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: |
| Copies of communications to: | ||
| Joseph Lucosky, Esq. | Anthony N. DeMint, Esq. | |
| Adele Hogan, Esq. | DeMint Law, PLLC | |
| Lucosky Brookman LLP | 3753 Howard Hughes Parkway | |
| 101 Wood Avenue South | Second Floor, Suite 314 | |
| 5th Floor | Las Vegas, Nevada 89169 | |
| Iselin, NJ 08830 | (702) 714-0889 | |
| (732) 395-4402 | anthony@demintlaw.com | |
| jlucosky@lucbro.com | ||
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 |
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 ☐
The number of shares of the registrant’s common stock outstanding as of November 14, 2022, was shares.
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, 2022 | December 31, 2021 (audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expense and other deposits | ||||||||
| Inventory | ||||||||
| Inventory deposits | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| OTHER ASSETS: | ||||||||
| Goodwill and other intangible assets | ||||||||
| Lease deposit | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expense | ||||||||
| Accrued interest | ||||||||
| Loan – officer - related party | ||||||||
| Loans – working capital | ||||||||
| Loans - nonrelated parties | ||||||||
| Total Current Liabilities | ||||||||
| Other long-term liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock, $ par value; shares authorized; issued and outstanding, at September 30, 2022 and December 31, 2021 Series A | ||||||||
| Preferred stock, $ par value; shares authorized; and issued and outstanding, respectively at September 30, 2022 and December 31, 2021 Series B | ||||||||
| Common stock, $ par value; shares authorized; and issued and outstanding, respectively at September 30, 2022 and December 31, 2021 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See Notes to Financial Statements.
| 3 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended September 30, 2022 |
For the three months ended September 30, 2021 |
|||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Expenses: | ||||||||
| Consulting/payroll and other payroll costs | ||||||||
| Rental expense, warehousing, outlet expense | ||||||||
| Product development costs | ||||||||
| Marketing and brand development costs | ||||||||
| Administrative and other | ||||||||
| Depreciation expense | ||||||||
| Operating income (loss) | ( |
) | ( |
) | ||||
| Other Income (Expense) | ||||||||
| Interest expense | ( |
) | ( |
) | ||||
| Interest expense – pre-emptive rights release | ( |
) | ||||||
| Interest income | ||||||||
| Gain (loss) on extinguishment of debt | ( |
) | ||||||
| ( |
) | ( |
) | |||||
| Net income (loss) before income tax provision | ( |
) | ( |
) | ||||
| Provision for income tax | ||||||||
| Net income (loss) | $ | ( |
) | $ | ( |
) | ||
| Basic and diluted income (loss) per share | $ | ( |
) | $ | ( |
) | ||
| Weighted average common shares outstanding - basic and diluted | ||||||||
See Notes to Financial Statements.
| 4 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the nine months ended September 30, 2022 | For the nine months ended September 30, 2021 | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Expenses: | ||||||||
| Consulting/payroll and other payroll costs | ||||||||
| Rental expense, warehousing, outlet expense | ||||||||
| Product development costs | ||||||||
| Marketing and brand development costs | ||||||||
| Administrative and other | ||||||||
| Depreciation expense | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest expense – pre-emptive rights release | ( | ) | ||||||
| Interest income | ||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ( | ) | ||||
| ( | ) | ( | ) | |||||
| Net income (loss) before income tax provision | ( | ) | ( | ) | ||||
| Provision for income tax | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted income (loss) per share | $ | ( | ) | $ | ( | ) | ||
| Weighted average common shares outstanding – basic and diluted | ||||||||
See Notes to Financial Statements.
| 5 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)
| Common Stock | Preferred Stock | Common Stock Amount | Preferred Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balance – December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Sale of common stock | - | |||||||||||||||||||||||||||
| Common stock issued to pay expense | - | |||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Common Stock | Preferred Stock | Common Stock Amount | Preferred Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | ||||||||||||||||||||||
| Balance – December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Sale of common stock, net | - | |||||||||||||||||||||||||||
| Common stock issued to pay expense | - | |||||||||||||||||||||||||||
| Preferred stock converted to common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Debt converted to warrants | - | - | ||||||||||||||||||||||||||
| Sale of common stock | - | |||||||||||||||||||||||||||
| Sale of pre-funded common stock warrants $ per share, exercise price
of $ | - | - | ||||||||||||||||||||||||||
| Offering costs and fees associated with offering | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Issuance of shares as compensation | - | |||||||||||||||||||||||||||
| Exercise of pre-funded warrants | | - | ||||||||||||||||||||||||||
| Net Loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
See Notes to Financial Statements.
| 6 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| For the nine months ended September 30, 2022 | For the nine months ended September 30, 2021 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Depreciation | ||||||||
| Expense paid through issuance of common stock | ||||||||
| Amortization of loan discount | ||||||||
| Adjustments to reconcile net loss to cash (used in) operating activities: | ||||||||
| Change in accounts receivable | ( | ) | ( | ) | ||||
| Change in prepaid expenses | ( | ) | ||||||
| Change in inventory | ( | ) | ( | ) | ||||
| Change in inventory deposits and other | ( | ) | ||||||
| Change in accounts payable and accrued expense | ( | ) | ||||||
| Net Cash (Used in) Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of Champion Entities | ( | ) | ||||||
| Purchase of equipment | ( | ) | ||||||
| Net Cash (Used in) Investing Activities | ( | ) | ||||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds (repayments) of loans – officer - related party | ( | ) | ||||||
| Proceeds from sale of common stock | ||||||||
| Proceeds from sale of prefunded warrants, net of offering costs | ||||||||
| Proceeds from exercise of prefunded warrants | ||||||||
| Proceeds from working capital loan | ||||||||
| Repayment of loans – nonrelated party | ( | ) | ( | ) | ||||
| 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 | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Debt repayment through the issuance of common stock | $ | $ | ||||||
See Notes to Financial Statements.
| 7 |
AMERICAN REBEL HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
American Rebel Holdings, Inc. (the “Company”) operates primarily as a designer, manufacturer, and marketer of branded safes and personal security, self-defense products. Additionally, the Company designs and produces branded apparel and other accessories.
The Company promotes and sells its products primarily through a growing network of dealers, in select regional retailers and local specialty safe, sporting goods, hunting and firearms stores, as well as online, including its website and e-commerce platforms such as Amazon.com.
The information on our website does not constitute a part of this report.
Listing, Reorganization and Acquisition of Champion Entities
The
Company was incorporated on
On January 5, 2017, the Company amended its articles of incorporation and changed its name to American Rebel Holdings, Inc. The Company completed a business combination with its majority stockholder, American Rebel, Inc. on June 19, 2017. As a result, American Rebel, Inc. became a wholly-owned subsidiary of the Company.
The
aforementioned acquisition of American Rebel, Inc. was accounted for as a reverse merger, which involved issuance by the Company of
shares of its common stock and
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 (“Seller”) (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 the Seller. This transaction was completed on July 29, 2022. We have included the Champion Entities assets and liabilities as of that date and the subsequent financial activity through the date of this Report in our Condensed Consolidated Financial Statements. For all intent and purposes, the Champion Entities have been integrated with our existing operations and are under the control of our management team.
The
closing of the acquisition occurred on July 29, 2022. Under the terms of the Champion Purchase Agreement, the Company paid the Seller
(i) cash consideration in the amount of $
For purposes of this Quarterly Report on Form 10-Q, “American Rebel” “we,” “our,” “us,” or similar references refers to American Rebel Holdings, Inc. and its consolidated subsidiaries, unless the context requires otherwise.
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 Annual Report filed on Form 10-K of the Company for the period ended December 31, 2021, and notes thereto contained.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and its majority-owned subsidiaries, American Rebel, Inc., and the Champion Entities. All significant intercompany accounts and transactions have been eliminated.
