# American Rebel Holdings Inc: Form 10-Q for the period ended Sep 30, 2023

- Company: [American Rebel Holdings Inc](/companies/areb.md) (CIK 1648087)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 15:46 ET
- Period: 2023-09-30
- Accession: 0001493152-23-041007
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1648087/000149315223041007/form10-q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1648087/000149315223041007/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $3.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $11.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $3.1m | us-gaap:CostOfRevenue |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $8.9m | us-gaap:CostOfRevenue |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $250.1k | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $2.5m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $20.3k | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $36.8k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$2.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$4.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $95.3k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $250.9k | us-gaap:InterestExpense |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$2.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$3.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.95 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.50 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.95 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$2.50 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 2,930,700 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 1,442,600 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$6.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Cash and equivalents | at 2023-09-30 | $1.6m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $13.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $19.5m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $5.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $6.4m | us-gaap:Liabilities |
| Current portion of debt | at 2023-09-30 | $600.0k | us-gaap:DebtCurrent |
| Short-term borrowings | at 2023-09-30 | $1.2m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2023-09-30 | $13.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 56,812 characters.

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 established America’s Patriotic Brand and operates as a designer, manufacturer, and marketer of safes and other storage products, as well as other personal security products, particularly branded accessories and apparel with advantageous concealment pockets for 2nd Amendment enthusiasts.

We are focused on 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 safely store our customers’ priceless keepsakes, family heirlooms and other treasured memories, with an aim to make our products accessible at various price points for home and personal use. We believe our products are designed for safety, quality, reliability, abundance of features and performance. Our safes are designed, manufactured and sold under the American Rebel, Champion Safe Co., Superior Safe Company and Safe Guard Safe Co. brands that are well known and well respected in the safe industry.

In addition to our branded safes, we offer an assortment of personal security products that include apparel and accessories for both men and women, and children under the American Rebel name, America’s Patriotic Brand. Our backpacks utilize what we believe to be a distinctive sandwich-method concealment pocket, which we refer to as our Personal Protection Pocket, to hold customers firearms in place, securely and safely. Concealment pockets on our Freedom 3.0 and Freedom 2.0 Concealed Carry Jackets incorporate a silent operation method allowing for opening and closing of the pockets with the use of a magnetic closure for stealth and safety.

On August 9, 2023, the Company entered into a Master Brewing Agreement (the “Brewing Agreement”) with Associated Brewing Company, a Minnesota limited liability company (“Associated Brewing”). Under the terms of the Brewing Agreement, Associated Brewing has been appointed as the exclusive producer and seller of American Rebel branded spirits, with the initial product being American Rebel Light Beer (“American Rebel Beer”). American Rebel Beer plans to launch regionally in early 2024. The beer industry in the United States is a more than $110 billion dollar market. We believe there is a substantial opportunity to enter the beer market at this time to present our customers with a beer they can support that aligns with their core values.

We believe we can continue to create a strong American brand community presence, in part through the personal efforts our Chief Executive Officer, Mr. Charles A. “Andy” Ross, who has written, recorded and performed a number of hit songs about the true American spirit of independence. We believe our customers identify with these core values expressed by our Chief Executive Officer through the “American Rebel” brand, America’s Patriotic Brand. American Rebel, its executives and employees live and breathe the America First philosophy and further those efforts utilizing social media wherever they can and are not censored for their words which we are all afforded under the First Amendment.

Through our growing network of dealers, we promote and sell our products in select regional retailers, as well as local specialty safe, sports, hunting and firearms stores, along with available e-commerce marketplaces. The Company shares a commitment to offering products of what we believe are enduring quality and comfort that allow our customers to keep their valuable belongings safe on the go and express their patriotism and style, which is synonymous with the American Rebel, America’s Patriotic 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 –* All of our large safes share the same high-quality workmanship, are constructed out of 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 90 minutes of fire protection at 1200 degrees Fahrenheit. Many of 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.

*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.

26

|  |  |
| --- | --- |
| 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, Champion and Superior in- and out-swinging vault doors provide maximum functionality to facilitate a secure vault room. Our 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.

Costs of revenue primarily consist of productions costs, product development, consulting, and marketing and brand development fees.

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 and supply chain shortages, 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 2023 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. In addition, we recently announced we are entering the beverage business, through the introduction of American Rebel Beer. 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 2022 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 and advanced technological solutions for our safes and protective product lines.

