of November 20, 2023. The share-award grant will vest 1/5th
on January 1, 2024, another 1/5th on January 1, 2025, 1/5th on January 1, 2026, 1/5th on January 1,
2027 and the remaining 1/5th on January 1, 2028. Mr. Grau’s amended employment agreement has an effective term running
from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. On October 31, 2023, the Company recognized $
| 13 |
Stock-based Compensation
The Company, in connection with various employment and independent directors’ agreements, is required to issue shares of its common stock as payment for services performed or to be performed. The value of the shares issued is determined by the fair value of the Company’s common stock that trades on the Nasdaq Capital Market. This value on the date of grant is afforded to the Company for the recording of stock compensation to employees and other related parties or control persons and the recognition of this expense over the period in which the services were incurred or performed. Most of the Company’s agreement for stock compensation provide for services performed to have been satisfied by the initial grant, thereby incurring the cost immediately from the grant.
Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, the Company is required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations. Where the stock-based compensation is not an award, option, warrant or other common stock equivalent, the Company values the shares based on fair value with respect to its grant date and the price that investors may have been paying for the Company’s common stock on that date in its various exempt private placement offerings. Stock-based compensation expense totaled approximately $ for the nine months ended September 30, 2024. Estimated future compensation expense related to the Series A preferred stock awards is approximately $ for the three months ended December 31, 2024 and $, $ and $ for the years ended December 31, 2025, 2026 and 2027, respectively.
Taxable value of the stock-based compensation is recorded in accordance with the Internal Revenue Service’s regulations as it pertains to employees, control persons and others whereby they receive share-based payments. This may not always align with what the Company records these issuances in accordance with GAAP. There are no provisional tax agreements or gross-up provisions with respect to any of our share-based payments to these entities. The payment or withholding of taxes is strictly left to the recipient of the share-based payments, or the modification of share-based payments.
Director’s Note
On
June 28, 2024, the Company entered into a short-term loan with a director, Lawrence Sinks (“Mr. Sinks”), evidenced by a promissory
note in the principal amount of $
NOTE 7 – LINE OF CREDIT – FINANCIAL INSTITUTION
During
February 2023, the Company entered into a $
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Line of credit from a financial institution. | $ | $ | ||||||
| Total recorded as a current liability | $ | $ | ||||||
As
of September 30, 2024 and December 31, 2023 the total balance due of $
The
balance at the maturity was approximately $
| 14 |
NOTE 8 – NOTES PAYABLE – WORKING CAPITAL
The Company has several working capital loan agreements in place, which are described in detail below.
| September 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Working capital loans with an irrevocable trust established in the state of Georgia, which assumed a previous loan held by a different limited liability company in the amount of $ | $ | $ | ||||||
| Working capital loan agreement with a limited liability company domiciled in the state of Virginia. The working capital loan requires an initial payment of $ | ||||||||
| Working capital loan agreement with a limited liability company domiciled in the state of Virginia. The working capital loan requires an initial payment of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation interest”) with a limited liability company domiciled in the state of Colorado. The working capital loan provided for a purchase of an ownership interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
Working capital loan agreement structured as a Revenue
Interest Purchase Agreement (“revenue participation interest”) with an individual domiciled in the state of California. The
working capital loan provided for a purchase of an ownership interest in the revenues of our Champion subsidiary. The revenue participation
interest requires payments of $ |
| |||||||
| Working
capital loan agreement with a limited liability company domiciled in the state of New York. The working capital loan is secured by
all the assets of the Company that is not secured by the first priority interest of the major financial institution line of credit
facility as well as a personal guaranty by our Chief Executive Officer, Mr. Charles A Ross. The working capital loan requires payments
of $ |
||||||||
| Working
capital loan agreement with a limited liability company domiciled in the state of New York. The working capital loan is secured by
all the assets of the Company that is not secured by the first priority interest of the major financial institution line of credit
facility as well as a personal guaranty by our Chief Executive Officer, Mr. Charles A Ross. The working capital loan requires payments
of $ |
||||||||
| Working
capital loan agreement with a limited liability company domiciled in the state of New York. The working capital loan is secured by
all the assets of the Company that is not secured by the first priority interest of the major financial institution line of credit
facility as well as a personal guaranty by our Chief Executive Officer, Mr. Charles A Ross (Secured Loan #1). The working capital
loan requires payments of $ |
||||||||
| On
June 28, 2024, the Company entered into a short-term loan with a director, Lawrence Sinks (“Mr. Sinks”), evidenced by
a promissory note in the principal amount of $ |
||||||||
| Standard
Merchant Cash Advance Agreement (the “Factoring Agreement”), with an accredited investor lending source (“Financier”).
Under the Factoring Agreement, our wholly-owned subsidiary sold to Financier a specified percentage of its future receipts (as defined
by the Factoring Agreement, which include any and future revenues of Champion Safe Company, Inc. (“Champion”), another
wholly-owned subsidiary of the Company, and the Company) equal to $ |
||||||||
| Working
Capital loan agreement with an accredited investor lending source and a subsidiary to that accredited investor lending source as
collateral agent, which provides for a term loan in the amount of $ |
||||||||
| On September 4, 2024, the Company entered into a Securities Purchase Agreement with Coventry Enterprises, LLC, an
accredited investor (“the Lender”), pursuant to which the Lender made a loan to the Company, evidenced by a promissory note
in the principal amount of $ |
||||||||
| On
August 9, 2024, the Company entered into a Securities Purchase Agreement with 1800 Diagonal Lending, LLC, an accredited investor
(“the Lender”), pursuant to which the Lender made a loan to the Company, evidenced by a promissory note in the principal
amount of $ |
||||||||
| On
September 11, 2024, the Company entered into an agreement with Dallas C. Salazar for a principal amount of $ |
||||||||
| On
September 12, 2024, the Company entered into an agreement with Dallas C. Salazar for a principal amount of $ |
||||||||
| On September 13, 2024, the Company entered into an agreement with Dallas C. Salazar for a principal amount of
$ |
||||||||
| On
August 27, 2024, the Company entered into an agreement with Kingdom Building, Inc. for a principal amount of $ |
||||||||
| Less: note discount | ( |
) | ||||||
| Total recorded as a current liability | $ | $ | ||||||
At
September 30, 2024, and December 31, 2023, the outstanding balance due on all of the working capital notes payable was $
Accrued expenses and other in the accompanying consolidated balance sheets
includes approximately $
| 15 |
NOTE 9 – GOODWILL AND ACQUISITION OF THE CHAMPION ENTITIES
Goodwill
Goodwill is not amortized, but rather is subject to impairment testing annually (on the first day of the fourth quarter), or between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. The Company first performs a qualitative assessment to evaluate goodwill for potential impairment. If based on that assessment, it is more likely than not that the fair value of the reporting unit is below its carrying value, a quantitative impairment test is necessary. The quantitative impairment test requires determining the fair value of the reporting unit. The Company uses the income approach, whereby the fair value is calculated based on the present value of estimated future cash flows using a discount rate that approximates the weighted average cost of capital. The process of evaluating the potential impairment of goodwill is subjective and requires significant estimates and assumptions about the future such as sales growth, gross margins, employment costs, capital expenditures, inflation and future economic and market conditions. Actual future results may differ from those estimates. If the carrying value of the reporting unit’s assets and liabilities, including goodwill, exceeds its fair value, impairment is recorded for the excess, not to exceed the total amount of goodwill allocated to the reporting unit.
As
of September 30, 2024 and December 31, 2023, the Company had intangible assets, representing a trade name subject to amortization
The Company will review its intangible assets for impairment periodically (based on economic conditions) and determine whether impairment is to be recognized within its consolidated statement of operations. impairment charges were recognized during the three months and nine months ended September 30, 2024 and 2023.
NOTE 10 – SHARE CAPITAL
The Company is authorized to issue shares of its $ par value common stock and shares of its $ par value preferred stock. At September 30, 2024, the shares of $ par value preferred stock were comprised of shares authorized and shares issued and outstanding of its Series A convertible preferred stock, shares authorized and shares issued and outstanding of its Series B convertible preferred stock, shares authorized and shares issued and outstanding of its Series C convertible preferred stock, and shares authorized and shares issued and outstanding of its Series D convertible preferred stock.
On
June 27, 2023, the Company effectuated a reverse split of its issued and outstanding shares of common stock at a ratio of
On
June 27, 2023, the Company entered into a PIPE transaction with Armistice Capital for the purchase and sale of $
On
August 21, 2023.
On September 8, 2023, the Company entered into an inducement offer letter agreement (the “Inducement Letter”) with Armistice Capital, the holders of existing common stock purchase warrants, to purchase shares of common stock of the Company. The existing common stock purchase warrants were issued on July 8, 2022 and June 28, 2023 and had an exercise price of $ and $, respectively per share.
Pursuant
to the Inducement Letter, Armistice Capital agreed to exercise for cash their existing common stock purchase warrants to purchase an
aggregate of
On
September 8, 2023,
| 16 |
On
September 19, 2023, the Company issued shares of common stock pursuant to the Company’s 2021 LTIP equity plan. The shares
were valued at $
Additionally,
on September 19, 2023, shares of common stock were granted and issued to a vendor associated with one of the Company’s current
working capital loans. The shares were valued at $
On
September 20, 2023, the Company issued shares of common stock pursuant to the Company’s board compensation plan for its
independent directors. The shares were valued at $
Shares Reserved for Issuance Pursuant to Certain Executive Employment Agreements
The Company in connection with its employment agreement with Messrs. Ross, Grau and Lambrecht reserved for issuance shares of its common stock that are convertible under the Series A preferred stock.
New Preferred Stock Series and Designations and Reg. A+ Offering
On November 3, 2023, the Company’s board of directors approved the designation of a new Series C Convertible Cumulative Preferred Stock (the “Series C Designation”).
The
Company filed a registration statement on Form 1-A offering up to shares of Series C Preferred Stock, at an offering price
of $ per share, for a maximum offering amount of $
On May 10, 2024, the Company’s board of directors approved the designation of a new Series D Convertible Preferred Stock (the “Series D Designation”). The Series D Designation was filed by the Company with the Secretary of State of Nevada on May 10, 2024, and designated shares of Series D Preferred Stock, $ par value per share. The Series D Preferred Stock has the following rights:
Stated Value. Each share of Series D Preferred Stock has an initial stated value of $, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting the Series D Preferred Stock.
Conversion
at Option of Holder. Each share of Series D Preferred Stock shall be convertible into shares of Common Stock at a fixed price
per share of $ (1 share of Series C Preferred Stock converts into shares of Common Stock), at the option of the holder thereof,
at any time following the issuance date of such share of Series D Preferred Stock at the Company’s office or any transfer agent
for such stock. The conversion price ($
Forced Conversion – If the closing price of the Company’s Common Stock during any ten consecutive trading day period has been at or above $ per share (as adjusted for stock splits, stock dividends recapitalizations and similar events), then the Company shall have the right to require the holder of the Series D Preferred Stock to convert all, or any portion of, the shares of Series D Preferred Stock held by such holder for shares of Common Stock. If the Company elects to cause a forced conversion of the shares of Series D Preferred Stock, then it must simultaneously take the same action with respect to all of the other shares of Series D Preferred Stock then outstanding on a pro rata basis.
Voting Rights. The Series D Preferred Stock has no voting rights relative to matters submitted to a vote of the Company’s stockholders (other than as required by law). The Company may not amend its articles of incorporation or the Series D Designation (whether by merger, consolidation, or otherwise) to materially and adversely change the rights, preferences or voting power of the Series D Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of the Company’s outstanding shares of Series D Preferred Stock, voting together as a class.
| 17 |
Conversion of Revenue Interest Loan for Preferred Stock Series D and Potential Issuance of Common Stock Equivalents from the Conversion of Series D
On
May 13, 2024 the Company and the holder of one of the Revenue Interest Loans entered into a settlement and conversion agreement (“Securities
Exchange Agreement”), whereby the Company is to issue a certain number of shares of Series D convertible preferred stock as full
satisfaction for the revenue participation interest agreement or loan. The Series D convertible preferred stock was purchased at $
per share. Total loan balance and premium payment for inducement for this Revenue Interest Loan on the date of settlement and conversion
was $
The Company issued shares of the Series D Preferred Stock. The Securities Exchange Agreement is intended to be effected as an exchange of securities issued by the Company pursuant to Section 3(a)(9) of the Securities Act. For the purposes of Rule 144, the Company acknowledges that the holding period of the Securities Exchange Agreement (and upon conversion thereof, if any, into shares of the Company’s common stock) may be tacked onto the holding period of the Series D Preferred Stock received by the holder. The Company agrees not to take a position contrary to this unless required by regulatory authorities and their determination to the contrary.
On
July 10, 2024, the Company entered into a Conversion Agreement (the “Conversion Agreement”) with Series D convertible preferred
stock holder, pursuant to which the holder agreed to convert the shares of Series D convertible preferred stock it held into
shares of common stock, par value $
As
a result of the July 10, 2024 conversion of Series D convertible preferred stock, the exercise price of
Effective
August 5, 2024, the Company entered into two securities exchange and amendment agreements with two accredited investors, whereby the
Company agreed to issue the investor shares of Series D Convertible Preferred Stock in exchange for a portion of a $
At September 30, 2024 and December 31, 2023, there were and shares of common stock issued and outstanding, respectively; and and shares of Series B preferred stock issued and outstanding, respectively, and and shares of its Series A preferred stock issued and outstanding, respectively; and and shares of its Series D preferred stock issued and outstanding, respectively. Series C preferred stock was issued or outstanding at September 30, 2024 or December 31, 2023.