Year end
The Company’s year-end is December 31.
| 8 |
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 backpacks, jackets, safes and accessories manufactured to our design and held for resale and are carried at the lower of cost (First-in, First-out Method) or market value. The Company determines the estimate for the reserve for slow moving or obsolete inventories by regularly evaluating individual inventory levels, projected sales and current economic conditions. The Company also makes deposit payments on inventory to be manufactured that are carried separately until the 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 by the straight-line method over the estimated useful
life of the asset, which ranges from to
Revenue recognition
In accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), revenues are recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply 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, and the product is shipped or delivered to that customer.
Advertising costs
Advertising
costs are expensed as incurred; Marketing costs which we consider to be advertising costs incurred were $
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, 2022, and December 31, 2021, respectively. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, and accounts payable. 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.
Level 1: The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.
| 9 |
Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.
Level 3: If inputs from levels 1 and 2 are not available, the Financial Accounting Standards Board (the “FASB”) acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as “unobservable,” and limits their use by saying they “shall be used to measure fair value to the extent that observable inputs are not available.” This category allows “for situations in which there is little, if any, market activity for the asset or liability at the measurement date”. Earlier in the standard, FASB explains that “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.
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 FASB ASC 718-10 and the conclusions reached by the FASB 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 FASB ASC 505-50.
The Company follows ASC Topic 260 to account for earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
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.
| 10 |
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, 2022, and December 31, 2021, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions
with
The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12 months.
The Company classifies tax-related penalties and net interest as income tax expense. For the three-month and nine-month periods ended September 30, 2022, and 2021, respectively, no income tax expense has been recorded.
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
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard 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 standard became effective for the Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019, are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also 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’ 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 consolidated balance sheets.
Recent pronouncements
The Company has implemented all new accounting pronouncements that are in effect and is evaluating any that may impact its financial statements. The Company does not believe that there are any new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| 11 |
NOTE 2 – 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 development stage and, accordingly, its revenue from its planned operations does not cover its operating expenses. Since
inception, the Company has been engaged in financing activities and executing its business plan of operations and incurring costs
and expenses related to developing products and market identity, obtaining inventory, preparing for public product launch and
ultimately selling products. As a result, the Company incurred net income (losses) for the nine months ended September 30, 2022, and
2021 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. Management is in discussion with its investment bank, EF Hutton a division of Benchmark Investments, LLC, and other broker dealers regarding additional funding initiatives or financings through the market.
Management believes 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 stockholders. 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.
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 result from this uncertainty.
NOTE 3 – INVENTORY AND DEPOSITS
Inventory and deposits include the following:
September 30, 2022 (unaudited) | December 31, 2021 (audited) | |||||||
| Inventory – finished goods | $ | $ | ||||||
| Inventory deposits | ||||||||
| Total Inventory and deposits | $ | $ | ||||||
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment include the following:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | (audited) | |||||||
| Plant, property and equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Property and equipment gross | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
| 12 |
For
the nine months ended September 30, 2022, and 2021 we recognized $
NOTE 5 – RELATED PARTY NOTE PAYABLE AND RELATED PARTY TRANSACTIONS
During
the year ended December 31, 2016, the Company acquired three vehicles from related parties and assumed the debt secured by each one of
the vehicles. Accordingly, the recorded value for each vehicle was the total debt assumed from each related loan, for a total of $
Charles
A. Ross, Jr. serves as the Company’s CEO. Compensation for Mr. Ross was $
Doug
Grau serves as the Company’s President. Compensation for Mr. Grau was $
NOTE 6 – NOTES PAYABLE – NON-RELATED PARTY
Effective January 1, 2016, the Company acquired a vehicle from a related party in exchange for the assumption of the liability related to this vehicle. The liability assumed is as follows at September 30, 2022 and December 31, 2021.
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (unaudited) | (audited) | |||||||
| Loan secured by a tour bus, monthly payments of $ | $ | $ | ||||||
| Total recorded as current liability | $ | $ | ||||||
Current and long-term portion. Total loan balance is reported as current as the loan will be repaid within one years time.
NOTE 7 – NOTES PAYABLE – WORKING CAPITAL
During
the nine months ending September 30, 2022, the Company through one of its wholly-owned operating subsidiaries completed the sale of
several short-term notes under similar terms as its other short-term notes totaling $
| 13 |
During
the nine months ending September 30, 2022, the Company and one of the Company’s wholly-owned operating subsidiaries repaid
$
At
September 30, 2022, and December 31, 2021, the outstanding balance due on the working capital notes payable was $
NOTE 8 – INCOME TAXES
At
September 30, 2022 and December 31, 2021, the Company had a net operating loss carryforward of $
Components of net deferred tax asset, including a valuation allowance, are as follows:
September 30, 2022 (unaudited) | December 31, 2021 (audited) | |||||||
| Deferred tax asset: | ||||||||
| Net operating loss carryforward | $ | $ | ||||||
| Total deferred tax asset | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
Valuation
allowance for deferred tax assets as of September 30, 2022, and December 31, 2021, was $
| 14 |
Reconciliation between the statutory rate and the effective tax rate for both periods and as of December 31, 2021:
| Federal statutory rate | ( | )% | ||
| State taxes, net of federal benefit | ( | )% | ||
| Change in valuation allowance | % | |||
| Effective tax rate | % |
NOTE 9 – SHARE CAPITAL
The Company is authorized to issue shares of its $ par value common stock and shares of its $ par value preferred stock.
Common stock and preferred stock
On February 3, 2022, multiple Series B Convertible Preferred stockholders converted shares of their Series B Convertible Preferred Stock to shares of common stock of the Company.
On February 3, 2022, the Company converted two outstanding notes into shares of common stock of the Company.
On
February 10, 2022, the Company received an equity investment of $
On
July 12, 2022, we entered into a PIPE transaction with Armistice Capital Master Fund Ltd. for the purchase and sale of $
On August 22, 2022, shares of Common Stock were issued in return for services as a component of a February 2022 services agreement.
During the month of August 2022, Armistice Capital
Master Fund Ltd. exercised
During the month of September 2022, Armistice Capital
Master Fund Ltd. exercised
At September 30, 2022 and December 31, 2021, 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.
| 15 |
Prefunded Warrants and Warrants issued in PIPE
As
of September 30, 2022, there were
Along with the Prefunded Warrants the PIPE investors
were issued immediately exercisable warrants to purchase up to
As
of September 30, 2022, there were
The Company evaluates outstanding warrants as derivative liabilities and will recognize any changes in the fair value through earnings. The Company determined that the warrants have an immaterial fair value at September 30, 2022. The warrants do not trade in a highly active securities market, and as such, the Company estimated the fair value of these common stock equivalents using Black-Scholes and the following assumptions:
Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term which due to their maturity period as expiry, it was three years. The Company had no reason to believe future volatility over the expected remaining life of these common stock equivalents was likely to differ materially from historical volatility. Expected life was based on three years due to the expiry of maturity. The risk-free rate was based on the U.S. Treasury rate that corresponded to the expected term of the common stock equivalents.
September 30, 2022 (unaudited) | December 31, 2021 (audited) | |||||||
| Stock Price | $ | $ | ||||||
| Exercise Price | $ | $ | ||||||
| Term (expected in years) | ||||||||
| Volatility | % | % | ||||||
| Annual Rate of Dividends | % | % | ||||||
| Risk Free Rate | % | % | ||||||
| 16 |
Stock Purchase Warrants
The following table summarizes all warrant activity for the year ended December 31, 2021, and the nine months ended September 30, 2022.
| Shares | Weighted- Average Exercise Price Per Share | Remaining term | Intrinsic value | |||||||||||||
| Outstanding and Exercisable at December 31, 2020 | $ | years | ||||||||||||||
| Granted | $ | years | ||||||||||||||
| Exercised | - | |||||||||||||||
| Expired | ( | ) | - | |||||||||||||
| Outstanding and Exercisable at December 31, 2021 | $ | years | ||||||||||||||
| Granted | $ | years | ||||||||||||||
| Granted in Debt Conversion | $ | years | ||||||||||||||
| Granted Prefunded Warrants | $ | years | ||||||||||||||
| Granted in PIPE transaction | $ | years | ||||||||||||||
| Exercised | ) | $ | - | |||||||||||||
| Expired | ( | ) | - | |||||||||||||
| Outstanding and Exercisable at September 30, 2022 | $ | years | ||||||||||||||
NOTE 11 – COMMITMENTS AND CONTINGENCIES
Rental Payments under Non-cancellable Operating Leases
The Company has long term (more than month-to-month) leases for two manufacturing facilities, three office spaces, five distribution centers and five retail spaces. Four of its distribution centers also have retail operations. Lease terms on the various spaces vary in expiration from as minimal as month-to-month to a lease expiring in March 2027.