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.

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 2023 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 have also recognized a growth in first-time gun buyers and their propensity to purchase a gun safe simultaneously with their first-time gun purchase. The previous trend was that gun buyers would wait to purchase a gun safe until multiple firearms were owned.

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. Champion Safe and its legacy of nearly 25 years of craftsmanship and quality position its products as viable alternatives to Liberty Safe product. Firearm 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. We are focusing 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 acquisition 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.

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.

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 Champion 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 were continued for a time 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. Champion’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.

Champion has expanded his paint-line capacity and hinge assembly workstations to seize upon the growth opportunities in the safe business. Champion 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.

#### Expand into New Business Categories

We recently entered into an agreement to introduce American Rebel Beer as a new product offering, which is anticipated to launch regionally in early 2024. The Company has strived to be innovative, building products around its brand, and is committed to becoming a leading innovator in the industries in which it competes. To that end, the Company plans to continually test new alcohol beverages and may sell them under various brand labels for evaluation of drinker interest. The Company will also continue to consider new markets for its safe products and new product applications. The Company has already identified opportunities in the cannabis industry to lock inventory after hours as well as locking cabinets for tools and automotive parts in garages. Also, Champion Safe has focused on the middle and premium segments of the safe market. We believe introducing a value line series will grow customer and dealer loyalty to our brands as nearly 60% of current safe industry sales are going to value line products. We believe our value line product will have features and benefits other value line safes won’t offer and that our value line safe will be a better product.

Further, we believe that we are being effective in establishing American Rebel as America’s Patriotic Brand. An almost limitless list of potential product launches is available to management. Currently, 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.

### Results of Operations

From inception through September 30, 2023, we have generated an operating deficit of $37,723,739. We expect to incur additional losses during fiscal year ending December 31, 2023, and beyond, principally as a result of our increased investment in inventory, manufacturing capacity, marketing and sales expenses, and other growth initiatives.

### Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

#### Revenue (‘Sales’) and cost of goods sold (‘Cost of Sales’)

|  | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 |
| --- | ---: | ---: |
| Revenue | $11,418,222 | $4,595,547 |
| Cost of goods sold | 8,869,432 | 3,462,454 |
| Gross margin | 2,548,790 | 1,133,093 |
| Expenses: |  |  |
| Consulting/payroll and other costs | 2,915,377 | 1,937,349 |
| Rental expense, warehousing, outlet expense | 732,360 | 314,314 |
| Product development costs | 36,821 | 146,463 |
| Marketing and brand development costs | 942,687 | 349,341 |
| Administrative and other | 2,542,181 | 2,687,728 |
| Depreciation and amortization expense | 79,260 | 11,311 |
|  | 7,248,686 | 5,446,506 |
| Operating income (loss) | (4,699,896) | (959,076) |
| Other Income (Expense) |  |  |
| Interest expense, net | (250,877) | (341,990) |
| Interest expense – pre-emptive rights release | - | (350,000) |
| Interest Income | 3,203 | 4,428 |
| Employee retention credit funds, net of costs to collect | 1,107,672 | - |
| Gain/(loss) on sale of equipment | 1,400 | - |
| Gain/(loss) on extinguishment of debt | 227,569 | (1,376,756) |
|  | 1,088,967 | (2,064,318) |
| Net income (loss) before income tax provision | (3,610,929) | (6,377,731) |
| Provision for income tax | - | - |
| Net income (loss) | $(3,610,929) | $(6,377,731) |

For the nine months ended September 30, 2023, we reported Revenues of $11,418,222 compared to Revenues of $4,595,547 for the nine months ended September 30, 2022. The increase in Revenues of $6,822,675 (or 148% period over period (PoP)) for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022, is primarily attributable to the closing of the Champion acquisition on July 29, 2022 and a general increase from Champion’s average quarterly sales of product. For the nine months ended September 30, 2023, we reported Cost of Goods Sold of $8,869,432, compared to Cost of Goods Sold of $3,462,454 for the nine months ended September 30, 2022. The increase in Cost of Goods Sold of $5,406,978 (or 156% period over period (PoP)) for the current period is due to a significantly greater number of sales of product during the period compared to the nine months ending September 30, 2022 and again attributable to the closing of the Champion acquisition on July 29, 2022. For the nine months ended September 30, 2023, we reported Gross Margin of $2,548,790, compared to Gross Margin of $1,133,093 for the nine months ended September 30, 2022. The increase in Gross Margin of $1,415,697 (or 125% period over period (PoP)) for the nine months ending September 30, 2023, compared to the nine months ending September 30, 2022 is again due to the closing of the Champion acquisition on July 29, 2022. Gross Margin percentages for the nine months ended September 30, 2023 was 22.3% compared to 24.6% for the nine months ended September 30, 2022. We expect our Gross Margin percentages to remain consistent in the mid-20% range until we achieve sufficient sales volume to increase our margins from better pricing power, to better buying power on our costs of goods, inventory and inventory management.