NOTE 11 – LEASES AND LEASED PREMISES
Rental Payments under Non-cancellable Operating Leases and Equipment Leases
The Company, through its purchase of Champion, acquired several long-term leases for two manufacturing facilities, three office spaces, five distribution centers, and five retail spaces. Four of its distribution centers also have retail operations for which it leases its facilities. Lease terms on the various spaces’ range from a month-to-month lease (30 days) to a long-term lease expiring in September of 2028.
Rent
expense for operating leases totaled $
| 18 |
Right of Use Assets and Lease Liabilities
Lease expense for operating leases consists of the lease payments plus any initial direct costs, net of lease incentives, and is recognized on a straight-line basis over the lease term.
The
Company’s operating leases are comprised primarily of facility leases. and as such we have no finance leases for our vehicles or
equipment currently at this time. The Company added approximately $
Balance sheet information related to our leases is presented below:
| Balance Sheet location | September 30, 2024 | December 31, 2023 | ||||||||
| (Unaudited) | (Audited) | |||||||||
| Operating leases: | ||||||||||
| Right-of-use lease assets | $ | $ | ||||||||
| Right-of-use lease liability, current | Other current liabilities | |||||||||
| Right-of-use lease liability, long-term | Right-of-use operating lease liability | |||||||||
As of September 30, 2024, weighted-average remaining lease term and discount rate were as follows:
| September 30, 2024 | ||||
| (Unaudited) | ||||
| Weighted Average Remaining Lease Term: | ||||
| Operating leases | ||||
| Weighted Average Discount Rate: | ||||
| Operating leases | % | |||
The minimum future annual payments under non-cancellable leases during the next five years and thereafter, at rates now in force, are as follows:
| Operating leases | ||||
| October 1, 2024 – September 30, 2025 | $ | |||
| October 1, 2025 – September 30, 2026 | ||||
| October 1, 2026 – September 30, 2027 | ||||
| October 1, 2027 – September 30, 2028 | ||||
| October 1, 2028 – September 20, 2029 | ||||
| Thereafter | ||||
| Total future minimum lease payments, undiscounted | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of future minimum lease payments | $ | |||
| 19 |
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Various claims and lawsuits, incidental to the ordinary course of our business, may be brought against the Company from time-to-time.
On July 23, 2024, the Company received notice of a complaint filed in the U.S. District Court for the District of Utah by Liberty Safe and Security Products, Inc. (“Liberty”), in connection with the marketing and sale of the Company’s and its subsidiaries, Champion Safe Company, Inc., line of safe products. As of the date of this Report, the complaint has not been served on the Company or Champion Safe. In the complaint, Liberty alleges trademark infringement as a result of the purported use of the term “Freedom” in the sale of safes, federal false designation of origin and unfair competition, violation of Utah deceptive trade practices, Utah unfair competition, and damages to Liberty. Management believes that this lawsuit is without merit; however has initiated settlement discussions with Liberty and anticipates an amicable settlement to be forthcoming. At this time, Management does not believe a settlement with Liberty will have a material effect on its business or financial condition.
Contractual Obligations
The
Company does not believe there are any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect
on the condensed consolidated financial statements. As of September 30, 2024 and December 31, 2023 there were
Nasdaq Compliance
On April 23, 2024, the Company received notice from Nasdaq indicating that, while the Company has not regained compliance with the Bid Price Requirement, Nasdaq has determined that the Company is eligible for an additional 180-day period, or until October 21, 2024, to regain compliance. On October 16, 2024, the Company received a written notification from Nasdaq indicating that, as of October 15, 2024, the Company had regained compliance with the Bid Price Requirement.
On February 28, 2024 the Registrant received a written notice from the Listing Qualifications department of The Nasdaq Stock Market stating that because the Company has not yet held an annual meeting of shareholders within 12 months of the end of the Company’s 2022 fiscal year end, it no longer complies with Nasdaq Listing Rule 5620(a) for continued listing on The Nasdaq Capital Market. The Company had until April 15, 2024, which was 45 days from the date of the notice, to submit a plan to regain compliance and, if Nasdaq accepted the plan, it may grant an exception of up to 180 calendar days from the fiscal year end, or until June 28, 2024, to regain compliance. The Company held its annual meeting of stockholders on June 27, 2024, thereby regaining compliance with the Nasdaq annual meeting requirement.
On November 22, 2024, the Company received a notice from Nasdaq indicating that, as a result of not having timely filed the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, the Company is not in compliance with Nasdaq Listing Rules which require timely filing of periodic reports with the SEC. Pursuant to the Nasdaq Listing Rules, the Company has until January 21, 2025 to submit a plan to regain compliance. If the plan is accepted, an extension may be granted of up to 180 calendar days from the due date of the Initial Delinquent Filing, or May 19, 2025, to regain compliance. The Company submitted a compliance plan on January 20, 2025 and will satisfy the delinquency through the filing of this Report.
Executive Employment Agreements and Independent Contractor Agreements
The Company has written employment agreements with various other executive officers. All payments made to its executive officers and significant outside service providers are analyzed and determined by the board of directors’ compensation committee; some payments made to independent contractors (or officer payments characterized as non-employee compensation) may be subject to backup withholding or general withholding of payroll taxes, may make the Company responsible for the withholding and remittance of those taxes. Generally outside service providers are responsible for their own withholding and payment of taxes. Certain state taxing authorities may otherwise disagree with that analysis and Company policy.
| 20 |
NOTE 13 – SUBSEQUENT EVENTS
The Company evaluated all events that occurred after the balance sheet date of September 30, 2024, through the date the financial statements were issued and determined that there were the following subsequent events:
On
October 4, 2024, the Company entered into a Securities Purchase Agreement with 1800 Diagonal Lending, LLC, an accredited investor (“the
Lender”), pursuant to which the Lender made a loan to the Company, evidenced by a promissory note in the principal amount of $
As
previously disclosed in a Current Report on Form 8-K dated October 27, 2023, on October 23, 2023, the Registrant received a written notification
(the “Notice”) from the Nasdaq Stock Market LLC (“Nasdaq”) indicating that the Registrant was not in compliance
with Nasdaq Listing Rule 5550(a)(2) (the “Bid Price Requirement”), as the Registrant’s closing bid price for its common
stock, par value $
On
October 23, 2024, (the “Closing Date”), the Company entered into an Exchange and Settlement Agreement (the “Securities
Exchange Agreement”) with an individual accredited investor (the “Investor”). On April 19, 2024, the Company and the
Investor had entered into a $
On
October 30, 2024, the Company entered into a Securities Purchase Agreement with Alumni Capital LP, a Delaware limited partnership (“the
Lender”), pursuant to which the Lender made a loan to the Company, evidenced by a promissory note in the principal amount of $
| 21 |
On
November 6, 2024, the Company entered into a Securities Purchase Agreement with 1800 Diagonal Lending, LLC, an accredited investor (the
“Lender”), pursuant to which the Lender made a loan to the Company, evidenced by a promissory note in the principal amount
of $
On
November 11, 2024, the Company entered into a Purchase and Exchange Agreement among an investor (the “Purchaser”) and Altbanq
Lending LLC (the “Seller”), pursuant to which the Purchaser agreed to purchase from the Seller a portion ($
On
December 13, 2024, the Company entered into a three-month promissory note with an accredited investor (the “Lender”) in the
principal amount of $
| 22 |
On
December 26, 2024, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Silverback
Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, SCC has agreed
to purchase certain outstanding payables between the Company and designated vendors of the Company totaling $
On January 10, 2025, the Company authorized the issuance of shares of common stock to a consultant pursuant to the terms of an amendment to a current consulting agreement.
On
January 10, 2025, the Company entered into two six-month promissory notes with accredited investors (the “Lenders”) in the
principal amounts of $
On January 14, 2025, the Company authorized the issuance of shares of Series D Convertible Preferred Stock to seven service providers to the Company and its subsidiaries.
| 23 |
FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (“Quarterly Report”) contains 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”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “may,” “could,” “should,” “anticipate,” “expect,” “project,” “position,” “intend,” “target,” “plan,” “seek,” “believe,” “foresee,” “outlook,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include, but are not limited to, the following:
| ● | our ability to maintain compliance with the continued listing standards of Nasdaq; | |
| ● | the effect of new tariffs on our business and financial condition; | |
| ● | we consummated the purchase of our safe manufacturer and sales organizations, and future acquisitions and operations of new manufacturing facilities and/or sales organizations might prove unsuccessful and could fail; | |
| ● | risk that we will not be able to remediate identified material weaknesses in our internal control over financial reporting and disclosure controls and procedures; | |
| ● | our failure to timely file certain periodic reports with the SEC and our prior restatements have had, and may in the future have further, material adverse consequences to our business, our financial condition, results of operations and our cash flows; | |
| ● | our success depends on our ability to introduce new products that track customer preferences; | |
| ● | if we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect our rights; | |
| ● | as a significant portion of our revenues are derived by demand for our safes and the personal security products for firearms storage, we depend on the availability and regulation of ammunition and firearm storage; | |
| ● | as we continue to integrate the purchase of our safe manufacturer and sales organization, any compromised operational capacity may affect our ability to meet the demand for our safes, which in turn may affect our generation of revenue; | |
| ● | shortages of components and materials, as well as supply chain disruptions, may delay or reduce our sales and increase our costs, thereby harming our results of operations; | |
| ● | we do not have long-term purchase commitments from our customers, and their ability to cancel, reduce, or delay orders could reduce our revenue and increase our costs; | |
| ● | our inability to effectively meet our short- and long-term obligations; | |
| ● | given our limited corporate history, it is difficult to evaluate our business and future prospects, and increases the risks associated with an investment in our securities; | |
| ● | our inability to raise additional financing for working capital; | |
| ● | our ability to generate sufficient revenue in our targeted markets to support operations; | |
| ● | significant dilution resulting from our financing activities; | |
| ● | the actions and initiatives taken by both current and potential competitors; | |
| ● | our ability to diversify our operations; | |
| ● | the fact that our accounting policies and methods are fundamental to how we report our financial condition and results of operations, and they may require management to make estimates about matters that are inherently uncertain; | |
| ● | changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate; | |
| ● | the deterioration in general of global economic, market and political conditions; | |
| ● | the inability to efficiently manage our operations; | |
| ● | the inability to achieve future operating results; | |
| ● | the unavailability of funds for capital expenditures; | |
| ● | the inability of management to effectively implement our strategies and business plans; and | |
| ● | the other risks and uncertainties detailed in this report. |
Because the factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and their emergence is impossible for us to predict. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
This Quarterly Report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this Quarterly Report are made as of the date of this Quarterly Report and should be evaluated with consideration of any changes occurring after the date of this Quarterly Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Except as otherwise indicated by the context, references in this report to “Company,” “American Rebel Holdings,” “American Rebel,” “we,” “us” and “our” are references to American Rebel Holdings, Inc. and its operating subsidiaries, American Rebel, Inc., American Rebel Beverages, LLC, Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC and Champion Safe De Mexico, S.A. de C.V. All references to “USD” or United States Dollar refer to the legal currency of the United States of America.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’s Discussion and Analysis should be read along with the financial statements included in this Quarterly Report on Form 10-Q (the “Financial Statements”). As described in Note 1 to the Financial Statements, the Company has included the comparative three and nine months ended September 30, 2023 in this filing; however, these figures have not been restated due to the undue burden it would place on the Company. Additionally, the Company has not restated its Form 10-Qs for the periods ended March 31, 2024 and June 30, 2024 due to the undue burden this would also have on the Company. The impact of any adjustments to the quarters ended March 31, 2024 and June 30, 2024 have been included in the three months ended September 30, 2024. Accordingly, the accompanying consolidated statements of operations for the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2023, the consolidated statements of stockholders’ equity/(deficit) for the three months ended September 30, 2024 and 2023 and the nine months ended September 30, 2023, the consolidated statement of cash flows for the nine months ended September 30, 2023, and the accompanying notes for the three months ended September 30, 2024 and 2023 and nine months ended September 30, 2023, including references thereon within Management’s Discussion and Analysis, should not be relied upon.
Apart from the matter above, the Financial Statements have been prepared in accordance with generally accepted accounting policies in the United States (“GAAP”). Except as otherwise disclosed, all dollar figures included therein and in the following management discussion and analysis are quoted in United States dollars.
Description of Our Business
Overview
We are boldly positioning ourselves as America’s Patriotic Brand. We have identified the market opportunity to design, manufacture, and market beverages and innovative concealed carry products and safes. We access our market uniquely through our positioning as America’s Patriotic Brand and the appeal of our products as well as through the profile and public persona of our founder and Chief Executive Officer, Andy Ross. Andy hosted his own television show for 12 years, has made multiple appearances over the years at trade shows, and is well-known in the archery world as the founder of Ross Archery, which was the world’s fastest-growing bow company in 2007 and 2008. Andy has released 3 CDs, done numerous radio and print interviews, and performed many concerts in front of thousands of people. Andy has the ability to present American Rebel to large numbers of potential customers through the appeal of his music and other supporting appearances. For example, his appearance on the History Channel hit show Counting Cars in February 2014 has been viewed by over 2 million times. Bringing innovative products that satisfy an existing demand to the market through exciting means is the American Rebel blueprint for success.