The following is a schedule, by calendar year, of the future minimum rental payments required under the lease:
| Year ended December 31, | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total | $ | |||
Rent
expense totaled approximately $
NOTE 12 – SUBSEQUENT EVENTS
The Company evaluated all events that occurred after the balance sheet date of September 30, 2022, through the date the financial statements were issued and determined that there were the following subsequent events:
During the month of October 2022, Armistice Capital
Master Fund Ltd. exercised
| 17 |
AMERICAN REBEL HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introduction
The following unaudited pro forma condensed combined financial information presents the unaudited pro forma condensed combined balance sheet and unaudited pro forma condensed combined statements of operations based upon the combined historical financial statements of American Rebel Holdings, Inc. (the “Company”) and Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC, Champion Safe De Mexico, S.A. de C.V. (collectively “Champion”), after giving effect to the consummation of the transaction completed on July 29, 2022 (as disclosed on Current Report Form 8-K, dated August 4, 2022), by and among the Company and Champion, and the related adjustments described in the accompanying notes. The transaction is accounted for under the acquisition method of accounting, which requires determination of the accounting acquirer.
The Company is considered to be the acquirer of Champion for accounting purposes and will allocate the purchase price to the fair value of Champion’s assets and liabilities as of the acquisition date, with any excess purchase price recorded as goodwill.
The unaudited pro forma condensed combined balance sheet data as of September 30, 2022, gives effect to the transaction as if it occurred on that date for which it is reported on, which incidentally the Company acquired Champion on July 29, 2022. The unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2022, and for the year ended December 31, 2021, gives effect to the transaction as if it had occurred on January 1, 2021, one full calendar year prior to the actual acquisition date of July 29, 2022.
The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma adjustments reflecting the transaction have been prepared in accordance with business combination accounting guidance as provided in FASB ASC Topic 805 and reflect the preliminary allocation of the estimated merger consideration to the acquired assets and liabilities assumed based upon their estimated fair values, using the assumptions set forth in the notes to the unaudited pro forma condensed combined financial information. The Company’s historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial information to give pro forma effect to events that are (1) directly attributable to the transaction, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the operating results or financial position that would have occurred if the transaction had been completed as of the dates set forth above, nor is it indicative of the future results or financial position of the combined company. In connection with the pro forma condensed combined financial information, the Company allocated the estimated purchase price using its best estimates of fair value. The allocation is dependent upon certain valuation and other analyses that are not yet final. Accordingly, the pro forma acquisition price adjustments are preliminary and subject to further adjustments as additional information becomes available and as additional analyses are performed. There can be no assurances that the final valuations will not result in material changes to the preliminary estimated purchase price allocation. The unaudited pro forma condensed combined financial information also does not give effect to the dilution or costs of financing associated with the transaction, potential impact of current financial conditions, any anticipated synergies, operating efficiencies or cost savings that may result from the transaction or any integration costs. Furthermore, the unaudited pro forma condensed combined statements of operations do not include certain nonrecurring charges and the related tax effects that result directly from the transaction as described in the notes to the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information should be read in conjunction with both the Company’s and Champion’s unaudited historical condensed consolidated financial statements as of September 30, 2022, (which includes the Champion activities as of the acquisition date and financial activity through the end of the reporting period) and the audited historical consolidated financial statements as of and for the year ended December 31, 2021.
| 18 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| American
Rebel Holdings, Inc | Champion
Safe Et Al Company | Purchase
Transaction Accounting | Financing
Transaction Accounting | Pro
Forma | ||||||||||||||||
| Historical | Historical | Adjustments | Adjustments | Combined | ||||||||||||||||
| 30-Sept-22 | 30-Sept-22 | 30-Sept-22 | 30-Sept-22 | 30-Sept-22 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
| CURRENT ASSETS: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 963,402 | $ | 222,176 | $ | - | $ | - | $ | 1,185,578 | ||||||||||
| Accounts receivable | 320,442 | 2,125,847 | 224,894 | - | 2,671,183 | |||||||||||||||
| Prepaid expense | 138,559 | 9,274 | - | - | 147,833 | |||||||||||||||
| Inventory | 873,369 | 5,432,973 | (153,280 | ) | - | 6,153,062 | ||||||||||||||
| Inventory deposits | 224,894 | - | (224,894 | ) | - | - | ||||||||||||||
| Total Current Assets | 2,520,666 | 7,790,270 | (153,280 | ) | - | 10,157,656 | ||||||||||||||
| Property and Equipment, net | 13,196 | 472,874 | - | - | 486,070 | |||||||||||||||
| OTHER ASSETS: | ||||||||||||||||||||
| Goodwill and Purchase Consideration | 10,247,420 | 315,027 | (6,047,420 | ) | - | 4,200,000 | ||||||||||||||
| (315,027 | ) | |||||||||||||||||||
| Lease deposits | 504,750 | 14,883 | (500,000 | ) | - | 19,633 | ||||||||||||||
| 10,765,366 | 802,784 | (6,862,447 | ) | - | 4,705,703 | |||||||||||||||
| TOTAL ASSETS | $ | 13,286,032 | $ | 8,593,055 | $ | (7,015,727 | ) | $ | - | $ | 14,863,359 | |||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||||||
| CURRENT LIABILITIES: | ||||||||||||||||||||
| Accounts payable and accrued expense | 734,404 | 1,577,328 | - | - | 2,311,731 | |||||||||||||||
| Accrued interest | 67,919 | - | - | - | 67,919 | |||||||||||||||
| Loan – officer - related party | - | 291,945 | (291,945 | ) | - | - | ||||||||||||||
| Loan – working capital | 603,840 | 500,000 | (500,000 | ) | - | 603,840 | ||||||||||||||
| Loans - nonrelated parties | 4,152 | - | - | - | 4,152 | |||||||||||||||
| Total Current Liabilities | 1,410,315 | 2,369,273 | (791,945 | ) | - | 2,987,642 | ||||||||||||||
| Other long-term liabilities | - | - | - | - | - | |||||||||||||||
| TOTAL LIABILITIES | 1,410,315 | 2,369,273 | (791,945 | ) | - | 2,987,642 | ||||||||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||||||||||||||
| Preferred stock, Class A | 100 | - | - | - | 100 | |||||||||||||||
| Preferred stock, Class B | 75 | - | - | - | 75 | |||||||||||||||
| Common stock, | 8,474 | - | - | - | 8,474 | |||||||||||||||
| Additional paid in capital | 45,372,715 | 6,223,782 | (6,223,782 | ) | - | 45,372,715 | ||||||||||||||
| Accumulated deficit | (33,505,647 | ) | - | - | - | (33,505,647 | ) | |||||||||||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | 11,875,717 | 6,223,782 | (6,223,782 | ) | - | 11,875,717 | ||||||||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 13,286,032 | $ | 8,593,055 | $ | (7,015,727 | ) | $ | - | $ | 14,863,359 | |||||||||
See Notes to Financial Statements.