#### Operating Expenses

Total operating expenses for the nine months ended September 30, 2023 were $7,248,686 compared to $5,446,506 for the nine months ended September 30, 2022 as further described below. Overall, we saw a $1,802,180 increase in operating expenses or a 33% period over period (PoP) increase in operating expenses from the prior year comparable period. With the acquisition and integration of the Champion acquisition we expect this to be about the same going forward dropping as a percentage of Revenues as we increase our overall sales volume.

For the nine months ended September 30, 2023, we incurred consulting/payroll and other costs of $2,915,377 compared to consulting/payroll and other costs of $1,937,349 for the nine months ended September 30, 2022. The increase in consulting/payroll and other costs of $978,028 (or 50% period over period (PoP)) was due to the increase in the number of employees and the size of the Company post-acquisition of the Champion Entities as well as increased payroll costs from a competitive jobs market. The Company expects to maintain its current consulting/payroll and other costs as we further expand our sales volume.

For the nine months ended September 30, 2023, we incurred rental expense, warehousing, outlet expense of $732,360, compared to rental expense, warehousing, outlet expense of $314,314 for the nine months ended September 30, 2022. The increase in rental expense, warehousing, outlet expense of $418,046 is due to the significant number of leases and properties that the Company rents to conduct the Champion business. Prior to the Champion business acquisition, the Company included lease expense in the Administrative and other account. The significant number of leases and properties that the Company rents to conduct its Champion business provides a better presentation of expenses through a separate line item in its Statement of Operations. The Company expects to maintain this level of expense on a go-forward basis with its leases and rented properties. The Company may look to consolidate some of its space as it fine tunes the Champion business.

For the nine months ended September 30, 2023, we incurred product development expenses of $36,821, compared to product development expenses of $146,463 for the nine months ended September 30, 2022. The decrease in product development expenses of $109,642 (or -75% period over period (PoP)) is due to some of the Company’s current product development expenses being included in consulting/payroll and other costs account which provides for a better presentation of those expenses than pure product development expense, offset by new efforts over these past few months where we’ve incurred some significant expenses that are attributable to our private label brewery efforts and should be separated and identified. The Company expects to maintain some level of expense on a go-forward basis with new products and efforts being expended for future sales growth and product needs.

For the nine months ended September 30, 2023, we incurred marketing and brand development expenses of $942,687, compared to marketing and brand development expenses of $349,341 for the nine months ended September 30, 2022. The increase in marketing and brand development expenses of $593,346 (or 170% period over period (PoP)) relates primarily to an increase of activities including major trade shows and the availability of working capital for these types of expenses as well as increased costs attributable to our acquisition and integration of the Champion business.

For the nine months ended September 30, 2023, we incurred administrative and other expense of $2,542,181, compared to administrative and other expense of $2,687,728 for the nine months ended September 30, 2022. The decrease in administrative and other expense of $145,547 (or -5% period over period (PoP)) relates primarily to the significant legal and other professional fees that we incurred during 2022 in anticipation of our registered public offerings, offset by additional expenses picked up from our acquisition of Champion and other recent financing efforts. The Company believes as it grows its sales base it will need to increase its administrative and other expenses commensurate with an overall increased profit for the future.

For the nine months ended September 30, 2023, we incurred depreciation and amortization expense of $79,260, compared to depreciation and amortization expense of $11,311 for the nine months ended September 30, 2022. The increase in depreciation and amortization expense relates primarily to the acquisition of Champion and its significant and additional depreciable asset base that it provided to the Company’s financial position.