As a corporate policy, we will not incur any cash obligations that we cannot satisfy with known resources, of which there are currently none except as described in “Liquidity” below or elsewhere in this Quarterly Report. We believe that the perception that many people have of a public company makes it more likely that they will accept restricted securities from a public company as consideration for indebtedness to them than they would from a private company. We have not performed any studies of this matter. Our conclusion is based on our own observations. Additionally, the issuance of restricted shares will dilute the percentage of ownership interest of our stockholders.
The Company operates primarily as a designer, manufacturer and marketer of beverages, branded safes and personal security and self-defense products. Additionally, the Company designs and produces branded apparel and accessories.
We believe that when it comes to their homes, consumers place a premium on their security and privacy. Our products are designed to offer our customers convenient, efficient and secure home and personal safes from a provider that they can trust. We are committed to offering products of enduring quality that allow customers to keep their valuable belongings protected and to express their patriotism and style, which is synonymous with the American Rebel brand.
Our safes and personal security products are constructed primarily of U.S.-made steel. We believe our products are designed to safely store firearms, as well as store our customers’ priceless keepsakes, family heirlooms and treasured memories and other valuables, and we aim to make our products accessible at various price points for home and office use. We believe our products are designed for safety, quality, reliability, features and performance.
To enhance the strength of our brand and drive product demand, we work with our manufacturing facilities and various suppliers to emphasize product quality and mechanical development in order to improve the performance and affordability of our products while providing support to our distribution channel and consumers. We seek to sell products that offer features and benefits of higher-end safes at mid-line price ranges.
We believe that safes are becoming a ‘must-have appliance’ in a significant portion of households. We believe our current safes provide safety, security, style and peace of mind at competitive prices.
In addition to branded safes, we offer an assortment of personal security products as well as apparel and accessories for men and women under the Company’s American Rebel brand. Our backpacks utilize what we believe is a distinctive sandwich-method concealment pocket, which we refer to as Personal Protection Pocket, to hold firearms in place securely and safely. The concealment pockets on our Freedom 2.0 Concealed Carry Jackets incorporate a silent operation opening and closing with the use of a magnetic closure.
We believe that we have the potential to continue to create a brand community presence around the core ideals and beliefs of America, in part through Andy Ross, who has written, recorded and performs a number of songs about the American spirit of independence. We believe our customers identify with the values expressed by our Chief Executive Officer through the “American Rebel” brand.
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Through our growing network of dealers, we promote and sell our products in select regional retailers and local specialty safe, sporting goods, hunting and firearms stores, as well as online, including our website and e-commerce platforms such as Amazon.com.
American Rebel is boldly positioning itself as “America’s Patriotic Brand” in a time when national spirit and American values are being rekindled and redefined. American Rebel is an advocate for the 2nd Amendment and conveys a sense of responsibility to teach and preach good common practices of gun ownership. American Rebel products keep you concealed and safe inside and outside the home. American Rebel Safes protect your firearms and valuables from children, theft, fire and natural disasters inside the home; and American Rebel Concealed Carry Products provide quick and easy access to your firearm utilizing American Rebel’s Proprietary Protection Pocket in its backpacks and apparel outside the home. The initial company product releases embrace the “concealed carry lifestyle” with a focus on concealed carry products, apparel, personal security and defense. “There’s a growing need to know how to protect yourself, your family, your neighbors or even a room full of total strangers,” says Andy Ross. “That need is in the forethought of every product we design.”
The “concealed carry lifestyle” refers to a set of products and a set of ideas around the emotional decision to carry a gun everywhere you go. The American Rebel brand strategy is similar to the successful Harley-Davidson Motorcycle philosophy, referenced in this quote from Richard F. Teerlink, Harley’s chairman and former chief executive, “It’s not hardware; it is a lifestyle, an emotional attachment. That’s what we have to keep marketing to.” As an American icon, Harley has come to symbolize freedom, rugged individualism, excitement and a sense of “bad boy rebellion.” American Rebel – America’s Patriotic Brand has significant potential for branded products as a lifestyle brand. Its innovative Concealed Carry Product line and Safe line serve a large and growing market segment; but it is important to note we have product opportunities beyond Concealed Carry Products and Safes. One such opportunity is American Rebel Light Lager. American Rebel Light Beer is “America’s Patriotic, God-Fearing, Constitution-Loving, National Anthem-Singing, Stand Your Ground Beer.” Management believes a significant opportunity exists to enter the $110+ billion-dollar beer industry with a premium domestic beer. Current distribution agreements are in place for the states of Kansas and Tennessee and portions of Ohio and Connecticut.
American Rebel Safes
Keeping your guns in a location only appropriate trusted members of the household can access should be one of the top priorities for every responsible gun owner. Whenever a new firearm is purchased, the owner should look for a way to store and secure it. Storing the firearm in a gun safe will prevent it from being misused by young household members, and it will prevent it from being stolen in a burglary or damaged in a fire or natural disaster. Gun safes may seem pricy at first glance, but once the consumer is educated on their role to protect expensive firearms and other valuables such as jewelry and important documents, the price is justified.
American Rebel produces large floor safes in a variety of sizes as well as small portable keyed safes. Additional opportunities exist for us to develop Wall Safes and Handgun Boxes.
Reasons gun owners should own a gun safe:
| ● | If you are a gun owner and you have children, many states have a law in place that require you to store your gun locked in a safe, away from children. This will prevent your children from getting the gun and hurting themselves or someone else. | |
| ● | Some states have a law in place that require you to keep your gun locked away when it is not in use, even if you don’t have children in your home. California has a law that requires you to have your gun locked in a firearms safety device that is considered safe by the California Department of Justice (DOJ). When you buy a safe, you should see if it has approval from the California DOJ. | |
| ● | Many gun owners own more guns than insurance will cover. Many insurance companies only cover $3,000 worth of guns. Are your weapons worth more? If so, you should invest in a gun safe to make sure your guns are protected from fire, water, and thieves. | |
| ● | Many insurance companies may give you a discount if you own a gun safe. If you own a gun safe or you purchase one, you should see if your insurance company is one that offers a discount for this. A safe can protect your guns and possibly save you money. | |
| ● | Do people know you own guns? You might not know that many burglaries are carried out by people they know. | |
| ● | If a person you know breaks into your home, steals your gun, and murders someone, you could be charged with a crime you didn’t commit, or the victim’s family could sue you. | |
| ● | Gun safes can protect your guns in the event your home goes up in flames. When buying a safe, you should see if it will protect your firearm or any other valuables from fire damage. | |
| ● | You might be the type of person that has a gun in your home for protection. A gun locked in a safe can still offer you protection. There are quick access gun safes on the market. With a quick access gun safe, you can still retrieve your gun in a few seconds, but when it is not needed, it will be protected. |
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A gun safe is the best investment a gun owner can make because the safe can protect guns from thieves, fire, water, or accidents. Bills or ballot measures to require safe storage have been discussed in Delaware, Washington, Oregon, Missouri and Virginia; and various laws are on the books in California and Massachusetts. Even a figure as staunchly pro-gun as Texas’s Republican lieutenant governor, Dan Patrick, called on gun-owning parents to lock up their weapons after the Santa Fe shooting. The gun safe industry is experiencing rapid growth and innovation. Andy Ross and the rest of the American Rebel team are committed to fulfilling the opportunity in the gun safe market and filling the identified void with American Rebel Gun Safes.
Below is a summary of the different safes we offer:
| i. | Large Safes – our current large model safe collection consists of six premium safes. All of our large safes share the same high-quality workmanship, are constructed out of 11-gauge U.S.-made steel and feature a double plate steel door, double-steel door casements and reinforced door edges. Each of these safes provide up to 75 minutes of fire protection at 1200 degrees Fahrenheit. Our safes offer a fully adjustable interior to fit our customers’ needs. Depending on the model, one side of the interior may have shelves and the other side set up to accommodate long guns. There are optional additions such as Rifle Rod Kits and Handgun Hangers to increase the storage capacity of the safe. These large safes offer greater capacity for secure storage and protection, and our safes are designed to prevent unauthorized access, including in the event of an attempted theft, natural disaster or fire. We believe that a large, highly visible safe acts as a deterrent to any prospective thief. | |
| ii. | Personal Safes – the safes in our compact safe collection are easy to operate and carry as they fit into briefcases, desks or under vehicle seats. These personal safes meet Transportation Security Administration (“TSA”) airline firearm guidelines and fit comfortably in luggage when required by travel regulations. | |
| iii. | Vault Doors – our U.S.-made vault doors combine style with theft and fire protection for a look that fits any decor. Newly-built, higher-end homes often add vault rooms and we believe our vault doors, which we designed to facilitate secure access to such vault rooms, provide ideal solutions for the protection of valuables and shelter from either storms or intruders. Whether it’s in the context of a safe room, a shelter, or a place to consolidate valuables, our American Rebel in- and out-swinging vault doors provide maximum functionality to facilitate a secure vault room. American Rebel vault doors are constructed of 4 ½” double steel plate thickness, A36 carbon steel panels with sandwiched fire insulation, a design that provides greater rigidity, security and fire protection. Active boltworks, which is the locking mechanism that bolts the safe door closed so that it cannot be pried open and three external hinges that support the weight of the door, are some of the features of the vault door. For safety and when the door is used for a panic or safe room, a quick release lever is installed inside the door. | |
| iv. | Dispensary Safes - our HG-INV Inventory Safe, a safe tailor-made for the cannabis community, provides cannabis and horticultural plant home growers a reliable and safe solution to protect their inventory. Designed with medical marijuana or recreational cannabis dispensaries in mind and increasing governmental and insurance industry regulation to lock inventory after hours, we believe our HG-INV Inventory Safe delivers a high-level user experience. |
Upcoming Product Offerings
To further complement our diverse product offerings, we intend to introduce additional products in 2025.
Below is a summary of potential upcoming product offerings:
i. Biometrics Safes – we intend to introduce a line of handgun boxes with biometrics, Wi-Fi and Bluetooth technologies. These Biometric Safes have been designed, engineered and are ready for production.
ii. 2A Lockers – we have developed a unique steel lockbox with a 5-point locking mechanism to provide a secure place to lock up ammunition and other items that may not require the safety and security of a safe, but prevents unauthorized access. We believe there is a strong market for this product that is priced between $349 - $449 depending on the model.
iii. Wall Safes – wall safes can be easily hidden and provide “free” storage space since they are able to be tucked into the space between your wall and studs.
iv. Economy Safe Line – we are exploring enhancing our safe line through the introduction of entry level safes built in North America to compete with other safes imported from overseas.
Our results of operations and financial condition may be impacted positively and negatively by certain general macroeconomic and industry wide conditions
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Recent Developments
Establishment of American Rebel Beer
On August 9, 2023, we entered into a Master Brewing Agreement with Associated Brewing. Under the terms of the Brewing Agreement, Associated Brewing has been appointed as the exclusive producer and seller of American Rebel branded spirits, with the initial product being American Rebel Light Beer. American Rebel Light Beer will launch regionally in 2024. We paid a setup fee and security deposit to Associated Brewing. We established American Rebel Beverages, LLC as a wholly-owned subsidiary specifically to hold our alcohol licenses and conduct operations for our beer business.
Expansion into New Business Categories
Expanding Scope of Operations Activities by Offering Servicing Dispensaries and Brand Licensing
We continually seek to target new consumer segments for our safes. As we believe that safes are becoming a must-have household appliance, we strive to establish authenticity by selling our products to additional groups, and to expand our direct-to-consumer presence through our website and our showroom currently in Lenexa, Kansas.
Further, we expect the cannabis dispensary industry to be a material growth segment for our business. Several cannabis dispensary operators have expressed interest in the opportunity to help them with their inventory locking needs. Cannabis dispensaries have various insurance requirements and local ordinances requiring them to secure their inventory when the dispensary is closed. Dispensary operators have been purchasing gun safes and independently taking out the inside themselves to allow them to store cannabis inventory. Recognizing what seems to be a growing need for cannabis dispensary operators, we have designed a safe tailor-made for the cannabis industry. With the legal cannabis hyper-growth market expected to exceed $43 billion by 2025, and an increasing number of states where the growth and cultivation of cannabis is legal (California, Colorado, Hawaii, Maine, Maryland, Michigan, Montana, New Mexico, Oregon, Rhode Island, Vermont and Washington), we believe we are well positioned to address the need of dispensaries. American Rebel has a long list of dispensary operators, growers, and processors interested in the Company’s inventory control solutions. We believe that dispensary operators, growers, and processors are another fertile new growth market for our Vault Doors products, as many in the cannabis space have chosen to install entire vault rooms instead of individual inventory control safes—the American Rebel Vault Door has been the choice for that purpose.