| 19 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
American Holdings, Inc | Champion
Safe Et Al Company | Purchase
Transaction Accounting | Financing
Transaction Accounting | Pro
Forma | ||||||||||||||||
| Historical | Historical | Adjustments | Adjustments | Combined | ||||||||||||||||
| 31-Dec-21 | 31-Dec-21 | 31-Dec-21 | 31-Dec-21 | 31-Dec-21 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| Revenue | $ | 986,826 | $ | 18,304,859 | $ | - | $ | (600,000 | ) | $ | 18,691,685 | |||||||||
| Cost of goods sold | 812,130 | 14,354,863 | - | (600,000 | ) | 14,566,993 | ||||||||||||||
| Gross margin | 174,696 | 3,949,996 | - | - | 4,124,692 | |||||||||||||||
| Expenses: | ||||||||||||||||||||
| Consulting – business development | 2,012,803 | 1,838,947 | - | - | 3,851,750 | |||||||||||||||
| Product development costs | 330,353 | 24,558 | - | - | 354,911 | |||||||||||||||
| Marketing and brand development costs | 171,030 | 828,890 | - | - | 999,920 | |||||||||||||||
| Administrative and other | 968,306 | 518,705 | - | - | 1,487,011 | |||||||||||||||
| Depreciation expense | 3,643 | 24,919 | - | - | 28,562 | |||||||||||||||
| Operating expenses | 3,486,135 | 3,236,019 | - | - | 6,722,154 | |||||||||||||||
| Operating income (loss) | (3,311,439 | ) | 713,977 | - | - | (2,597,462 | ) | |||||||||||||
| Other Income (Expense) | ||||||||||||||||||||
| Interest expense | (2,061,782 | ) | (77,752 | ) | - | 1,800,000 | (339,534 | ) | ||||||||||||
| Interest Income | - | 305 | 305 | |||||||||||||||||
| Payroll Protection Loan Forgiven | - | 625,064 | - | 625,064 | ||||||||||||||||
| Gain (Loss) on extinguishment of debt | (725,723 | ) | - | - | 725,723 | - | ||||||||||||||
| Net income (loss) before income tax provision | (6,098,944 | ) | 1,261,594 | - | 2,525,723 | (2,311,627 | ) | |||||||||||||
| Provision for income tax | - | - | - | - | - | |||||||||||||||
| Net income (loss) | $ | (6,098,944 | ) | $ | 1,261,594 | $ | - | $ | 2,525,723 | $ | (2,311,627 | ) | ||||||||
| Basic and diluted income (loss) per share | $ | (1.92 | ) | $ | - | $ | - | $ | - | $ | (0.73 | ) | ||||||||
| Weighted average common shares outstanding - basic and diluted | 3,169,000 | - | - | - | 3,169,000 | |||||||||||||||
See Notes to Financial Statements.
| 20 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
American Rebel | Champion Safe Et Al Company | Purchase Transaction Accounting | Financing Transaction Accounting | Pro Forma | ||||||||||||||||
| Historical | Historical | Adjustments | Adjustments | Combined | ||||||||||||||||
| 30-Sept-22 | 30-Sept-22 | 30-Sept-22 | 30-Sept-22 | 30-Sept-22 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| Revenue | $ | 699,948 | $ | 14,373,444 | $ | - | $ | (300,000 | ) | $ | 14,773,392 | |||||||||
| Cost of goods sold | 512,700 | 10,786,172 | - | (300,000 | ) | 10,998,872 | ||||||||||||||
| Gross margin | 187,248 | 3,587,272 | - | - | 3,774,520 | |||||||||||||||
| Expenses: | ||||||||||||||||||||
| Consulting, payroll and related costs | 1,514,337 | 1,522,174 | - | - | 3,036,511 | |||||||||||||||
| Product development costs | 146,463 | 8,302 | - | - | 154,765 | |||||||||||||||
| Marketing and brand development costs | 342,022 | 17,881 | - | - | 359,903 | |||||||||||||||
| Administrative and other | 2,664,634 | 1,336,728 | - | - | 4,001,362 | |||||||||||||||
| Depreciation expense | 1,355 | 40,048 | - | - | 41,4034 | |||||||||||||||
| Operating expenses | 4,668,811 | 2,925,133 | - | - | 7,593,944 | |||||||||||||||
| Operating income (loss) | (4,481,563 | ) | 662,139 | - | - | (3,819,424 | ) | |||||||||||||
| Other Income (Expense) | ||||||||||||||||||||
| Interest expense | (682,450 | ) | (59,950 | ) | - | - | (742,400 | ) | ||||||||||||
| Interest income | 4,431 | 6,238 | 10,669 | |||||||||||||||||
| Gain/loss on sale of assets | - | 1,995 | - | 1,995 | ||||||||||||||||
| Gain (Loss) on extinguishment of debt | (1,376,756 | ) | - | - | - | (1,376,756 | ) | |||||||||||||
| Net income (loss) before income tax provision | (6,536,338 | ) | 610,422 | - | - | (5,925,916 | ) | |||||||||||||
| Provision for income tax | - | - | - | - | - | |||||||||||||||
| Net income (loss) | $ | (6,536,338 | ) | $ | 610,422 | $ | - | $ | - | $ | (1,885,207 | ) | ||||||||
| Basic and diluted income (loss) per share | $ | (1.38 | ) | $ | - | $ | - | $ | - | $ | (1.24 | ) | ||||||||
| Weighted average common shares outstanding - basic and diluted | 4,743,244 | - | - | - | 4,743,000 | |||||||||||||||
See Notes to Financial Statements.
| 21 |
AMERICAN REBEL HOLDINGS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 – Basis of Presentation
The historical financial information has been adjusted in the unaudited pro forma condensed combined financial information to give effect to events that are (1) directly attributable to the transaction, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined results. The pro forma adjustments are preliminary and based on estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the transaction and certain other adjustments. The final determination of the purchase price allocation will be based on the fair values of assets acquired and liabilities assumed as of the date the transaction closes, which was July 29, 2022.
The Company’s and Champion’s historical results reflect the unaudited condensed statements of operations for the full nine months ended September 30, 2022, the audited statements of operations for the year ended December 31, 2021, and the unaudited condensed balance sheet as of September 30, 2022.
Note 2 – Description of Transaction
On June 29, 2022, the Company entered into a stock and membership interest purchase agreement with Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC, Champion Safe De Mexico, S.A. de C.V. (the “Champion Entities” or “Champion”) and Mr. Ray Crosby (“Seller”) (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 the Seller.
The closing occurred on July 29, 2022. Under the terms of the Champion Purchase Agreement, the Company paid the Seller (i) cash consideration of approximately $9,150,000, along with (ii) cash deposits in the amount of $350,000, and (iii) reimbursed Seller for approximately $397,000 of agreed upon acquisitions and equipment purchases completed by the Seller and the Champion Entities since June 30, 2021 and the direct expenditures of approximately $350,000 that were required in completing the acquisition of Champion. Of the cash consideration paid to the Seller, the Seller retired a line of credit of approximately $1,442,000 with a financial institution and approximately $291,000 in related party loans that Champion had on its balance sheets prior to July 29, 20222.
Note 3 - Reclassification Adjustments
The accounting policies used in the preparation of this unaudited pro forma condensed combined financial information are those set out in the Company’s audited consolidated financial statements as of and for the fiscal year ended December 31, 2021, and unaudited condensed consolidated financial statements as of and for the nine months ended September 30, 2022. With the information currently available, the Company has determined that no significant adjustments are necessary to conform Champion’s consolidated financial statements to the accounting policies used by the Company in the preparation of the unaudited pro forma condensed combined financial information.
The reclassification adjustments are based on currently available information and assumptions management believes are, under the circumstances and given the information available at this time, reasonable, and reflective of adjustments necessary to report the Company’s financial condition and results of operations as if the acquisition were completed.
The combined company will finalize the review of accounting policies and reclassifications, which could be materially different from the amounts set forth in the unaudited pro forma condensed combined financial information presented herein. The reclassification adjustments currently identified are as follows:
Note 4 –Transaction Consideration
The transaction consideration is approximately $9,900,000 as determined by the actual purchase price of $9,897,420 as described above in Note 2 to this unaudited pro forma condensed combined financial information.