#### Other income and expenses

For the nine months ended September 30, 2023, we incurred interest expense of $250,877, compared to interest expense of $341,990 for the nine months ended September 30, 2022. The decrease in interest expense of $91,113 is due to a significant number of notes being paid during 2022 that were able to be paid in full from the various financings, offset by the increased borrowing costs that we have on our working capital notes payable and line of credit. We are currently paying an interest rate of approximately 7% on our line of credit, 12% on our existing working capital notes payable, and our new working capital notes payable we are paying approximately 40% per annum on this debt instrument. During the nine months ended September 30, 2023, we incurred a gain on extinguishment of debt of $227,569, compared to $1,376,756 during the nine months ended September 30, 2022. The decrease in loss on extinguishment of debt is due to the charges necessary through the amortization of the debt discount recorded for the issuance of shares of common stock in connection with working capital loans retired during 2022. The Company expects to manage and maintain its interest expense exposure despite the increase in interest rates for this year over last year, as well keeping our debt obligations to a minimum as we grow the business and its sales volume. The gain on extinguishment of debt for the nine months ended September 30, 2023 is directly attributable to equity issuances that were static or an agreed upon number of shares for the services at the time (which was much higher) and the settlement of the shares as payment for the services at a time when the shares were significantly less valuable. For the nine months ended September 30, 2023 we received approximately $1,286,000 in tax credits under the CARES Act from the US Department of Treasury and in turn paid approximately $178,500 to the service provider, netting the Company approximately $1,107,500 in credits for retaining its employees during COVID. As part of the collection process the Company retained the services of a tax service professional to provide the Company with the specialized tax services. The services included identifying various tax initiatives as well as specifically tasking the tax service professional in applying for and the tax filings for (tax) credits available under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). This is a one-time other income item and we do not expect to receive this type of special income in the future. During the nine months ended September 30, 2023 the Company received a claim for refund or right of repayment from the Seller of the Champion Entities with respect to the CARES Act tax credits income. The Company prior to September 30, 2023 settled with the Seller and agreed to pay an additional $325,000 to the seller. This amount was not offset against the CARES Act tax credit income but increased the purchase price of the Champion Entities and increased our determined Goodwill value by $325,000.

#### Net Loss

Net loss for the nine months ended September 30, 2023, amounted to $3,610,929, resulting in a loss per share of $2.50, compared to $6,377,731 for the nine months ended September 30, 2022, resulting in a loss per share of $33.62. The decrease in the net loss from the nine months ended September 30, 2022 to the nine months ended September 30, 2023 is primarily due to one-time transactional costs related to 2022 financings and as well our preparation costs for the Champion acquisition and integration, offset by increasing costs due to a tightening jobs market and inflation. The Company’s management believes with increasing sales volume and strict adherence on cost cutting measures and best practices that net positive income can be achieved for the business into the future.

### Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

#### Revenue (‘Sales’) and cost of goods sold (‘Cost of Sales’)

|  | Three months ended September 30, 2023 | Three months ended September 30, 2022 |
| --- | ---: | ---: |
| Revenue | $3,345,552 | $4,102,761 |
| Cost of goods sold | 3,095,418 | 3,124,657 |
| Gross margin | 250,134 | 978,104 |
| Expenses: |  |  |
| Consulting/payroll and other costs | 1,039,273 | 1,227,953 |
| Rental expense, warehousing, outlet expense | 230,226 | 314,314 |
| Product development costs | 20,326 | - |
| Marketing and brand development costs | 517,345 | 119,122 |
| Administrative and other | 1,347,181 | 1,077,005 |
| Depreciation and amortization expense | 24,895 | 9,956 |
|  | 3,179,246 | 2,748,350 |
| Operating income (loss) | (2,929,112) | (1,770,246) |
| Other Income (Expense) |  |  |
| Interest expense, net | (95,330) | (31,584) |
| Interest expense – pre-emptive rights release | - | (350,000) |
| Interest income | 3,203 | 4,428 |
| Employee retention credit funds, net of costs to collect | - | - |
| Gain/(loss) on sale of equipment | - | - |
| Gain/(loss) on extinguishment of debt | 227,569 | - |
|  | 135,442 | (377,156) |
| Net income (loss) before income tax provision | (2,793,670) | (2,147,402) |
| Provision for income tax | - | - |
| Net income (loss) | $(2,793,670) | $(2,147,402) |