Further, we believe that American Rebel has significant potential for branded products as a lifestyle brand. As the American Rebel Brand continues to grow in popularity, we anticipate generating additional revenues from licensing fees earned from third parties who wish to engage the American Rebel community. While the Company does not currently generate material revenues from licensing fees, our management team believes the American Rebel brand name may in the future have significant licensing value to third parties that seek the American Rebel name to brand their products to market to the American Rebel target demographic. For example, a tool manufacturer that wants to pursue an alternative marketing plan for a different look and feel could license the American Rebel brand name for their line of tools and market their tools under our distinct brand. This licensee would benefit from the strong American Rebel brand with their second line of American Rebel branded tools as they would continue to sell both of the lines of tools. Conversely, American Rebel could potentially benefit as a licensee of products. If American Rebel determines a third party has designed, engineered, and manufactured a product that would be a strong addition to the American Rebel catalog of products, American Rebel could license that product from the third-party and sell the licensed product under the American Rebel brand.
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Results of Operations
From inception through September 30, 2024, we have generated an accumulated deficit of $53,991,446. We expect to incur additional losses during fiscal year ending December 31, 2024, and beyond, principally as a result of our increased investment in inventory, manufacturing capacity, marketing and sales expenses, and other growth initiatives.
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
Revenue (‘Sales’) and cost of goods sold (‘Cost of Sales’)
| For the Three Months Ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Revenue | 2,337,786 | 3,345,552 | ||||||
| Cost of goods sold | 2,835,763 | 3,095,418 | ||||||
| Gross margin | (497,977 | ) | 250,134 | |||||
| Expenses: | ||||||||
| Consulting/payroll and other costs | 478,371 | 1,039,273 | ||||||
| Compensation expense – officers – related party | (425,000 | ) | - | |||||
| Compensation expense – officers – deferred comp – related party | (1,985,936 | ) | - | |||||
| Rental expense, warehousing, outlet expense | 103,562 | 230,226 | ||||||
| Product development costs | 277,483 | 20,326 | ||||||
| Marketing and brand development costs | 624,509 | 517,345 | ||||||
| Administrative and other | 1,414,889 | 1,347,181 | ||||||
| Depreciation and amortization expense | 54,817 | 24,895 | ||||||
| Total operating expenses | 542,695 | 3,179,246 | ||||||
| Operating loss | (1,040,672 | ) | (2,929,112 | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense | (649,216 | ) | (95,330 | ) | ||||
| Interest income | 348 | 3,203 | ||||||
| Gain/(loss) on sale of equipment | 4,088 | - | ||||||
| Gain/(loss) on settlement of debt instrument | (62,505 | ) | - | |||||
| Gain on settlement of liability | - | 227,569 | ||||||
| Net loss before income tax provision | (1,747,957 | ) | (2,793,670 | ) | ||||
| Provision for income tax | - | - | ||||||
| Net loss | (1,747,957 | ) | (2,793,670 | ) | ||||
For the three months ended September 30, 2024, we reported Revenues of $2,337,786 compared to Revenues of $3,345,552 for the three months ended September 30, 2023. The decrease in Revenues of $1,007,766 (or -30% period over period) for the current period compared to the three months ended September 30, 2023, is attributable to slower sales for 2024 and current market conditions. For the three months ended September 30, 2024, we reported Cost of Goods Sold of $2,835,763, compared to Cost of Goods Sold of $3,095,418 for the three months ended September 30, 2023. The decrease in Cost of Goods Sold of $259,655 (or -8% period over period) for the current period is primarily attributable to of the decrease in revenue. For the three months ended September 30, 2024, we reported Gross Margin of $(497,977), compared to Gross Margin of $250,134 for the three months ended September 30, 2023. The decrease in Gross Margin of $748,111 (or -299% period over period) for the three months ended September 30, 2024, compared to the three months ended September 30, 2023 is again due a decrease in sales and increased costs of goods sold. Gross Margin percentages for the three months ended September 30, 2024 was -18% compared to 8% for the three months ended September 30, 2023. We expect our Gross Margin percentages for this time of year to be consistently in the 20% range. If not within this range we will try to increase our sales volume to in order to increase our margins, with better pricing power, better buying power on costs of goods, inventory and of course inventory management. In general, second amendment businesses have experienced a slowdown in sales volume during the past twelve months and this is in line with what we have experienced in our business.
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Operating Expenses
Total operating expenses for the three months ended September 30, 2024 were $542,695 compared to $3,179,246 for the three months ended September 30, 2023 as further described below. Overall, we experienced a $2,636,551 decrease in operating expenses or a -83% period over period decrease in operating expenses from the prior year comparable period. This decrease is primarily due to an adjustment in the deferred compensation expense.
For the three months ended September 30, 2024, we incurred consulting/payroll and other costs (along with officer compensation) of $(1,932,565) compared to consulting/payroll and other costs (along with officer compensation) of $1,039,273 for the three months ended September 30, 2023. The decrease in consulting/payroll and other costs of $(2,971,838) was due to the adjustment in the deferred compensation expense due to common stock equivalents on our Series A preferred stock. The Company expects to try and maintain its consulting/payroll and other costs as we endeavour to further expand our sales volume.
For the three months ended September 30, 2024, we incurred rental expense, warehousing, outlet expense of $103,562, compared to rental expense, warehousing, outlet expense of $230,226 for the three months ended September 30, 2023. The decrease in rental expense, warehousing, outlet expense of $126,664 is due to cost cutting on leases and properties that the Company rents to conduct the Champion business acquisition as well as other cost cutting measures or efficiencies put in place. The Company expects to maintain this level of expense on a go-forward basis with its leases and rented properties for the near term. The Company may look to consolidate some of its space as needed as it fine tunes the Champion business.
For the three months ended September 30, 2024, we incurred product development expenses of $277,483, compared to product development expenses of $20,326 for the three months ended September 30, 2023. The increase in product development expenses of $257,157 is due to some of the Company’s current product development expenses in the three months ended September 30, 2023 period being included in consulting/payroll and other costs accounts which we believe provides for a better presentation of our historical business expenses than pure product development expense. For the three months ended September 30, 2024, we have incurred expenses that are attributable to our private label brewery efforts and should be separated and identified. The Company expects to maintain some level of expense on a go-forward basis with new products and efforts being expended for future sales growth and product needs.
For the three months ended September 30, 2024, we incurred marketing and brand development expenses of $624,509, compared to marketing and brand development expenses of $517,345 for the three months ended September 30, 2023. The increase in marketing and brand development expenses of $107,164 (or 21% period over period) relates primarily to initial market awareness efforts for American Rebel Beer as well as expenses associated with our Tony Stewart activities and general push forward on sales efforts.
For the three months ended September 30, 2024, we incurred administrative and other expense of $1,414,889, compared to administrative and other expense of $1,347,181 for the three months ended September 30, 2023. The decrease in administrative and other expense of $67,708 (or 5% period over period) relates directly to decreased professional fees that we incurred in our registered public offerings and capital raising efforts, along with additional expenses picked up from our acquisition of Champion. The Company believes as it grows its sales base it will also increase its administrative and other expense commensurate with the increased profits for the future.
For the three months ended September 30, 2024, we incurred depreciation and amortization expense of $54,817, compared to depreciation and amortization expense of $24,895 for the three months ended September 30, 2023. The increase primarily relates to amortization related to goodwill.
Other income and expenses
For the three months ended September 30, 2024, we incurred interest expense of $649,216, compared to interest expense of $95,330 for the three months ended September 30, 2023. The increase in interest expense of $553,886 is due to a significant number of notes being paid during 2023 that were able to be paid in full from the various financings, offset by the increased borrowing costs that we have on our working capital notes payable and line of credit. We are currently paying an interest rate of approximately 7% on our line of credit, in excess of 18% on our existing working capital notes payable, and more than 40% per annum on our new working capital notes payable. We believe we will manage and maintain our interest expense exposure despite the increase in interest rates for this year over last year, as well keeping our debt obligations to a reasonable amount as we grow the business and its sales volume.
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Net Loss
Net loss for the three months ended September 30, 2024 amounted to $1,747,957, resulting in a loss per share of $(0.67), compared to a net loss of $2,793,670 for the three months ended September 30, 2023, resulting in a loss per share of $(0.95). The decrease in the net loss from the three months ended September 30, 2023 to the three months ended September 30, 2024 is primarily due to adjustments made to deferred compensation expense in connection with the Series A Preferred shares partially offset by a myriad of expenses that the Company incurred in the quarter, such as professional and legal fees, increased costs in marketing, and the softening of gross margin on sales.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Revenue (‘Sales’) and cost of goods sold (‘Cost of Sales’)
| For the Nine Months Ended | ||||||||
| September 30, 2024 | September 30, 2023 | |||||||
| Revenue | 9,637,016 | 11,418,222 | ||||||
| Cost of goods sold | 9,263,015 | 8,869,432 | ||||||
| Gross margin | 374,001 | 2,548,790 | ||||||
| Expenses: | ||||||||
| Consulting/payroll and other costs | 1,475,450 | 2,915,377 | ||||||
| Compensation expense – officers – related party | - | - | ||||||
| Compensation expense – officers – deferred comp – related party | 492,189 | - | ||||||
| Rental expense, warehousing, outlet expense | 335,743 | 732,360 | ||||||
| Product development costs | 713,883 | 36,821 | ||||||
| Marketing and brand development costs | 1,189,219 | 942,687 | ||||||
| Administrative and other | 3,323,566 | 2,542,181 | ||||||
| Depreciation and amortization expense | 109,813 | 79,260 | ||||||
| Total operating expenses | 7,639,863 | 7,248,686 | ||||||
| Operating income (loss) | (7,265,862 | ) | (4,699,896 | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense | (2,128,357 | ) | (250,877 | ) | ||||
| Interest income | 1,059 | 3,203 | ||||||
| Employee retention credit funds, net of costs to collect | - | 1,107,672 | ||||||
| Gain/(loss) on sale of equipment | 3,426 | 1,400 | ||||||
| Gain/(loss) on settlement of debt instrument | (312,505 | ) | - | |||||
| Gain on settlement of liability | - | 227,569 | ||||||
| Net income (loss) before income tax provision | (9,702,239 | ) | (3,610,929 | ) | ||||
| Provision for income tax | - | - | ||||||
| Net income (loss) | (9,702,239 | ) | (3,610,929 | ) | ||||
For the nine months ended September 30, 2024, we reported Revenues of $9,637,016 compared to Revenues of $11,418,222 for the nine months ended September 30, 2023. The decrease in Revenues of $1,781,206 (or -16% period over period) for the current period compared to the nine months ended September 30, 2023 is attributable to slower sales for 2024 and current market conditions. For the nine months ended September 30, 2024, we reported Cost of Goods Sold of $9,263,015, compared to Cost of Goods Sold of $8,869,432 for the nine months ended September 30, 2023. The increase in Cost of Goods Sold of $393,583 (or 4% period over period) for the current period is primarily attributable to a marginal decrease in sales along with higher costs of goods sold for the period. For the nine months ended September 30, 2024, we reported Gross Margin of $374,001 compared to Gross Margin of $2,548,790 for the nine months ended September 30, 2023. The decrease in Gross Margin of $2,174,789 (or -85% period over period) for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is again due a decrease in sales and increased costs of goods sold. Gross Margin percentages for the nine months ended September 30, 2024 was 4% compared to 29% for the nine months ended September 30, 2023. We expect our Gross Margin percentages for this time of year to be consistently in the 20% range. If not within this range we will try to increase our sales volume to in order to increase our margins, with better pricing power, better buying power on costs of goods, inventory and of course inventory management. In general, second amendment businesses have experienced a slowdown in sales volume during the past twelve months and this is in line with what we have experienced in our business.
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Operating Expenses
Total operating expenses for the nine months ended September 30, 2024 were $7,639,863 compared to $7,248,686 for the nine months ended September 30, 2023 as further described below. Overall, we experienced a $391,177 increase in operating expenses or a 5% period over period increase in operating expenses from the prior year comparable period due to a myriad of professional service expenses incurred
For the nine months ended September 30, 2024, we incurred consulting/payroll and other costs (along with officer compensation) of $1,967,639 compared to consulting/payroll and other costs (along with officer compensation) of $2,915,377 for the nine months ended September 30, 2023. The decrease in consulting/payroll and other costs of $947,738 was due to cost controls put in place on the post-acquisition of the Champion Entities and an adjustment to compensation costs due to common stock equivalents on our Series A preferred stock. We expect to try and maintain our consulting/payroll and other costs as we endeavour to further expand our sales volume.
For the nine months ended September 30, 2024, we incurred rental expense, warehousing, outlet expense of $335,743 compared to rental expense, warehousing, outlet expense of $732,360 for the nine months ended September 30, 2023. The decrease in rental expense, warehousing, outlet expense of $396,617 is due to cost cutting on leases and properties that we rent to conduct the Champion business acquisition as well as other cost cutting measures or efficiencies put in place. Prior to the Champion business acquisition, we included lease expense in the Administrative and other account. With the significant number of leases and properties that we rent to conduct the Champion business, we believe this is a better presentation of the expenses. We expect to maintain this level of expense on a go-forward basis with our leases and rented properties for the near term. We may look to consolidate some of our space as needed as we fine tune the Champion business.
For the nine months ended September 30, 2024, we incurred product development expenses of $713,883, compared to product development expenses of $36,821 for the nine months ended September 30, 2023. The increase in product development expenses of $677,062 (or 1,839% period over period) is due to some of the Company’s current product development expenses being reclassed from consulting/payroll and other costs account, which we believe provides for a better presentation of our historical business expenses than pure product development expense. For the nine months ended September 30, 2024, we have incurred expenses that are attributable to our private label brewery efforts and should be separated and identified. The Company expects to maintain some level of expense on a go-forward basis with new products and efforts being expended for future sales growth and product needs.