The following table summarizes the consideration transferred as a result of the combination.
| Deposits paid with contract | $ | 350,000 | ||
| Cash payment due at closing | 9,150,000 | |||
| Reimbursement for equipment purchased since June 30, 2021 | 400,000 | |||
| Transaction Consideration | $ | 9,900,000 |
| 22 |
Note 5 – Allocation of Consideration
Under the acquisition method of accounting, the identifiable assets acquired, and liabilities assumed of Champion will be recognized and measured at fair value as of the closing date of the combination and added to those of the Company. The determination of fair value used in the transaction-related adjustments presented herein are preliminary and based on management estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the effect of the acquisition. The Company may use the assistance of outside professionals and valuation experts to determine if there should be any impairment charges or other to these estimated numbers as of September 30, 2022. The final allocation of consideration, upon the completion of the acquisition, will be based on Champion’s assets acquired and liabilities assumed as of the acquisition date, July 29, 2022, and will depend on a number of factors. Therefore, allocations may differ slightly from the transaction accounting adjustments presented herein. The allocation may be dependent upon certain valuations and other studies from outside professionals and valuation expert that have not yet been completed and may not be completed until the Company’s annual report is filed. Accordingly, the pro forma allocation of the consideration may be subject to further adjustments as additional information becomes available and as analyses and valuations are completed. There can be no assurances that these additional analyses and final valuations will not result in material changes to the estimates of fair value set forth below.
The following table sets forth a preliminary allocation of the estimated consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of Champion based on Champion’s unaudited consolidated balance sheet as of September 30, 2022, with the estimated excess recorded to goodwill:
| Total assets | $ | 8,278,027 | ||
| Total liabilities | 2,577,328 | |||
| Net acquired tangible assets | 5,700,699 | |||
| Goodwill | 4,199,301 | |||
| Allocation of the Estimated Transaction Consideration | $ | 9,900,000 |
Note 6 – Pro Forma Adjustments
Unaudited Pro Forma Condensed Combined Balance Sheet Adjustments
| a. | To record estimated working capital financing (of which there is none required) in addition to Transaction Consideration, as of September 30, 2022. |
| American Rebel Holdings, Inc. | Champion | Total | ||||||||||||||
| Additional working capital | $ | - | $ | - | $ | - | ||||||||||
| Additional paid in capital | - | - | - | |||||||||||||
| - | - | |||||||||||||||
| Pro forma net adjustment | $ | - | $ | $ | - | |||||||||||
Unaudited Pro Forma Condensed Combined Statements of Operations Adjustments
| b. | To adjust Revenue and Cost of Goods Sold for estimated transactions between companies: |
Nine months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| Revenue | $ | (300,000 | ) | $ | (600,000 | ) | ||
| Cost of Goods Sold | (300,000 | ) | (600,000 | ) | ||||
| Pro forma net adjustment | $ | - | $ | - | ||||
| c. | To adjust interest expense and loss on extinguishment of debt based upon debt obligations eliminated by working capital financing (of which there is none required) in connection with the acquisition: |
Nine months Ended September 30, 2022 | Year Ended December 31, 2021 | |||||||
| Interest expense | $ | - | $ | - | ||||
| Loss on extinguishment of debt | - | - | ||||||
| Pro forma net adjustment | $ | - | $ | - | ||||
| 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:
| ● | we recently 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; | |
| ● | 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 recent 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., 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”). 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 Business
Overview
The Company operates as a designer, manufacturer, and marketer of safes and designer and marketer of personal security products. Additionally, the Company designs and produces branded accessories and apparel with concealment pockets.
We focus on primarily using U.S.-made steel as the primary component of our safes and personal security products. We believe our products are designed to safely store firearms, as well as store our customers’ priceless keepsakes, family heirlooms and treasured memories, and aim to make our products accessible at various price points for home use. We believe our products are designed for safety, quality, reliability, features and performance.
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 American Rebel brand. Our backpacks utilize what we believe is a distinctive sandwich-method concealment pocket, which we refer to as our Personal Protection Pocket, to hold firearms in place securely and safely. 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 an American brand community presence, in part through our Chief Executive Officer, Mr. Charles A. “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.
Through our growing network of dealers, we promote and sell our products in select regional retailers and local specialty safe, sports, hunting and firearms stores, as well as via e-commerce marketplace. The brand shares a commitment to offering products of what we believe are enduring quality and comfort that allow customers to keep their valuable belongings safe on the go and express their patriotism and style, which is synonymous with the American Rebel brand.
We generate revenue from the following activities:
| a. | Safes – we offer a wide range of home, office and personal safe models, in a broad assortment of sizes, features and styles, which are constructed with U.S.-made steel. Demand for our safes is relatively strong across all segments of our customers, including individuals and families seeking to protect their valuables, businesses seeking to protect valuables and irreplaceable items such as artifacts and jewelry, and dispensaries servicing the community that seek to protect their inventory and cash flow. In addition, the demand for our safes has also been relatively strong among responsible gun owners, sportsmen, competitive shooters and hunters seeking a premium and responsible solution to secure valuables and firearms, to prevent theft and to protect loved ones. We expect to benefit from increasing awareness of and need for safe storage of firearms in future periods. Below is a summary of the different safes we currently make: |
| i. | Large Safes – our current large model safe collection, the Defender, 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 double plate steel doors, 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 also acts as a deterrent to any prospective thief. We have recently debuted our value-priced safe line, the Freedom. The Freedom line is constructed out of 12-gauge U.S.-made steel and featured a rugged textured finish. | |
| 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. |
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| iii. | Vault Doors – Our U.S.-made vault doors combine style with what we believe are superior theft and fire protection for an elegant 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 bolt works, which is the locking mechanism that bolts the safe door closed so that it cannot be pried open, and which is considered to be by some locksmiths among the smoothest and strongest in the industry, 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 industry, provides cannabis and horticultural plant home growers a reliable and safe solution. Designed with medical marijuana or recreational cannabis dispensaries in mind, including with respect to increasing governmental and insurance industry regulation to lock inventory after hours, our HG-INV Inventory Safe delivers a high level of user experience. |
| b. | Personal Security - our concealed carry backpack selection consists of an assortment of sizes, features and styles. | |
| c. | Apparel and Accessories - we offer a wide range of concealed carry jackets, vests and coats for men and women. We also offer patriotic apparel for the whole family, with the American Rebel imprint. Our apparel line serves as “point man” for the brand, often acting as the first point of exposure that people have to all things American Rebel. Our apparel line is designed and branded to be stylish, patriotic and bold. We emphasize styling that complements our enthusiasts’ and customers’ lifestyle, representing the values of our community and quintessential American character. We believe the American Rebel clothing line style is not only a fashion statement; we seek to cultivate a sense of pride of belonging to our patriotic family, in our customers’ adventures and in life. |
The costs of our revenue primarily consist of productions costs, product development, consulting, and marketing and brand development fees.
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Our results of operations and financial condition may be impacted positively and negatively by certain general macroeconomic and industry wide conditions, such as the effects of the COVID-19 pandemic. The consequences of the pandemic and impact on the U.S. and global economies continue to evolve and the full extent of the impact is uncertain as of the date of this filing. The pandemic has had a significant effect on the safe and personal security industry and on the apparel industry. If the recovery from the COVID-19 pandemic is not robust, the impact could be prolonged and severe. While to date the Company has not been required to stop operating, management is evaluating its use of its office space, virtual meetings and the like. While our manufacturing capabilities have been suffering, and could continue to suffer from mandatory, forced production disruptions, which negatively impact our ability to satisfy the demand for our products, as the result of the pandemic, we expect that the impact of such attrition would be mitigated by the addition of new customers resulting from the increasing demand for home, office and personal safety and security. The extent to which the COVID-19 pandemic will impact our operations, ability to obtain financing or future financial results is uncertain at this time. Due to the effects of COVID-19, management worked to reduce unnecessary marketing expenditures and worked to improve staff and human capital expenditures, while maintaining overall workforce levels. The Company expects but cannot guarantee that demand for its safes and personal security products will continue to keep growing in 2022 and beyond, as customers continue to spend more time working remotely, and increasing regulation in many states mandating safe ammunition storage, accelerating the demand for our responsible solution safes and making them a necessary appliance for any household, providing protection for expensive firearms and other valuables. Overall, management is focused on effectively positioning the Company for meeting the increasing demand for our safes and faster production turnaround.