32

For the three months ended September 30, 2023, we reported Revenues of $3,345,552 compared to Revenues of $4,102,761 for the three months ended September 30, 2022. The decrease in Revenues of $757,209 (or -18% period over period (PoP)) for the current period compared to the three months ended September 30, 2022, is attributable to slower sales for 2023 and current market conditions. For the three months ended September 30, 2023, we reported Cost of Goods Sold of $3,095,418, compared to Cost of Goods Sold of $3,124,657 for the three months ended September 30, 2022. The decrease in Cost of Goods Sold of $29,239 (or -1% period over period (PoP)) for the current period is primarily attributable to a marginal decrease in sales for the period. For the three months ended September 30, 2023, we reported Gross Margin of $250,134, compared to Gross Margin of $978,104 for the three months ended September 30, 2022. The decrease in Gross Margin of $727,970 (or -74% period over period (PoP)) for the three months ending September 30, 2023, compared to the three months ending September 30, 2022 is again due a decrease in sales and increased costs of sales. Gross Margin percentages for the three months ended September 30, 2023 was 8% compared to 24% for the three months ended September 30, 2022. We expect our Gross Margin percentages for this time of year to be consistently in the 20% range. If not within this range we will try to increase our sales volume to in order to increase our margins, with better pricing power, better buying power on costs of goods, inventory and of course inventory management. In general, second amendment businesses have experienced a slowdown in sales volume during the past twelve months and this is in line with what we have experienced in our business.

#### Operating Expenses

Total operating expenses for the three months ended September 30, 2023 were $3,179,246 compared to $2,748,350 for the three months ended September 30, 2022 as further described below. Overall, we experienced a $430,896 increase in operating expenses or a 16% period over period (PoP) increase in operating expenses from the prior year comparable period. With the successful integration of the Champion acquisition, we believe this will begin to drop or decrease as a percentage of Revenues as we increase our sales volume.

For the three months ended September 30, 2023, we incurred consulting/payroll and other costs of $1,039,273 compared to consulting/payroll and other costs of $1,227,953 for the three months ended September 30, 2022. The decrease in consulting/payroll and other costs of $188,680 (or -15% period over period (PoP)) was due to cost controls put in place on the post-acquisition of the Champion Entities. The Company expects to try and maintain its consulting/payroll and other costs as we endeavor to further expand our sales volume.

For the three months ended September 30, 2023, we incurred rental expense, warehousing, outlet expense of $230,226, compared to rental expense, warehousing, outlet expense of $314,314 for the three months ended September 30, 2022. The decrease in rental expense, warehousing, outlet expense of $84,088 is due to cost cutting on leases and properties that the Company rents to conduct the Champion business acquisition as well as other cost cutting measures or efficiencies put in place. Prior to the Champion business acquisition, the Company included lease expense in the Administrative and other account. With the significant number of leases and properties that the Company rents to conduct the Champion business we believe provides a better presentation of expenses with a separate account line item. The Company expects to maintain this level of expense on a go-forward basis with its leases and rented properties for the near term. The Company may look to consolidate some of its space as needed as it fine tunes the Champion business.

For the three months ended September 30, 2023, we incurred product development expenses of $20,326, compared to product development expenses of $- for the three months ended September 30, 2022. The increase in product development expenses of $20,326 (or ~% period over period (PoP)) is due to some of the Company’s current product development expenses being included in consulting/payroll and other costs account which we believe provides for a better presentation of our historical business expenses than pure product development expense. For these three months ended September 30, 2023 we’ve incurred expenses that are attributable to our private label brewery efforts and should be separated and identified. The Company expects to maintain some level of expense on a go-forward basis with new products and efforts being expended for future sales growth and product needs.

For the three months ended September 30, 2023, we incurred marketing and brand development expenses of $517,345, compared to marketing and brand development expenses of $119,122 for the three months ended September 30, 2022. The increase in marketing and brand development expenses of $398,223 (or 334% period over period (PoP)) relates primarily to an increase of activities including major trade shows and the availability of working capital for these types of expenses as well as increased costs attributable to our acquisition and integration of the Champion business, as well as expenses associated with our Tony Stewart activities and general push forward on sales efforts.