For the nine months ended September 30, 2024, we incurred marketing and brand development expenses of $1,189,219 compared to marketing and brand development expenses of $942,687 for the nine months ended September 30, 2023. The increase in marketing and brand development expenses of $246,532 (or 26% period over period) relates primarily to an increase of activities related to the launch of American Rebel Beer as well as expenses associated with our Tony Stewart activities and general push forward on sales efforts.
For the nine months ended September 30, 2024, we incurred administrative and other expense of $3,323,566 compared to administrative and other expense of $2,542,181 for the nine months ended September 30, 2023. The increase in administrative and other expense of $781,385 (or 31% period over period) relates directly to increased legal and other professional fees that we incurred in our registered public offerings and capital raising efforts, along with additional expenses picked up from our acquisition of Champion. We believe as we grow our sales base, we will also increase our administrative and other expense commensurate with the increased profits for the future.
For the nine months ended September 30, 2024, we incurred depreciation and amortization expense of $109,813 compared to depreciation and amortization expense of $79,260 for the nine months ended September 30, 2023. The increase in depreciation and amortization expense primarily relates to the amortization expense of goodwill.
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Other income and expenses
For the nine months ended September 30, 2024, we incurred interest expense of $2,128,357 compared to interest expense of $250,877 for the nine months ended September 30, 2023. The increase in interest expense of $1,877,480 is due to a significant number of notes being paid during 2023 that were able to be paid in full from the various financings, offset by the increased borrowing costs that we have on our working capital notes payable and line of credit. We are currently paying an interest rate of approximately 7% on our line of credit, in excess of 18% on our existing working capital notes payable, and more than 40% per annum on our new working capital notes. We believe that we will manage and maintain our interest expense exposure despite the increase in interest rates for this year over last year, as well as keeping our debt obligations to a reasonable amount as we grow the business and its sales volume.
Net Loss
Net loss for the nine months ended September 30, 2024 amounted to $9,702,239, resulting in a loss per share of $(1.48), compared to a net loss of $3,610,929 for the nine months ended September 30, 2023, resulting in a loss per share of $(2.50). The increase in the net loss from the nine months ended September 30, 2023 to the nine months ended September 30, 2024 is from a myriad of expenses that the Company incurred in the quarter, such as professional and legal fees, increased costs in marketing, and the softening of gross margin on sales. The Company’s management believes with increasing sales volume from the launch of new products, strict adherence to cost cutting measures in its legacy business, and best practices that net positive income can be achieved for the business.
Liquidity and Capital Resources
We are a company still in the growth and acquisition stage and our revenue from operations does not cover our operating expenses. Working capital decreased by $7,322,713 period over period where we had a working capital balance of $2,545,744 at December 31, 2023 compared to a working capital deficit balance of $(4,776,970) at September 30, 2024. This working capital decrease was due to increased expenses launching new products and slowing sales in its legacy business. We have funded our operations primarily through the issuance of capital stock, convertible debt, and other securities and will continue so into the near future and beyond.
During the nine months ended September 30, 2024, we raised net cash of approximately $0 through the issuance of equity, as compared to approximately $5,304,000 for the nine months ended September 30, 2023 (which included the inducement to accelerate the conversion of certain warrants into equity). During the nine months ended September 30, 2024, we raised net cash of approximately $3,500,000 through the issuance of notes payable and maintaining a line of credit with a national financial institution secured by inventory and other assets, as compared to approximately $2,386,000 for the nine months ended September 30, 2023.
As we continue with the launch of American Rebel Beer and continue to maintain the American Rebel branded safes and concealed carry product line, as well our Champion line of products, we expect to continue to devote significant resources in the areas of capital expenditures, marketing, sales, and operational expenditures. We may from time to time incur significant capital needs for these expenditures and for our business. We cannot fully predict what those needs will be and the impact to our business.
We expect to require additional funds to further develop our business and acquisition plan, including the launch of additional products in addition to aggressively marketing our safes and concealed carry product line. Since it is impossible to predict with certainty the timing and amount of funds required to establish profitability, we anticipate that we will raise additional funds through equity or debt offerings or otherwise in order to meet our expected future liquidity requirements. Any such financing that we undertake will likely be dilutive to existing stockholders.
In addition, we expect to need additional funds to respond to business opportunities and challenges, including our ongoing operating expenses, protecting our intellectual property, developing or acquiring new lines of business and enhancing our operating infrastructure. While we may need to seek additional funding for such purposes, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock. We may also seek additional funds through arrangements with collaborators or other third parties. We may not be able to negotiate any such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our product lines.
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Promissory Notes – Working Capital
Over the past twelve months we entered into the following:
On April 14, 2023, the Company entered into a $1,000,000 Business Loan and Security Agreement (the “Secured Loan #1”) with an accredited investor lending source. Under the Secured Loan #1, the Company received the loan net of fees of $20,000. The Secured Loan #1 requires 64 weekly payments of $20,000 each, for a total repayment of $1,280,000. The Secured Loan #1 bears interest at 41.4%. The Secured Loan #1 is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan #1. The Secured Loan #1 provides for a default fee of $15,000 for any late payments on the weekly payments. No prepayment of the loan is allowed as well as any default by the Company allows the lender to take necessary actions to secure its collateral and recovery of funds. The Company was required to pay a fee associated with the lender and its introduction to the Company of $80,000 to be made in equity of the Company at the time the loan was entered into. The Company issued 3,721 post-reverse stock split shares, which on the date of issuance had a value of approximately $2,900. Since the number of shares had been established upon consummation of the loan but not valued or recorded on the books at the time, because of the leeway on grant date; total cost to the Company for the issuance of the 3,721 shares of common stock on the grant date was $2,900, which was recorded to interest expense and attributable to the loan.
On July 1, 2023, the Company received a release from the lender of the working capital loans that were in default since June 30, 2023, and the accredited lender of the new working capital loans paid the holder of the old working capital loans $450,000 which required no additional working capital outlay from the Company. The terms of the new loan are 12% per annum and interest only payments that are due by last day of the quarter based on a calendar year. This reduces the Company’s interest payments on the working capital loans (old) of $600,000 from $18,000 per quarter to $13,500 per quarter (for quarter ended December 31, 2023) and $9,000 per quarter thereafter (for three and nine months ended September 30, 2024).
On December 19, 2023, the Company entered into a $500,000 Revenue Interest Purchase Agreement (the “Revenue Interest Loan #1”) with an accredited lender. Under the Revenue Interest Loan #1, the Company received the purchase price/loan net of fees of $5,000. The Revenue Interest Loan #1 required monthly payments of $75,000, until the Revenue Interest Loan #1 is repurchased by the Company. Upon entering into the agreement, the Revenue Interest Loan #1 bore an effective interest of more than 100%. The Revenue Interest Loan #1 is secured by all of the product revenues of the Company and its subsidiaries second to a first priority lien secured the holder of the line of credit. Furthermore, the Company’s is obligated to provide for 50% of the Reg. 1-A offering proceeds to the holder of the Revenue Interest Loan #1 as payment towards the amounts due. The Revenue Interest Loan #1 may be repurchased by the Company at any time. The repurchase price for the Revenue Interest Loan #1 prior to April 1, 2024 is 125% or $625,000, the repurchase price for the Revenue Interest Loan #1 after April 1, 2024 and prior to May 5, 2024 is 137.5% or $687,500, thereafter the repurchase price of the Revenue Interest Loan #1 is $687,500 plus monthly payments of $75,000 due and payable on the fifth calendar day until repurchased by the Company in its entirety.
On May 13, 2024 the Company and the holder of the Revenue Interest Loan #1 entered into a settlement and conversion agreement (“Securities Exchange Agreement”) whereby the Company issued 133,334 shares Series D convertible preferred stock as full satisfaction for the revenue participation interest agreement or loan. The Series D convertible preferred stock was purchased at $7.50 per share. Total loan balance on the date of settlement and conversion was $750,005. The Company paid approximately $250,005 in interest on a loan balance of $500,000 that it entered into on December 19, 2023. The Company also paid a premium payment of $250,000 to induce the holder to settle and convert their debt instrument. The Series D convertible preferred stock is convertible at the option of the holder into common stock of the Company at a fixed price per share of $1.50 per share.
On July 10, 2024, the Company entered into a Conversion Agreement (the “Conversion Agreement”) with Series D convertible preferred stock holder, pursuant to which the holder agreed to convert the 133,334 shares of Series D convertible preferred stock it held into 2,232,143 shares of common stock, par value $0.001 per share, of the Company. The shares of common stock were priced at $0.448 per share (which price represents the closing price for the Company’s common stock on NASDAQ for the day immediately preceding the date of the Conversion Agreement).
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On December 29, 2023, the Company entered into a $500,000 Business Loan and Security Agreement (the “Secured Loan #2”) with an accredited investor lending source. Under the Secured Loan #2, the Company received loan proceeds net of fees of $10,000. The Secured Loan #2 requires 52 weekly payments of $11,731 each, for a total repayment of $610,000. The Secured Loan #2 bears interest at 40.5%. The Secured Loan #2 is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan #2. The Secured Loan #2 provides for a default fee of $15,000 for any late payments on the weekly payments. No prepayment of the loan is allowed as well as any default by the Company allows the lender to take necessary actions to secure its collateral and recovery of funds. The Company is required to pay a fee associated with the lender and its introduction to the Company of $40,000 to be made in equity of the Company at the time the loan was entered into.
On March 21, 2024, the Company entered into a securities purchase agreement with an accredited investor lending source, pursuant to which the lender made a loan to the Company, evidenced by a promissory note in the principal amount of $235,750 (“Promissory Note #1). A one-time interest charge or points amounting to 15.0% (or $35,362) and fees of $5,000 were applied at the issuance date, resulting in net proceeds to the Company of $200,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in seven payments; the first payment shall be in the amount of $162,667.20 and is due on June 30, 2024 with six (6) subsequent payments each in the amount of $18,074.14 due on the 30th of each month thereafter (total repayment of $271,112 on or by December 31, 2024). the Company has the right to prepay the note within one hundred eighty days at a discount of 5%.
On March 22, 2024, the Company entered into another Revenue Interest Purchase Agreement (the “Revenue Interest Loan #2”) with an individual accredited investor lending source, in the amount of $100,000. As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company, pursuant to the terms of the Revenue Interest Loan #2, the holder has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Furthermore, the Company is obligated to provide for 5.15% of the Reg. 1-A offering proceeds to the holder of the Revenue Interest Loan #2 as payment towards the amounts due. The Revenue Interest Loan #2 may be repurchased by the Company at any time. The repurchase price for the Revenue Interest Loan #2 prior to May 31, 2024 is 140% or $140,000, the repurchase price for the Revenue Interest Loan #2 after May 31, 2024 and prior to July 5, 2024 is 154 % or $154,000, thereafter the repurchase price of the Revenue Interest Loan #2 is $154,000 plus monthly payments of $10,000 due and payable on the fifth calendar day until repurchased by the Company in its entirety.
On March 27, 2024, the Company entered into a $1,300,000 Business Loan and Security Agreement (the “Secured Loan #3”) with an accredited investor lending source. Under the Secured Loan #3, the Company received the loan net of fees of $26,000. The Company repaid two outstanding secured notes payable (Secured Loan #1 and Secured Loan #2) to affiliates of the lender totalling $769,228, resulting in net proceeds to the Company of $504,772. The Secured Loan #3 requires 64 weekly payments of $26,000 each, for a total repayment of $1,664,000. The Secured Loan #3 is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan #3. The Secured Loan #3 provides for a default fee of $15,000 for any late payments on the weekly payments. As long as the Secured Loan #3 is not in default, the Company may prepay the Secured Loan #3 pursuant to certain prepayment amounts set forth in the Secured Loan #3. Further, any default by the Company allows the lender to take necessary actions to secure its collateral and recovery of funds.
On April 1, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $100,000 (“Revenue Interest Loan #3). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #3, the holder has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #3, the Company has an option to repurchase the Revenue Interest Loan #3 at any time upon two days advance written notice. Additionally, the holder has an option to terminate the Revenue Interest Loan #3 and to require the Company to repurchase the Revenue Interest Loan #3 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $140,000 if repurchased on or before May 31, 2024; and (ii) $154,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.
On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $100,000 (“Revenue Interest Loan #4). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #4 the holder has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #4, the Company has an option to repurchase the Revenue Interest Loan #4 at any time upon two days advance written notice. Additionally, the holders has an option to terminate the Revenue Interest Loan #4 and to require the Company to repurchase the Revenue Interest Loan #4 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $140,000 if repurchased on or before May 31, 2024; and (ii) $154,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.
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On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $300,000 (“Revenue Interest Loan #5). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #5, the holder has a right to receive $30,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #5, the Company has an option to repurchase the Revenue Interest Loan #5 at any time upon two days advance written notice. Additionally, the holder has an option to terminate the Revenue Interest Loan #5 and to require the Company to repurchase Revenue Interest Loan #5 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $420,000 if repurchased on or before May 31, 2024; and (ii) $462,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.