Recent Developments and Trends
Our Growth Strategy
Our goal is to enhance our position as a designer, manufacturer and marketer of premium safes and personal security products. We have established plans to grow our business by focusing on three key areas: (1) organic growth and expansion in existing markets; (2) targeted strategic acquisitions that increase our on-premise and online product offerings, distributor and retail footprint and/or have the ability to increase and improve our manufacturing capabilities and output, and (3) expanding the scope of our operation activities to the dispensaries U.S. community.
We have developed what we believe is a multi-pronged growth strategy, as described below, to help us capitalize on a sizable opportunity. Through methodical sales and marketing efforts, we believe we have implemented several key initiatives we can use to grow our business more effectively. We believe we made significant progress in 2021 in the largest growing segment of the safe industry, sales to first-time buyers. We also intend to opportunistically pursue the strategies described below to continue our upward trajectory and enhance stockholder value. Key elements of our strategy to achieve this goal are as follows:
Organic Growth and Expansion in Existing Markets - Build our Core Business
The cornerstone of our business has historically been safe product offerings. We are focused on continuing to develop our home, office and personal safes product lines. We are investing in adding what we believe are distinctive technology solutions to our safes.
We are also working to increase floor space dedicated to our safes and strengthen our online presence in order to expand our reach to new enthusiasts and build our devoted American Rebel community. We intend to continue to endeavor to create and provide retailers and customers with what we believe are responsible, safe, reliable and stylish products, and we expect to concentrate on tailoring our supply and distribution logistics in response to the specific demands of our customers.
We launched our Freedom line of safes during the second quarter of 2022. The Freedom line of safes are made from 12-gauge American-made steel and carry a 60 minute at 1200 degrees fire rating. The Freedom safe is available in three sizes: the Freedom 20, the Freedom 30, and the Freedom 50. The exterior is a rugged dark grey textured finish with a plush velour interior containing high-capacity gun racks and a custom door organizer.
An additional new product we expect to launch during the fourth quarter of this year is our 2A Locker. The 2A Locker is a response to demand from our customers for a lightweight, steel cabinet with a secure lock. Our 2A Locker is expected to be available in three models: 2A Ammo, 2A Locker-10, and the 2A Locker-14. Each 2A product will utilize our proprietary 5-point locking mechanism.
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In September of 2022, we signed a letter of intent with Sierra E-Life, a full-service USA manufacturer of E-Bikes, with the intention of exploring the opportunity to diversify our product offerings. We, in collaboration with Sierra E-Life, have designed three distinct E-Bike models: the Patriot 500, the Freedom 750 and the Rebel 1000. The Patriot 500, the Freedom 750 and the Rebel 1000 are projected to be Made in the USA with global components. We continue to explore this opportunity as well as others in the E-Bike and E-Sports industry.
While we currently rely on third-party manufacturers for the production of our line of apparel and accessories, the Champion acquisition adds safe manufacturing as a significant and important component to the Company’s activities and focus.
Additionally, our Concealed Carry Product line and Safe line serve a large and growing market segment. We believe that interest in safes increase, as well as in our complimentary concealed carry backpacks and apparel as a by-product, when interest of the general population in firearms increase. To this extent, the FBI’s National Instant Criminal Background Check System (NICS), which we believe serves as a proxy for gun sales since a background check is generally needed to purchase a firearm, reported a record number of background checks in 2020, 39,695,315. The prior annual record for background checks was 2019’s 28,369,750. In 2021, there were 38,876,673 background checks conducted, similar to that of 2020’s annual record which was 40% higher than the previous annual record in 2019. Background checks in 2022 are continuing on a pace to exceed the 2019 totals as well. While we do not expect this increase in background checks to necessarily translate to an equivalent number of additional safes purchased, we do believe it might be an indicator of the increased demand in the safe market. In addition, certain states (such as Massachusetts, California, New York and Connecticut) are starting to legislate new storage requirements in respect of firearms, which is expected to have a positive impact on the sale of safes.
We continue to strive to strengthen our relationships and our brand awareness with our current distributors, dealers, manufacturers, specialty retailers and consumers and to attract other distributors, dealers, and retailers. We believe that the success of our efforts depends on the distinctive features, quality, and performance of our products; continued manufacturing capabilities and meeting demand for our safes; the effectiveness of our marketing and merchandising programs; and the dedicated customer support.
In addition, we seek to improve customer satisfaction and loyalty by offering distinctive, high-quality products on a timely and cost-attractive basis and by offering efficient customer service. We regard the features, quality, and performance of our products as the most important components of our customer satisfaction and loyalty efforts, but we also rely on customer service and support for growing our business.
Furthermore, we intend to continue improving our business operations, including research and development, component sourcing, production processes, marketing programs, and customer support. Thus, we are continuing our efforts to enhance our production by increasing daily production quantities through equipment acquisitions, expanded shifts and process improvements, increased operational availability of our equipment, reduced equipment down times, and increased overall efficiency.
We believe that by enhancing our brand recognition, our market share might grow correspondingly. Industry sources estimate that 70 million to 80 million people in the United States own an aggregate of more than 400 million firearms, creating a large potential market for our safes and personal security products. With the Champion acquisition we are focused on the premium segment of the market through the quality, distinctiveness, and performance of our products; the effectiveness of our marketing and merchandising efforts; and the attractiveness of our competitive pricing strategies.
Targeted Strategic Acquisitions for Long-term Growth
We are consistently evaluating and considering acquisitions opportunities that fit our overall growth strategy as part of our corporate mission to accelerate long-term value for our stockholders and create integrated value chains.
Champion Safe
On June 29, 2022, the Company entered into a stock and membership interest purchase agreement with Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC, Champion Safe De Mexico, S.A. de C.V. (the “Champion Entities” or “Champion”) and Mr. Ray Crosby (the “Seller”) (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 the Seller.
The acquisition occurred on July 29, 2022. Under the terms of the Champion Purchase Agreement, the Company paid the Seller (i) cash consideration of approximately $9,150,000, along with (ii) cash deposits in the amount of $350,000, and (iii) reimbursed the Seller for approximately $400,000 of agreed upon acquisitions and equipment purchases completed by the Seller and the Champion Entities since June 30, 2021. In addition to the payments to the Seller, the Company paid costs on behalf of and specifically associated with the acquisition of Champion and its integration into the Company’s operations of $350,000; $200,000 was paid to our investment banker in analyzing the acquisition and purchase of Champion prior to the purchase and subsequent financing in July as well as $150,000 paid to Champion’s independent PCOAB registered accounting firm to conduct their two years of audit and subsequent interim review reports.
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Based in Provo, Utah and founded in 1999, Champion Safe is what we believe to be one of the premier designers, manufacturers and marketers of home and gun safes in North America. Champion Safe Co. has three safe lines, which we believe feature some of the most secure and highest quality gun safes.
Following the acquisition, we operate Champion Safe in the same manner as it operated pre-acquisition. Champion Safe, Superior Safe and Safe Guard Security Products are valuable and prominent identifiable brands in the safe industry. We plan to expand our manufacturing throughput to fill our significant backlog of orders and aggressively open new dealer accounts. As a division of the combined company, Champion Safe Company will shift its emphasis to growing revenue and increasing profitability for the combined company.