For the three months ended September 30, 2023, we incurred administrative and other expense of $1,347,181, compared to administrative and other expense of $1,077,005 for the three months ended September 30, 2022. The increase in administrative and other expense of $270,176 (or 25% period over period (PoP)) relates directly to increased legal and other professional fees that we incurred in our registered public offerings and capital raising efforts, along with additional expenses picked up from our acquisition of Champion. The Company believes as it grows its sales base it will also increase its administrative and other expense commensurate with the increased profits for the future.

For the three months ended September 30, 2023, we incurred depreciation and amortization expense of $24,895, compared to depreciation and amortization expense of $9,956 for the three months ended September 30, 2022. The increase in depreciation and amortization expense relates primarily to the acquisition of Champion and its significant and additional depreciable asset base that it provided to the Company’s financial position.

#### Other income and expenses

For the three months ended September 30, 2023, we incurred interest expense of $95,330, compared to interest expense of $31,584 for the three months ended September 30, 2022. The increase in interest expense of $63,746 is due to a significant number of notes being paid during 2022 that were able to be paid in full from the various financings, offset by the increased borrowing costs that we have on our working capital notes payable and line of credit. We are currently paying an interest rate of approximately 7% on our line of credit, 12% on our existing working capital notes payable, and on our new working capital notes payable we are paying approximately 40% per annum on this debt instrument. The Company expects to manage and maintain its interest expense exposure despite the increase in interest rates for this year over last year, as well keeping our debt obligations to a minimum as we grow the business and its sales volume.

#### Net Loss

Net loss for the three months ended September 30, 2023, amounted to $2,793,670, resulting in a loss per share of $0.95, compared to $2,147,402 for the three months ended September 30, 2022, resulting in a loss per share of $8.90. The increase in the net loss from the three months ended September 30, 2022 to the three months ended September 30, 2023 is from a myriad of expenses that the Company incurred in the quarter, such as professional and legal fees, increased costs in marketing and the softening of gross margin on sales. The Company’s management believes with increasing sales volume and strict adherence to cost cutting measures and best practices that net positive income can be achieved for the business.

### Liquidity and Capital Resources

We are a company still in the growth and acquisition stage and our revenue from operations does not cover our operating expenses. Working capital increased by $725,021 period over period where we had a working capital balance of $6,678,562 at December 31, 2022 compared to a working capital balance of $7,403,583 at September 30, 2023. This working capital increase was due to the successful closings of three financing transactions (one in February 2022, the second in July 2022 and a third one recently in June 2023) despite incurring a deficit of over $37.7 million from inception to September 30, 2023. We have funded our operations primarily through the issuance of capital stock, convertible debt, and other securities and will continue so into the near future and beyond.

During the nine months ended September 30, 2023, we raised net cash of approximately $5,304,000 through the issuance of equity (which included the inducement to accelerate the conversion of certain warrants into equity), as compared to approximately $19,985,000 for the nine months ended September 30, 2022. During the nine months ended September 30, 2023, we raised net cash of approximately $2,386,000 through the issuance of notes payable and entering into a line of credit with a national financial institution secured by inventory and other assets, as compared to approximately $60,000 for the nine months ended September 30, 2022. During the nine months ended September 30, 2022 we paid down approximately $2,607,000 in loan principal which we did not replenish.

As we continue with the launch of the American Rebel branded safes and concealed carry product line as well our Champion line of products, we expect to continue to devote significant resources in the areas of capital expenditures and marketing, sales, and operational expenditures. We may from time to time incur significant capital needs for these expenditures and our business; we cannot fully predict what those needs will be and the impact to our business.

We expect to require additional funds to further develop our business and acquisition plan, including the launch of additional products in addition to aggressively marketing our safes and concealed carry product line. Since it is impossible to predict with certainty the timing and amount of funds required to establish profitability, we anticipate that we will raise additional funds through equity or debt offerings or otherwise in order to meet our expected future liquidity requirements. Any such financing that we undertake will likely be dilutive to existing stockholders.

In addition, we expect to need additional funds to respond to business opportunities and challenges, including our ongoing operating expenses, protecting our intellectual property, developing or acquiring new lines of business and enhancing our operating infrastructure. While we may need to seek additional funding for such purposes, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our common stock. We may also seek additional funds through arrangements with collaborators or other third parties. We may not be able to negotiate any such arrangements on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our product lines.

#### Debt Restructuring

The Company during early 2022 engaged in and completed a financial restructuring (the “Debt Restructuring”), that included extending, renewing, and restructuring the terms of loans with several investors and third-party creditors. The completion of the registered public offering in February 2022 provided the necessary funds to pay off multiple loans with several investors and third-party creditors, leaving a small but manageable amount of debt on the books.