On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an individual accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $75,000 (Revenue Interest Loan #6). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #6, the holder has a right to receive $7,500 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #6, the Company has an option to repurchase the Revenue Interest Loan #6 at any time upon two days advance written notice. Additionally, the holder has an option to terminate the Revenue Interest Loan #6 and to require the Company to repurchase the Revenue Interest Loan #6 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $105,000 if repurchased on or before May 31, 2024; and (ii) $115,500 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.
On April 19, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $500,000 (“Revenue Interest Loan #7”). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #7, the holder has a right to receive $50,000 per month from the Company generated from its operating subsidiaries (the “Revenue Interest”). Under the Revenue Interest Loan #7, the Company has an option (the “Call Option”) to repurchase the Revenue Interest at any time upon two days advance written notice. Additionally, the Purchasers have an option (the “Put Option”) to terminate the Revenue Interest Loan #7 and to require the Company to repurchase the Revenue Interest Loan #7 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $700,000 if repurchased on or before May 31, 2024; and (ii) $770,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.
The Company entered into seven (7) Revenue Interest Purchase Agreements with seven (7) accredited investor lending sources. As part of the loan agreements the Company was not aware that in the aggregate the loan agreements required the holders have the right to receive certain payments per month from the Company generated from its operating subsidiaries that far exceeds its free-cash flow from these operating subsidiaries, subjecting the subsidiaries to borrow additional funding to supplement these required cash payments. Furthermore, the Company’s is obligated to provide in excess of 100.0% of the Reg. 1-A offering proceeds to the collective group of holders of the Revenue Interest Loan’s as payment towards the amounts due to the holders.
On May 28, 2024, the Company entered into a securities purchase agreement with an accredited investor lending source, pursuant to which the holder made a loan to the Company, evidenced by a promissory note in the principal amount of $111,550 (“Promissory Note #2). An original issue discount of $14,550 and fees of $7,000 were applied on the issuance date, resulting in net loan proceeds to the Company of $90,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in nine payments in the amount of $13,881.78, with the first payment due on June 30, 2024, and remaining eight payments due on the last day of each month thereafter (a total payback to the holder of $124,936.00). The securities purchase agreement allows for the holder to purchase shares of the Company’s common stock at a discount to market which as of the date of this Report has been determined to be $0.448 per share. These shares and the conversion of the loan payable is triggered if the Company is in default or technical default with respect to the Promissory Note #2. The Company has reserved for 3X the number of shares that would be considered common stock equivalents under the terms of the Promissory Note #2.
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On June 14, 2024, the Company entered into a securities purchase agreement with an accredited investor lending source, pursuant to which the holder made a loan to the Company, evidenced by a promissory note in the principal amount of $111,550 (“Promissory Note #3). An original issue discount of $14,550 and fees of $7,000 were applied on the issuance date, resulting in net loan proceeds to the Company of $90,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in nine payments in the amount of $13,881.78, with the first payment due on June 30, 2024, and remaining eight payments due on the last day of each month thereafter (a total payback to holder of $124,936.00). The securities purchase agreement allows for the holder purchase shares of the Company’s common stock at a discount to market which as of the date of this Report has been determined to be $0.448 per share. These shares and the conversion of the loan payable is triggered if the Company is in default or technical default with respect to Promissory Note #3. The Company has reserved for 3X the number of shares that would be considered common stock equivalents under the terms of Promissory Note #3.
On July 2, 2024, the Company, entered into a Standard Merchant Cash Advance Agreement (the “Factoring Agreement”), with an accredited investor lending source (“Financier”). Under the Factoring Agreement, the Company sold to Financier a specified percentage of its future receipts (as defined by the Factoring Agreement, which include any and future revenues equal to $357,500 for $250,000, less origination and other fees of $12,500. The Company agreed to repay this purchased receivable amount in equal weekly installments of $17,875. Financier has specified customary collection procedures for the collection and remittance of the weekly payable amount including direct payments from specified authorized bank accounts. The Factoring Agreement expressly provides that the sale of the future receipts shall be construed and treated for all purposes as a true and complete sale and includes customary provisions granting a security interest under the Uniform Commercial Code in accounts and the proceeds, subject to existing liens. The Factoring Agreement also provides customary provisions including representations, warranties and covenants, indemnification, arbitration and the exercise of remedies upon a breach or default. The obligations the Company under the Factoring Agreement are irrevocably, absolutely, and unconditionally guaranteed by the Company’s Chief Executive Officer. The Personal Guaranty of Performance by Mr. Ross to Financier provides customary provisions, including representations, warranties and covenants.
On July 8, 2024, the Company entered into a subordinated business loan and security agreement (“Loan”) with an accredited investor lending source and a subsidiary to that accredited investor lending source as collateral agent, which provides for a term loan in the amount of $1,312,500 which principal and interest (of $577,500) is due on January 20, 2025. Commencing July 15, 2024, the Company is required to make weekly payments of $67,500 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $62,500 was initially paid on the loan. A default interest rate of 5% becomes effective upon the occurrence of an event of default. In connection with the loan, the holder was issued a subordinated secured promissory note, dated July 8, 2024, in the principal amount of $1,312,500 which note is secured by all of the borrower’s assets, including receivables, subject to certain outstanding liens and agreements.
On July 10, 2024, the Company entered into a Conversion Agreement (the “Conversion Agreement”) with Series D convertible preferred stock holder, pursuant to which the holder agreed to convert the 133,334 shares of Series D convertible preferred stock it held into 2,232,143 shares of common stock, par value $0.001 per share, of the Company. The shares of common stock underlying the Series D convertible preferred stock were reduced and repriced from $1.50 per share to $0.448 per share (which this price represents the closing price for the Company’s common stock on NASDAQ for the day immediately preceding the date of the Conversion Agreement).
On July 22, 2024, the Company and an accredited investor lending source entered into an agreement whereby $300,000 of the Assumption Loan was acquired by the accredited investor lending source from the original holder. The agreement entered into was structured as an installment purchase between the two accredited investor lending sources. The Company entered into an amended note payable, which by its terms became a $300,000 no interest convertible note, due and payable on July 22, 2025 (“Amended Convertible Note Payable”). The conversion price is fixed at $0.448 per share, with the normal share reserve and conversion mechanics. The Company issued 223, 214 shares of common stock to the holder of the amended note payable and retiring $100,000 of this $300,000 debt. The shares were issued to the holder without restrictive legend and a new amended convertible note payable of $200,000, due and payable on July 22, 2025.
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Line of Credit
During February 2023, the Company entered into a $2 million line of credit facility (the “Line of Credit”). The Line of Credit accrues interest at a rate determined by BSBY Daily Floating Rate plus 2.05 percentage points (which was 7.25% as of September 30, 2024), and is secured by all of the assets of the Champion Entities. The maturity date on the line of credit was initially extended by Bank of America to April 30, 2024. The balance at the maturity date was approximately $1.9 million and access to the line of credit with Bank of America was terminated. Subsequent to quarter end, Bank of America put the Company on notice that the Line of Credit is in default; however, Champion and Bank of America have continued dialogue and the Company is currently negotiating a forbearance or other cure to the default and a plan for repayment of the Line of Credit within sixty (60) to ninety (90) days with its assigned relationship manager at the bank.
Acquisition, Integration of Champion Entities and PIPE Transaction Used to Fund Acquisition
On July 12, 2022, we sold $12,887,976 of securities to Armistice Capital, an institutional purchaser. Such securities consisted of (i) 20,372 shares of common stock at $27.75 per share, (ii) prefunded warrants that are exercisable into 448,096 shares of common stock at $27.50 per prefunded warrant, and (iii) immediately exercisable warrants to purchase up to 936,937 shares of common stock at an initial exercise price of $21.50 per share, subject to adjustments as set forth therein, and will expire five years from the date of issuance. EF Hutton, a division of Benchmark Investments, LLC, acted as exclusive placement agent for the offering and was paid: (i) a commission of 10% of the gross proceeds ($1,288,798); (ii) non-accountable expenses of 1% of the gross proceeds ($128,880); and (iii) placement agent expenses of $125,000.
On June 29, 2022, the Company entered into a stock and membership interest purchase agreement with Champion Safe Co., Inc. (“Champion Safe”), Superior Safe, LLC (“Superior Safe”), Safe Guard Security Products, LLC (“Safe Guard”), Champion Safe De Mexico, S.A. de C.V. (“Champion Safe Mexico” and, together with Champion Safe, Superior Safe, and Safe Guard, collectively, the “Champion Entities”) and Mr. Ray Crosby (“Crosby”) (the “Champion Purchase Agreement”), pursuant to which the Company agreed to acquire all of the issued and outstanding capital stock and membership interests of the Champion Entities from Crosby.
The closing of the acquisition occurred on July 29, 2022. Under the terms of the Champion Purchase Agreement, the Company paid Crosby (i) cash consideration in the amount of $9,150,000, along with (ii) cash deposits in the amount of $350,000, and (iii) reimbursed Seller for $397,420 of agreed upon acquisitions and equipment purchases completed by Crosby and the Champion Entities since June 30, 2021.
During 2023 the Company received a claim for refund or right of repayment from Crosby. The Company settled with Crosby and agreed to pay an additional $325,000 to Crosby in the following manner. $275,000 upon signing of the agreement and another $50,000 to be paid over the next twelve months. The Company increased its purchase price of the Champion Entities by the $325,000 during 2023. The funds for this pricing adjustment came from general working capital.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. Management has determined that the Company has no critical accounting estimates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives, and management necessarily is required to use its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
An evaluation was carried out under the supervision and with the participation of the Company’s management, including the CEO and Interim Principal Accounting Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, the CEO and Interim Principal Accounting Officer have concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective.
Management has concluded that there is a material weakness in internal control over financial reporting due to deficiencies in the design and operation of internal controls. The material weakness resulted in material adjustments to the financial statements included in the Original Form 10-K for the years ended December 31, 2023 and 2022, which were driven by the following: (1) inadequate management reviews and (2) insufficient technical accounting competencies within the organization.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis. As a result of the material weakness, our CEO and Interim Principal Accounting Officer have concluded that, as of September 30, 2024, the end of the period covered by this report, our disclosure controls and procedures were not effective at a reasonable assurance level.
Changes in Internal Control over Financial Reporting
Other than the material weakness discussed above, there were no changes in the Company’s internal controls over financial reporting that occurred during the period ended September 30, 2024 that have materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
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Part II: Other Information
Item 1 - Legal Proceedings
On July 23, 2024, we received notice of a complaint filed in the U.S. District Court for the District of Utah by Liberty Safe and Security Products, Inc. (“Liberty”), in connection with the marketing and sale of our and our subsidiary’s, Champion Safe Company, Inc., line of safe products. As of the date of this Quarterly Report, the complaint has not been served on us or Champion Safe. In the complaint, Liberty alleges trademark infringement as a result of the purported use of the term “Freedom” in the sale of safes, federal false designation of origin and unfair competition, violation of Utah deceptive trade practices, Utah unfair competition, and damages to Liberty. Management believes that this lawsuit is without merit; however has initiated settlement discussions with Liberty and anticipates an amicable settlement to be forthcoming. At this time, Management does not believe a settlement with Liberty will have a material effect on its business or financial condition. Other than the Liberty dispute, we are currently not involved in any material litigation that we believe could have a material adverse effect on our financial condition or results of operations.
There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 1a – Risk Factors
Factors that could cause or contribute to differences in our future financial and operating results include those discussed in the risk factors set forth in Item 1A of our Amended Annual Report on Form 10-K/A for the year ended December 31, 2023. These risks are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.
The following additional risk factors update or expand on those set forth in our Form 10-K/A for the year ended December 31, 2023:
Our financial results may be affected by new tariffs or border adjustment taxes or other import restrictions.
A material percentage of our safes are built in Mexico, along with a majority of our soft goods. We also depend on imports from Canada and other parts of the world. The imposition of tariffs or border adjustment taxes may affect our financial results. The current political climate is hostile to companies manufacturing goods outside of the U.S. Restrictions on trade with foreign countries, imposition of customs duties or further modifications to U.S. international trade policy have the potential to disrupt our supply chain or the supply chains of our customers and to adversely impact demand for our products, our costs, customers, suppliers and/or the U.S. economy or certain sectors thereof, potentially leading to negative effects on our business and financial condition. Significant changes to the U.S. federal government’s trade policies, including new tariffs or the renegotiation or termination of existing trade agreements and/or treaties, may adversely affect our financial performance. In recent years, the U.S. federal government has altered U.S. international trade policy and has indicated its intention to renegotiate or terminate certain existing trade agreements and treaties with foreign governments. The U.S. federal government’s decision to implement new trade agreements, and/or withdraw or materially modify other existing trade agreements or treaties may adversely impact our business, customers and/or suppliers by disrupting trade and commercial transactions and/or adversely affect the U.S. economy or specific portions thereof.
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We have identified several material weaknesses in our internal control over financial reporting. If we are unable to remediate these weaknesses, or otherwise fail to maintain proper and effective internal controls, our ability to produce timely and accurate financial statements could be impaired, which could adversely affect our operating results, our ability to operate our business, our stock price and access to the capital markets.