The combined company will continue to benefit from Champion founder Mr. Ray Crosby’s vast experience and expertise. Mr. Crosby is a foundational figure in the safe business with over 40 years of experience in the industry. Mr. Crosby and his brother Jay founded Fort Knox Safe in 1982 and Liberty Safe, in 1988, which recently sold to a middle market private investment firm for approximately $147.5 million. In 1999, Mr. Crosby founded Champion Safe, later expanding to include Superior Safe and Safe Guard Security Products. Champion Safe employs over 100 employees in their Utah factory and over 300 employees in their Nogales, Mexico facility just south of the U.S. border. The majority of the midline and value priced safes industry-wide are manufactured in China, but Mr. Crosby had the foresight to build his own facility in Mexico and utilize American-made steel exclusively. Steep tariffs were imposed on China manufactured safes by the Trump administration and have continued under the Biden administration. The prices of components for the made-in-China safes have dramatically increased as well as the transportation costs to import these Chinese-made safes. Mr. Crosby’s decision to build his own facility in Mexico as opposed to importing Chinese-made safes has proven to be insightful and beneficial for Champion Safe.
Mr. Crosby is eager to expand his manufacturing operation and seize upon the growth opportunities in the safe business. Working closing with the American Rebel team, Mr. Crosby has expanded his paint-line capacity and hinge assembly workstations. Mr. Crosby has experience in many prior economic cycles and has found the safe business to be sound in good and bad economic times. Furthermore, the current emphasis on safe storage and the capital infusion from American Rebel positions the Champion operation to grow its footprint.
In addition to the access to capital for Champion to grow its business, American Rebel will benefit from Champion’s 350 dealers, nationwide distribution network and seniority with buying groups and trade shows. American Rebel will also benefit from the increased Champion manufacturing throughput as capacity restrictions have limited American Rebel’s inventory and potential growth. The collaboration between Champion and American Rebel management teams will focus on increased manufacturing efficiencies and volume expansion.
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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 retail showrooms across the country.
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 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 its 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 generate material revenues from licensing fees, management 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 also 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.
Coronavirus (“COVID-19”) and Related Market Impact.
The COVID-19 outbreak has presented evolving risks and developments domestically and internationally, as well as new opportunities for our business. Although the pandemic has not materially impacted our results and operations adversely, our ability to satisfy demand for our products could be negatively impacted by mandatory forced production disruptions of our safes’ sole third-party manufacturer and strategic partners. Any significant disruption to communications and travel, including travel restrictions and other potential protective quarantine measures against COVID-19 by governmental agencies, could make it difficult for us to deliver goods and services to our customers. Further, travel restrictions and protective measures against COVID-19 could cause the Company to incur additional unexpected labor costs and expenses or could restrain the Company’s ability to retain the highly skilled personnel the Company needs for its operations. The extent to which COVID-19 impacts the Company’s business, sales and results of operations will depend on future developments, which are uncertain and cannot be currently predicted.
Additionally, as a result of COVID-19, at any time we may be subject to increased operating costs, supply interruptions, and difficulties in obtaining raw materials and components. To address these challenges, we continue to monitor our supply chain.
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We expect that the demand for home, office and personal safety and security products would remain stable, in part due to customers spending more time working remotely, increasing regulation mandating safe storage, and substantial uncertainty related to the supply chain and delivery of international goods, which in turn translate into, we believe, growth in demand for our home and personal safes as a U.S. company. We, however, cannot guarantee, that demand for our safes and personal security products will keep growing through the end of the 2022 calendar year and beyond.
Due to the substantial uncertainty related to the effects of the pandemic, its duration and the related market impacts, including the economic stimulus activity, we are unable to predict the specific impact the pandemic and related restrictions (including the lifting or re-imposing of restrictions due to the Omicron variant or otherwise) will have on our results of operations, liquidity or long-term financial results.
Results of Operations
From inception through September 30, 2022, we have generated an operating deficit of $33,347,388. We expect to incur additional losses during the fiscal year ending December 31, 2022, and beyond, principally as a result of our increased investment in inventory, marketing expenses, and growth initiatives.
Nine Months Ended September 30, 2022 Compared To Nine Months Ended September 30, 2021
Revenue (‘Sales’) and cost of goods sold (‘Cost of Sales’)
For the nine months ended September 30, 2022, we reported Sales of $4,595,547, compared to Sales of $848,357 for the nine months ended September 30, 2021. The increase in Sales for the period compared to the nine months ended September 30, 2021 is attributable to the closing of the Champion acquisition on July 29, 2022. For the nine months ended September 30, 2022, we reported Cost of Sales of $3,462,454, compared to Cost of Sales of $716,943 for the nine months ended September 30, 2021. The increase in Cost of Sales for the current quarter is again due to the closing of the Champion acquisition during the period compared to the nine months ending September 30, 2021. For the nine months ended September 30, 2022, we reported gross margin (“Gross Profit”) of $1,133,093, compared to Gross Profit of $131,414 for the nine months ended September 30, 2021. The increase in Gross Profit for the nine months ending September 30, 2022 compared to the nine months ending September 30, 2021 is due to the closing of the Champion acquisition.
Operating Expenses
Total operating expenses for the nine months ended September 30, 2022 were $5,446,506 compared to $2,795,037 for the nine months ended September 30, 2021 as further described below.
For the nine months ended September 30, 2022, we incurred consulting/payroll and other payroll costs of $1,937,349, compared to consulting/payroll and other payroll costs of $1,774,003 for the nine months ended September 30, 2021. The increase in consulting/payroll and other payroll costs was due to the integration of the Champion operation into the Company’s operations.
For the nine months ended September 30, 2022, we incurred product development expenses of $146,463, compared to product development expenses of $275,780 for the nine months ended September 30, 2021. The decrease in product development expenses relates primarily to a decrease in product development activities.
For the nine months ended September 30, 2022, we incurred marketing and brand development expenses of $349,341, compared to marketing and brand development expenses of $138,783 for the nine months ended September 30, 2021. The increase in marketing and brand development expenses relates primarily to an increase of activities including major trade shows and the availability of working capital provided by our recently completed registered public offering.
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For the nine months ended September 30, 2022, we incurred general and administrative expenses of $2,687,728, compared to general and administrative expenses of $603,727 for the nine months ended September 30, 2021. The majority of the increase in general and administrative expenses relates primarily to the Company’s registered offering completed in February 2022 along with significant legal and other professional fees that we incurred in the acquisition of Champion and our registered public offerings.
For the nine months ended September 30, 2022, we incurred depreciation expense of $11,311, compared to depreciation expense of $2,744 for the nine months ended September 30, 2021. The increase in depreciation expense relates primarily to the increase in the number of newly acquired depreciable assets.
Other income and expenses
For the nine months ended September 30, 2022, we incurred interest expense of $341,990, compared to interest expense of $1,500,744 for the nine months ended September 30, 2021. The decrease in interest expense is due to several notes being paid in full during the nine months ending September 30, 2022, primarily due to the use of proceeds from our registered public offering. During the nine months ended September 30, 2022, we incurred a loss on extinguishment of debt (‘additional interest expense’) of $1,376,756, compared to $725,723 during the nine months ended September 30, 2021, in loss on extinguishment of debt through the amortization of debt discount recorded for the various issuance of shares of common stock in connection with working capital loans and their payoff.
Net Loss
Net loss for the nine months ended September 30, 2022 amounted to $6,377,731, resulting in a loss per share of $1.34, compared to $4,890,090 for the nine months ended September 30, 2021, resulting in a loss per share of $4.23. The increase in the net loss from the nine months ended September 30, 2021 to the nine months ended September 30, 2022 is primarily due to the increase in corporate and financing costs including the loss on extinguishment of debt of $1,376,756 incurred during the nine months ended September 30, 2022 created by the issuance of common stock, eliminating short term debt and accrued interest expense on this short term debt.