#### Promissory Notes – Working Capital

As part of the Debt Restructuring (as defined above), the Company entered into several replacement notes to extend the maturities on certain notes with working capital lending partners.

On July 1, 2022, the Company entered into a $600,000 unsecured promissory note with an accredited investor, our working capital lending partner. The unsecured promissory note bears interest at 12% per annum. The principal of the unsecured promissory note was due on March 31, 2023. The unsecured promissory note contains customary warranties, covenants and representations of the Company. This note was refinanced with a new note with an accredited investor dated July 1, 2023 in the amount of $450,000. $150,000 will be due on December 31, 2023 and $300,000 will be due on June 30, 2024. Interest on outstanding principal amounts will be payable quarterly at an annual rate of 12%. The unsecured promissory note contains customary warranties, covenants and representations of the Company.

On April 14, 2023, the Company entered into a $1,000,000 Business Loan and Security Agreement (the “Secured Loan”) with an accredited investor lending source (the “Lender”). Under the Secured Loan, the Company received the loan net of fees of $20,000. The Secured Loan requires 64 weekly payments of $20,000 each, for a total repayment of $1,280,000. The Secured Loan bears interest at 41.4%. The Secured Loan is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan. The Secured Loan provides for a default fee of $15,000 for any late payments on the weekly payments. No prepayment of the loan is allowed as well as any default by the Company allows the Lender to take necessary actions to secure its collateral and recovery of funds. We paid approximately $300,000 in principal payments to the lender under the Secured Loan. We intend to make the payments in a timely manner, with no early repayment of the principal.

#### Line of Credit

During February 2023, the Company, through its wholly-owned subsidiary Champion entered into a $2 million line of credit facility (the “Line of Credit”). The Line of Credit accrues interest at a rate determined by BSBY Daily Floating Rate plus 2.05 percentage points (which at September 30, 2023 was 7.48%), and is secured by all of the assets of the Champion Entities. The Line of Credit expires February 28, 2024. The outstanding liability of the Line of Credit at September 30, 2023 was $1.69 million. The Company has the ability to draw upon the line to the full $2 million if necessary.

#### Acquisition, Integration of Champion Entities and PIPE Transaction Used to Fund Acquisition

On July 12, 2022, we sold $12,887,976 of securities to Armistice Capital, an institutional purchaser. Such securities consisted of (i) 20,372 shares of common stock at $27.75 per share, (ii) prefunded warrants that are exercisable into 448,096 shares of common stock at $27.50 per prefunded warrant, and (iii) immediately exercisable warrants to purchase up to 936,937 shares of common stock at an initial exercise price of $21.50 per share, subject to adjustments as set forth therein, and will expire five years from the date of issuance. EF Hutton, a division of Benchmark Investments, LLC, acted as exclusive placement agent for the offering and was paid: (i) a commission of 10% of the gross proceeds ($1,288,798); (ii) non-accountable expenses of 1% of the gross proceeds ($128,880); and (iii) placement agent expenses of $125,000.

On June 29, 2022, the Company entered into a stock and membership interest purchase agreement with Champion Safe Co., Inc. (“Champion Safe”), Superior Safe, LLC (“Superior Safe”), Safe Guard Security Products, LLC (“Safe Guard”), Champion Safe De Mexico, S.A. de C.V. (“Champion Safe Mexico” and, together with Champion Safe, Superior Safe, and Safe Guard, collectively, the “Champion Entities”) and Mr. Ray Crosby (“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.

During the nine months ended September 30, 2023 the Company received a claim for refund or right of repayment from the Seller. The Company settled with the Seller and agreed to pay an additional $325,000 to the Seller in the following manner. $275,000 upon signing of the agreement and another $50,000 to be paid over the next twelve months. The Company increased its purchase price of the Champion Entities by the $325,000 during the nine months ended September 30, 2023. The funds for this pricing adjustment came from general working capital.

#### 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.

## Controls and procedures

As filed, 1,123 characters.

### 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 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, 2023, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

## Risk factors

As filed, 546 characters.

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, 2022. 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.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0001493152-23-041007. Last ingested by Listed: Oct 30, 2026, 06:13 ET. No prices; not investment advice.