We have identified material weaknesses in our internal control over financial reporting and those weaknesses have led to a conclusion that our internal control over financial reporting and disclosure controls and procedures were not effective as of December 31, 2023 or for the nine months ended September 30, 2024. Our inability to remediate the material weaknesses, our discovery of additional weaknesses, and our inability to achieve and maintain effective disclosure controls and procedures and internal control over financial reporting, could adversely affect our results of operations, our stock price and investor confidence in our company.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on the effectiveness of their internal control over financial reporting. As disclosed in more detail under Item 4, “Controls and Procedures” above, we have identified material weaknesses as of December 31, 2023 and for the nine months ended September 30, 2024 in our internal control over financial reporting. Due to the material weaknesses in our internal control over financial reporting, we have also concluded our disclosure controls and procedures were not effective as of December 31, 2023 and for the nine months ended September 30, 2024.
Failure to have effective internal control over financial reporting and disclosure controls and procedures can impair our ability to produce accurate financial statements on a timely basis and has led and could again lead to a restatement of our financial statements. For example, the identified material weaknesses resulted in material adjustments to the consolidated financial statements for the years ended December 31, 2022 and 2023, and for the nine months ended September 30, 2024. If, as a result of the ineffectiveness of our internal control over financial reporting and disclosure controls and procedures, we cannot provide reliable financial statements, our business decision processes may be adversely affected, our business and results of operations could be harmed, investors could lose confidence in our reported financial information and our ability to obtain additional financing, or additional financing on favorable terms, could be adversely affected.
Our management has taken action to begin remediating the material weaknesses; however, certain remedial actions have not started or have only recently been undertaken, and while we expect to continue to implement our remediation plans throughout the fiscal year ending December 31, 2025, we cannot be certain as to when remediation will be fully completed. In addition, we could in the future identify additional internal control deficiencies that could rise to the level of a material weakness or uncover other errors in financial reporting. During the course of our evaluation, we may identify areas requiring improvement and may be required to design additional enhanced processes and controls to address issues identified through this review. In addition, there can be no assurance that such remediation efforts will be successful, that our internal control over financial reporting will be effective as a result of these efforts or that any such future deficiencies identified may not be material weaknesses that would be required to be reported in future periods.
If we fail to remediate these material weaknesses and maintain effective disclosure controls and procedures or internal control over financial reporting, we may not be able to rely on the integrity of our financial results, which could result in inaccurate or additional late reporting of our financial results, as well as delays or the inability to meet our future reporting obligations or to comply with SEC rules and regulations. This could result in claims or proceedings against us, including by stockholders or the SEC. The defense of any such claims could cause the diversion of the Company’s attention and resources and could cause us to incur significant legal and other expenses even if the matters are resolved in our favor.
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We restated certain of our previously issued consolidated financial statements, which resulted in unanticipated costs and may affect investor confidence and raise reputational issues.
As discussed in Footnote 1 to the financial statements included in this quarterly report on Form 10-Q, we reached a determination to restate our consolidated financial statements and related disclosures for the years ended December 31, 2023 and 2022. The restatement also included other adjustments to historical periods. As a result, we have incurred unanticipated costs for accounting, professional and legal fees in connection with or related to the restatement, and have become subject to a number of additional risks and uncertainties, which may affect investor confidence in the accuracy of our financial disclosures and may raise reputational issues for our business.
Absent relief, as a result of our failure to timely file a periodic report with the SEC, we are currently ineligible to continue to use or file short form shelf registration statements on Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.
Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future filings and reports made under the Exchange Act of 1934, as amended (the “Exchange Act”). In addition, Form S-3 enables eligible issuers to conduct primary offerings “off the shelf” under Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”). The shelf registration process, combined with the ability to forward incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditions and efficient manner than raising capital in a standard registered offering pursuant to a registration statement on Form S-3. The ability to newly register securities for resale may also be limited as a result of the loss of Form S-3 eligibility with respect to such registrations.
As a result of our failure to timely file a periodic report with the SEC in connection with our reaudit of the years ended December 31, 2023 and 2022, absent a waiver of the Form S-3 eligibility requirements, we are ineligible to use or file new short form registration statements on Form S-3. In the event of the absence of a waiver, our inability to use or file new registration statements on Form S-3 may significantly impair our ability to raise necessary capital to run our operations and progress our business and product development programs. If we seek to access the capital markets through a registered offering during the period of time that we are unable to file a new registration statement on Form S-3, we may be required to publicly disclose a proposed offering and the material terms thereof before the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement, and we may incur increased offering and transaction costs and other considerations. Disclosing a public offering prior to the formal commencement of an offering may result in downward pressure on our stock price. If we are unable to raise capital through a registered offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing, size and other limitations imposed under Nasdaq rules, or seek other sources of capital. In addition, we will not be permitted to conduct an “at the market offering” absent an effective primary registration statement on Form S-3.
Our failure to timely file certain periodic reports with the SEC and our prior restatements have had, and may in the future have further, material adverse consequences to our business, our financial condition, results of operations and our cash flows.
As previously publicly disclosed, we have failed to timely file our quarterly report for the nine months ended September 30, 2024.
Also as previously publicly disclosed, we have restated previously issued financial statements for the years ended December 31, 2023 and 2022.
Our failure to timely file certain periodic reports with the SEC and our prior restatements have had, and may in the future have further, material adverse consequences to, and pose significant risk to, our business, which could materially and adversely affect our business, our financial condition, our results of operations and our cash flows. These adverse consequences include, but are not limited to, the potential delisting of our Common Stock on the Nasdaq Stock Exchange (“Nasdaq”), stockholder litigation, SEC investigations, stockholder activism, violations of our obligations under our existing material arrangements, including our credit agreements and the terms of our other financing agreements, our ability to raise capital on attractive terms, or at all, significant fluctuations in the value of our Common Stock, among others.
Our failure to timely file the September 30, 2024 Form 10-Q with the SEC and our prior restatements may subject us to stockholder litigation or governmental or regulatory investigations. We have incurred, and may be required in future to incur further, significant accounting, consulting, professional and legal fees and other expenses related to the late filing and the restatements.
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We also may fail to be timely on our future filings, which, in addition to the risks and consequences described above, may create further harm to us. For example, we may incur penalty or other default fees owed to holders of our debt instruments as a result of our failure to timely file our periodic reports. In addition, the holders of these debt instruments may raise additional claims resulting from the Company’s inability to timely and accurately report its financial information, which could cause further harm to the Company and its stockholders, all of which could materially and adversely affect to our business, our financial condition, results of operations and cash flows.
Our Common Stock may be delisted from Nasdaq, which could significantly adversely affect us, our business, and the value and liquidity of our Common Stock.
Our Common Stock is currently listed on Nasdaq. As previously disclosed, on April 23, 2024, the Company received notice from Nasdaq indicating that, while the Company had not regained compliance with the Bid Price Requirement, Nasdaq had determined that the Company was eligible for an additional 180-day period, or until October 21, 2024, to regain compliance. On October 2, 2024, the Company effectuated a 1-for-9 reverse stock split, which resulted in its stock price increasing above the Bid Price Requirement. On October 16, 2024, the Company received a written notification from Nasdaq indicating that, as of October 15, 2024, the Company had regained compliance with the Bid Price Requirement.
On February 28, 2024 the Company received a written notice from Nasdaq stating that because the Company has not yet held an annual meeting of shareholders within 12 months of the end of the Company’s 2022 fiscal year end, it no longer complies with Nasdaq Listing Rule 5620(a) for continued listing on The Nasdaq Capital Market. The Company had until April 15, 2024, which was 45 days from the date of the notice, to submit a plan to regain compliance and, if Nasdaq accepted the plan, it may grant an exception of up to 180 calendar days from the fiscal year end, or until June 28, 2024, to regain compliance. The Company held its annual meeting of stockholders on June 27, 2024, thereby regaining compliance with the Nasdaq annual meeting requirement.
On November 22, 2024, the Company received a notice from Nasdaq indicating that, as a result of not having timely filed the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, the Company is not in compliance with Nasdaq Listing Rules which require timely filing of periodic reports with the SEC. Pursuant to the Nasdaq Listing Rules, the Company has until January 21, 2025 to submit a plan to regain compliance. If the plan is accepted, an extension may be granted of up to 180 calendar days from the due date of the Initial Delinquent Filing, or May 19, 2025, to regain compliance. The Company submitted a compliance plan on January 20, 2025 and will satisfy the delinquency through the filing of this quarterly report on Form 10-Q.
There can be no assurance as to whether the Company will remain compliant with the Nasdaq Listing Rules. A delisting of our Common Stock from Nasdaq (whether or not our Common Stock is subsequently listed on any of the marketplaces of the OTC Markets Group (the “OTC Markets”) thereafter) could have significant adverse impacts on our business, financial condition, results of operations and cash flows by, among other things: reducing the liquidity, public float and market price of our Common Stock; reducing the number of investors, including institutional investors, willing to hold or acquire our Common Stock, which could negatively impact our ability to raise equity; decreasing the amount of news and analyst coverage relating to us; limiting our ability to issue additional securities, obtain additional financing or pursue strategic restructuring, refinancing or other transactions; and impacting our reputation and, as a consequence, our ability to attract new business. In addition, the delisting of our Common Stock from Nasdaq could constitute a breach of many of our existing material arrangements (whether or not our Common Stock is subsequently listed on any of the OTC Markets), including the terms of our credit facilities and the terms of our various debt instruments. If a delisting of our Common Stock were to cause us to violate our obligations under our credit facilities or debt instruments, such occurrence could trigger an event of default, which could have significant adverse impacts on our business, financial condition, results of operations, and cash flows.
If our Common Stock were to be delisted from Nasdaq, we intend to take actions to apply for listing the Company’s Common Stock on one of the OTC Markets. However, we understand that to be eligible for quotation on certain of the OTC Market, issuers must remain current in their filings with the SEC. In addition, even if our Common Stock is listed on the OTC Markets, the OTC Markets are generally regarded as a less efficient trading market than Nasdaq, and being listed on the OTC Markets may not resolve any breaches that may arise under our existing material arrangements, and thus many of the same risks described above would still apply.
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Item 2 - Unregistered Sales of Equity Securities
On July 10, 2024, the Company, and the holder of 133,334 shares of Series D Convertible Preferred Stock, entered into a conversion agreement, whereby the Company agreed to issue the accredited investor holder 2,232,143 shares of common stock in exchange for the shares of preferred stock. The shares of common stock were priced at $0.448 per share (which price represents the closing price for our common stock on NASDAQ for the day immediately preceding the date of the conversion agreement).
On July 22, 2024, the Company and an accredited investor lending source entered into an agreement whereby $300,000 of the Assumption Loan was acquired by the accredited investor lending source from the original holder. The agreement entered into was structured as an installment purchase between the two accredited investor lending sources. The Company entered into an amended note payable, which by its terms became a $300,000 no interest convertible note, due and payable on July 22, 2025 (“Amended Convertible Note Payable”). The conversion price is fixed at $0.448 per share, with the normal share reserve and conversion mechanics. The Company issued 223,214 shares of common stock to the holder of the amended note payable and retiring $100,000 of this $300,000 debt. The shares were issued to the holder without restrictive legend and a new amended convertible note payable of $200,000, due and payable on July 22, 2025.
Effective August 5, 2024, the Company entered into a securities exchange and amendment agreement with an accredited investor, whereby the Company agreed to issue the investor 10,010 shares of Series D Convertible Preferred Stock in exchange for a portion of a $75,000 revenue interest owned by such investor.
Effective August 5, 2024, the Company entered into a securities exchange and amendment agreement with an accredited investor, whereby the Company agreed to issue the investor 12,134 shares of Series D Convertible Preferred Stock in exchange for a portion of a $100,000 revenue interest owned by such investor.
On September 4, 2024, the Company entered into a $300,000 Note with a third-party Lender and concurrently entered into a conversion agreement (the “Conversion Agreement”), whereby the Lender converted $49,500 of its June 2024 note into 6,600 shares of the Company’s Series D Convertible Preferred Stock. Pursuant to the Conversion Agreement and Securities Purchase Agreement, the Company granted piggyback registration rights to the Lender on the shares of common stock underlying the preferred shares and the shares of common stock potentially issuable upon default of the Note.
On September 19, 2024, the Company authorized the issuance of 669,643 shares of common stock, valued at $0.448 per share, to a vendor pursuant to the terms of a settlement agreement.
On September 27, 2024, the Company authorized the issuance of 360,000 shares of common stock, valued at $0.448 per share, to a consultant pursuant to the terms of a consulting agreement.
Subsequent Issuances after Quarter End
On October 1, 2024, the Company issued 53,334 shares of Series D Convertible Preferred stock, valued at $7.50 per share, to a lender pursuant to the terms of a settlement agreement.
On October 1, 2024, the Company sold 31,500 shares of Series D Convertible Preferred Stock, for $7.50 per share for total proceeds to the Company of $236,250, to two accredited investors.
On October 2, 2024, the Company effectuated a 1-for-9 reverse stock split.
On October 23, 2024, the Company issued 57,000 shares of common stock, valued at $2.75 per share, and a three-year pre-funded warrant to purchase 486,030 shares of common stock at $0.01 per share, valued at $2.74 per share to the Investor pursuant to the terms of a securities exchange agreement.
On October 14, 2024, the Company issued 60,670 shares of common stock upon conversion of 12,134 shares of Series D Convertible Preferred Stock to an accredited investor.