Three Months Ended September 30, 2022 Compared To Three Months Ended September 30, 2021
Revenue (‘Sales’) and cost of goods sold (‘Cost of Sales’)
For the three months ended September 30, 2022, we reported Sales of $4,102,761 compared to Sales of $295,490 for the three months ended September 30, 2021. The increase in Sales for the current quarter compared to the three months ended September 30, 2021, is attributable to the closing of the Champion acquisition on July 29, 2022. For the three months ended September 30, 2022, we reported Cost of Sales of $3,124,657, compared to Cost of Sales of $280,212 for the three months ended September 30, 2021. The increase in Cost of Sales for the current quarter is due to a greater number of Sales during the quarter compared to the three months ending September 30, 2021. For the three months ended September 30, 2022, we reported Gross Profit of $978,104, compared to Gross Profit of $15,278 for the three months ended September 30, 2021. The increase in Gross Profit for the three months ending September 30, 2022, compared to the three months ending September 30, 2021 is due to the closing of the Champion acquisition.
Operating Expenses
Total operating expenses for the three months ended September 30, 2022 were $2,748,350 compared to $971,882 for the three months ended September 30, 2021 as further described below.
For the three months ended September 30, 2022, we incurred consulting/payroll and other payroll costs of $1,227,953 compared to consulting/payroll and other payroll costs of $656,784 for the three months ended September 30, 2021. The increase in consulting/payroll and other payroll costs was due to the increase in the number of employees and the size of the Company post-acquisition.
For the three months ended September 30, 2022, we incurred product development expenses of $0, compared to product development expenses of $42,720 for the three months ended September 30, 2021. The decrease in product development expenses relates primarily to a decrease in product development activities.
For the three months ended September 30, 2022, we incurred marketing and brand development expenses of $119,122, compared to marketing and brand development expenses of $34,669 for the three months ended September 30, 2021. The increase in marketing and brand development expenses relates primarily to an increase of activities including major trade shows and the availability of working capital.
For the three months ended September 30, 2022, we incurred general and administrative expenses of $1,077,005, compared to general and administrative expenses of $236,763 for the three months ended September 30, 2021. The majority of the increase in general and administrative expenses relates primarily to the significant legal and other professional fees that we incurred in the acquisition of Champion and our registered public offerings, especially as we approached the end of this quarter.
For the three months ended September 30, 2022, we incurred depreciation expense of $9,956, compared to depreciation expense of $946 for the three months ended September 30, 2021. The increase in depreciation expense relates primarily to the acquisition of additional depreciable assets.
Other income and expenses
For the three months ended September 30, 2022, we incurred interest expense of $31,584, compared to interest expense of $382,601 for the three months ended September 30, 2021. The decrease in interest expense is due to several notes being paid in full during the previous quarter. During the three months ended September 30, 2022, we incurred a loss on extinguishment of debt of $0, compared to $87,575 during the three months ended September 30, 2021 in loss on extinguishment of debt through the amortization of the debt discount recorded for the issuance of shares of common stock in connection with working capital loans.
Net Loss
Net loss for the three months ended September 30, 2022, amounted to $2,147,402, resulting in a loss per share of $0.36, compared to $1,426,780 for the three months ended September 30, 2021, resulting in a loss per share of $1.05. The increase in the net loss from the three months ended September 30, 2021 to the three months ended September 30, 2022 is primarily due to transactional costs related to the Champion acquisition.
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Liquidity and Capital Resources
We are a development stage company and our revenue from our planned operations does not cover our operating expenses. We had a working capital deficit of $3,171,277 at December 31, 2021 and working capital asset of $7,382,272 at September 30, 2022 due to the successful closings of our two public financing transactions (one in February 2022 and the other in July 2022) and have incurred a deficit of $33,347,388 from inception to September 30, 2022. We have funded our operations primarily through the issuance of capital stock, convertible debt, and other securities.
During the nine months ended September 30, 2022, we raised net cash of approximately $21,358,000 through the issuance of common and preferred shares, as compared to approximately $645,000 for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we raised net cash of approximately $60,000 through the issuance of notes payable secured by inventory, as compared to approximately $1,280,000 for the nine months ended September 30, 2021.
As we continue with the launch of our safes and concealed carry product line we have devoted and expect to continue to devote significant resources in the areas of capital expenditures and marketing, sales, and operational expenditures.
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 also 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.
Debt Restructuring
The Company recently engaged in and completed a financial restructuring (the “Debt Restructuring”), that included extending, renewing, and structuring terms of loans with investors and third-party creditors. The completion of the registered public offering provided the necessary funds to pay off multiple loans with investors and third-party creditors.
Promissory Notes
As part of the Debt Restructuring (as defined above), the Company also entered into replacement notes to extend the maturity on certain prior notes.
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On July 1, 2022, the Company entered into a $600,000 unsecured Promissory Note with an accredited investor. The unsecured Promissory Note bears 12% interest per annum. The principal of the unsecured Promissory Note is due on March 31, 2023. The unsecured Promissory Note contains customary warranties, covenants and representations of the Company.
Acquisition of Champion Entities and PIPE Transaction Used to Fund Acquisition
On July 12, 2022, we sold $12,887,976 of securities to Armistice Capital Master Fund Ltd., an institutional purchaser. Such securities consisted of (i) 509,311 shares of common stock at $1.11 per share, (ii) prefunded warrants that are exercisable into 11,202,401 shares of common stock at $1.10 per prefunded warrant, and (iii) immediately exercisable warrants to purchase up to 23,423,424 shares of common stock at an initial exercise price of $0.86 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 (“Seller”) (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 the Seller.
The closing of the acquisition occurred on July 29, 2022. Under the terms of the Champion Purchase Agreement, the Company paid the Seller (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 the Seller and the Champion Entities since June 30, 2021.
Critical Accounting Policies
The preparation of financial statements and related footnotes requires us to make judgments, estimates, and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.
An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements.
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. There are no critical policies or decisions that rely on judgments that are based on assumptions about matters that are highly uncertain at the time the estimate is made. Note 1 to the financial statements, included elsewhere in this report, includes a summary of the significant accounting policies and methods used in the preparation of our financial statements.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer, Mr. Charles A. Ross, Jr., and our Interim Principal Accounting Officer, Mr. Doug E. Grau, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report. Based on their evaluation, Messrs. Ross and Grau concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. The Company hired a financial expert with the experience in creating and managing internal control systems as well to continue to improve the effectiveness of our internal controls and financial disclosure controls.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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Part II: Other Information
Item 1 - Legal Proceedings
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 Annual Report on Form 10-K for the year ended December 31, 2021. 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.
Item 2 - Unregistered Sales of Equity Securities
On July 12, 2022, we sold $12,887,976 of securities to Armistice Capital Master Fund Ltd., an institutional purchaser. Such securities consisted of (i) 509,311 shares of Common Stock at $1.11 per share, (ii) prefunded warrants that are exercisable into 11,202,401 shares of Common Stock at $1.10 per prefunded warrant, and (iii) immediately exercisable warrants to purchase up to 23,423,424 shares of Common Stock at an initial exercise price of $0.86 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 August 22, 2022, 100,000 shares of common stock were issued in return for services as a component of a February 2022 services agreement between the Company and its vendor.
During the month of August 2022, Armistice Capital Master Fund Ltd. exercised 440,441 Prefunded Warrants. Along with the exercise notice and payment of $4,404.41, 440,441 shares of common stock were issued.
During the month of September 2022, Armistice Capital Master Fund Ltd. exercised 2,682,960 Prefunded Warrants. Along with several exercise notices and payments totaling $26,829.60, 2,682,960 shares of common stock were issued.
Subsequent Issuances after Quarter End
During the month of October 2022, Armistice Capital Master Fund Ltd. exercised 8,079,00 Prefunded Warrants. Along with several exercise notices and payments totaling $80,790, 8,079,000 shares of common stock were issued.
All of the above-described issuances were exempt from registration pursuant to Section 4(a)(2) 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, 2022.
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Item 3 – Defaults upon Senior Securities
None.
Item 4 – Mine Safety Disclosures
Not applicable.
Item 5 – Other Information
None.
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: November 14, 2022
| 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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