On October 30, 2024, the Company entered into a $420,000 Note with a third-party Lender. In addition to the Note, the Company issued the Lender a five-year common stock purchase warrant to purchase up to 72,165 shares of Common Stock at $5.82 per share. The Company granted piggyback registration rights to the Lender on the shares of common stock underlying the warrant and the shares of common stock potentially issuable upon default of the Note. On December 31, 2024, the Company and Lender entered into an amendment to the Note, which included a provision to reduce the exercise price of the warrant to $3.50 per share.
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On November 1, 2024, the Company authorized the issuance of 56,778 shares of common stock to an accredited investor upon the partial exercise of a prefunded warrant on a cashless basis.
On November 7, 2024, the Company authorized the issuance of 71,783 shares of common stock to an accredited investor upon the partial exercise of a prefunded warrant on a cashless basis.
On November 11, 2024, the Company exchanged $150,469.11 of an assigned note portion for 78,615 shares of the Company’s common stock as a 3(a)(9) exchange.
On November 11, 2024, the Company entered into a $400,000 twelve-month promissory note with an accredited investor. An original issue discount of $80,000 was applied on the issuance date and was paid through the issuance of 26,756 shares of the Company’s common stock, resulting in net loan proceeds to the Company of $320,000.
On November 11, 2024, the Company authorized the issuance of 44,000 shares of common stock to Charles A. Ross, Jr., the Company’s CEO and Chairman, upon the conversion of 88 shares of Series A Convertible Preferred Stock.
On December 13, 2024, the Company entered into a three-month promissory note with an accredited investor in the principal amount of $213,715. An original issue discount of $63,715 was applied on the issuance date and was paid through the issuance of 36,830 shares of the Company’s common stock, resulting in net loan proceeds to the Company of $150,000.
On December 13, 2024, the Company entered into a $231,715 three-month promissory note with an accredited investor. An original issue discount of $63,715 was applied on the issuance date and was paid through the issuance of 36,830 shares of the Company’s common stock, resulting in net loan proceeds to the Company of $150,000.
On December 29, 2024, the Company authorized the issuance of 50,000 shares of common stock to Corey Lambrecht, the Company’s COO and a director, upon the conversion of 100 shares of Series A Convertible Preferred Stock.
On December 26, 2024, the Company entered into a Settlement Agreement and Stipulation (the “Settlement Agreement”) with Silverback Capital Corporation (“SCC”) to settle outstanding claims owed to SCC. Pursuant to the Settlement Agreement, SCC has agreed to purchase certain outstanding payables between the Company and designated vendors of the Company totaling $1,843,595.18 (the “Payables”) and will exchange such Payables for a settlement amount payable in shares of common stock of the Company (the “Settlement Shares”). The Settlement Shares shall be priced at 75% of the average of the three lowest traded prices during the five trading day period prior to a share request, which is subject to a floor price. On January 6, 2025, SCC requested the issuance of 78,000 shares of Common Stock to SCC, representing a payment of approximately $99,645, plus 15,000 shares of Common Stock as a settlement fee.
On January 10, 2025, the Company entered into two six-month promissory notes with accredited investors in the principal amounts of $617,100 (“Note 1”) and $123,420 (“Note 2”). An original issue discount of $117,100 was applied to Note 1 and $23,420 was applied to Note 2 on the issuance date and was paid through the issuance of 15,613 (Note 1) and 3,123 (Note 2) shares of the Company’s Series D Convertible Preferred Stock, resulting in net loan proceeds to the Company of $500,000 (Note 1) and $100,000 (Note 2).
On January 10, 2025, the Company authorized the issuance of 55,000 shares of common stock to a consultant pursuant to the terms of an amendment to a current consulting agreement.
On January 13, 2025, SCC requested the issuance of 70,000 shares of Common Stock to SCC, representing a payment of approximately $99,750.
On January 14, 2025, the Company authorized the issuance of 43,335 shares of Series D Convertible Preferred Stock to seven service providers to the Company and its subsidiaries.
On January 15, 2025, SCC requested the issuance of 103,500 shares of Common Stock to SCC, representing a payment of approximately $147,487.50.
On January 24, 2025, SCC requested the issuance of 110,000 shares of Common Stock to SCC, representing a payment of approximately $133,200.
On February 3, 2025, SCC requested the issuance of 115,000 shares of Common Stock to SCC, representing a payment of approximately $99,187.50.
All of the above-described issuances (if any) were exempt from registration pursuant to Section 4(a)(2), Section 3(a)(9), Section 3(a)(10) and/or Regulation D of the Securities Act as transactions not involving a public offering. With respect to each transaction listed above, no general solicitation was made by either the Company or any person acting on its behalf. All such securities issued pursuant to such exemptions are restricted securities as defined in Rule 144(a)(3) promulgated under the Securities Act, appropriate legends have been placed on the documents evidencing the securities, and may not be offered or sold absent registration or pursuant to an exemption therefrom.
Issuer Purchases of Equity Securities
We did not repurchase any of our equity securities during the quarter ended September 30, 2024.
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Item 3 – Defaults upon Senior Securities
Bank of America
As reported by the Company in the Form 8-K dated August 7, 2024, during February 2023, the Company entered into a $2 million master credit agreement (credit facility) with Bank of America. The credit facility is secured by all the assets of the Company’s Champion subsidiaries and guaranteed by the Company, the Champion subsidiaries and the Company’s CEO. The Line of Credit expired on February 28, 2024, but the Company and Champion Safe Company have been actively working with the bank to extend or modify the credit facility. Despite being current on all payments under the credit facility and actively working with the bank for a long-term solution to repay the credit facility, on July 25, 2024, Champion Safe Company received a notice of default and demand for payment from the bank. On October 25, 2024, the Company received an updated payoff statement from the bank showing the current balance owing as $2,021,581.35 and interest is accruing at $712.09 per day. The Registrant is currently negotiating a forbearance or other cure to the default and a plan for repayment of the credit facility within thirty (30) to sixty (60) days with its assigned relationship manager at the bank.
Altbanq
During March of 2023, the Company entered into a Business Loan and Security Agreement with Altbanq Lending LLC. The loan is secured by a second lien on all the assets of the Company and its Champion subsidiaries and guaranteed by the Company, the Champion subsidiaries and the Company’s CEO.
Despite being current on all payments under the loan and actively working with the lender on a solution to repay the loan, the Company has been put on notice of default because of claimed stacking of other debts and the lender has made demand for immediate repayment of the loan. Further, the lender has been sending UCC lien notices to the Company’s and its subsidiaries lenders, customers, vendors and other financing sources. The current balance owing to the lender is $1.043 million and additional attorney’s fees are in dispute which would increase the balance to approximately $1.3 million.
On November 11, 2024, the Company entered into a Purchase and Exchange Agreement among an investor (the “Purchaser”) and Altbanq Lending LLC (the “Seller”), pursuant to which the Purchaser agreed to purchase from the Seller a portion ($150,469.11) of a promissory note dated March 27, 2024 in the original principal amount of $1,330,000 (the “Note”), with a current balance payable of $1,229,350 (the “Note Balance”).
Contemporaneously with assignment of the assigned note portion to the Purchaser, the Company exchanged the $150,469.11 of assigned note portion for 78,615 shares of the Company’s common stock as a 3(a)(9) exchange.
At any time during the ninety days after the initial closing, the Purchaser may purchase additional portions of the Note, at one or more closing, by sending an additional closing notice in the amount set forth in the additional note notice and the Company will exchange such additional portions for shares of its common stock as a 3(a)(9) exchange. The additional shares will be calculated by dividing the relevant additional portion by 75% of the average of the three lowest bids for the Company’s common stock on its principal trading market on the five trading days prior to the closing of the purchase of the additional portion.
The Purchase and Exchange Agreement contains a beneficial ownership limitation of 4.99% of the number of the common shares outstanding immediately after giving effect to the issuance of common shares issuable upon any closing of the purchase of an additional portion by the Purchaser. No closing of the purchase of any additional portion shall take effect nor shall the Purchaser be able to purchase any additional portion to the extent that after giving effect to such issuance after closing, the Purchaser (together with the Purchaser’s Affiliates, and any other Persons acting as a group together with the Purchaser or any of the Purchaser’s Affiliates), would beneficially own in excess of the beneficial ownership limitation.
The Company will not issue shares of common stock in excess of 19.99% of the shares outstanding as of the date of the Purchase and Exchange Agreement. In the event the previous sentence restricts the Company’s ability to completely convert the Note, the Company will seek stockholder approval to allow the issuance shares of common stock in excess of 19.99% of the shares outstanding.
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For a period of ninety days after the closing, the Seller and Company shall not further amend the Note nor allow any payments to be made on account of the Note. In the event there has been a material adverse event with the Company or tother reasonable cause, upon fifteen (15) days written notice, the Seller may accelerate the termination of this period.
Due to our delinquency in filing our Form 10-Q for the quarter ended September 30, 2024, the Purchaser has been unable to convert additional portions of the Note.
Coventry
On September of 2024, the Company entered into a Securities Purchase Agreement with Coventry Enterprises, LLC, an accredited investor (“Coventry”), pursuant to which Coventry made a loan to the Company, evidenced by a promissory note in the principal amount of $300,000 (the “Note”). The Note required eight $37,333.33 monthly payments, with the first payment due on September 30, 2024 with seven (7) subsequent payments due on the last day of each month thereafter. The Company has been put on notice from Coventry that it is in default of the Note, for failure to make the full payment due as of September 30, 2024. The Company is currently working to remedy the Coventry default and has made a half payment to Coventry. Coventry has notified the Company it is reserving all rights afforded to it under the Note and ancillary agreements.
Upon the occurrence and during the continuation of any Event of Default, the Note shall become immediately due and payable and the Company will be obligated to pay to the Lender, in full satisfaction of its obligations, an amount equal to 150% times the sum of (w) the then outstanding principal amount of the Note plus (x) accrued and unpaid interest on the unpaid principal amount of the Note to the date of payment plus (y) default interest, if any, at the rate of 22% per annum on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Lender pursuant to the conversion rights under the Note.
If the Company is unable to cure the default, or payoff the Note, it would have a material impact on the Company’s working capital needs. In addition, the Company having to raise equity or debt financing to repay the Note or obtaining a new loan may be on substantially worse terms than the Note.
Other Debts
The Company is in the growth and acquisition stage and, accordingly, has not yet reached profitability from its operations. Since inception, the Company has been engaged in financing activities and executing its plan of operations and incurring costs and expenses related to product development, branding, inventory buildup and product launch. As a result, the Company has continued to incur significant net losses from operations and cash flow difficulties. The Company’s accumulated deficit was ($57,184,075) as of September 30, 2024, and ($47,481,836) as of December 31, 2023. The Company has experienced cash flow restraints and has missed payments due under several financing agreements. To date, the majority of lenders have been working with the Company towards amenable solutions to remedy any issues related to such agreements.
The ability of the Company to continue as a going concern is dependent upon its ability to raise capital from the sale of its equity and, ultimately, the achievement of significant operating revenues and profitability. The Company had previously had an effective Reg. A+ offering seeking to raise approximately $20.0 million; however, due to the termination of its prior PCAOB accountants and the requirement to re-audit its financial statements for the past two years for inclusion in the Reg. A+ offering documents the Company is unable to access any capital under the offering. Until the time the financial statements are re-audited and opined on by its new PCAOB accountants it is not able to intake any of the proceeds committed to the Reg. A+ offering or any other financing agreement requirement a registration statement be filed under the 1933 Act.
Management believes that sufficient funding can be secured through the obtaining of loans, as well as future offerings of its preferred and common stock. However, no assurance can be given that the Company will obtain this additional working capital, or if obtained, that such funding will not cause substantial dilution to its existing stockholders. Most of the Company’s current debt instruments are charging high interest rates. These interest payments and/or premium repayments and prepayments may make it difficult for it to enter into new debt agreements. If the Company is unable to secure such additional funds from these sources, it may be forced to change or delay some of its business objectives and efforts. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
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Item 4 – Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
Press Release
On January 23, 2025, the Company issued a press release titled “Nashville’s Iconic Tootsie’s World Famous Orchid Lounge is Now Serving America’s Patriotic Beer - American Rebel Light!” A copy of the press release is attached hereto as Exhibit 99.16.
On February 5, 2025, the Company issued a press release titled “American Rebel CEO Andy Ross to Appear on ABC-TV Tampa Weekday Morning Show Morning Blend.” A copy of the press release is attached hereto as Exhibit 99.17.
The press release contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are necessarily based on certain assumptions and are subject to significant risks and uncertainties. These forward-looking statements are based on management’s expectations as of the date hereof. The Company does not undertake any responsibility for the adequacy, accuracy or completeness or to update any of these statements in the future. Actual future performance and results could differ from that contained in or suggested by these forward-looking statements.
The information in Item 5 of this Quarterly Report on Form 10-Q relating to the press releases are being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date hereof, except as shall be expressly set forth by specific reference to Item 5 of this Quarterly Report on Form 10-Q in such a filing.
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Item 6 – Exhibits
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# Filed herewith.
‡ Furnished herewith.
† Indicates management contract or compensatory plan or arrangement.
** The XBRL related information in Exhibit 101 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 7, 2025
| AMERICAN REBEL HOLDINGS, INC. | ||||
| (Registrant) | ||||
| By: | /s/ Charles A. Ross, Jr. | By: | /s/ Doug E. Grau | |
| Charles A. Ross, Jr., CEO | Doug E. Grau | |||
| (Principal Executive Officer) | President (Interim Principal Accounting Officer) | |||
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