American Rebel Holdings Inc: Form 10-Q for the period ended Jun 30, 2024

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 Our Business

Overview

American Rebel is boldly positioning itself as America’s Patriotic Brand. The Company has identified the market opportunity to design, manufacture, and market beverages and innovative concealed carry products and safes. American Rebel accesses its market uniquely through its positioning as America’s Patriotic Brand and the appeal of its products as well as through the profile and public persona of its founder and Chief Executive Officer, Andy Ross. Andy hosted his own television show for 12 years, has made multiple appearances over the years at trade shows, and is well-known in the archery world as the founder of Ross Archery, which was the world’s fastest-growing bow company in 2007 and 2008. Andy has released 3 CDs, done numerous radio and print interviews, and performed many concerts in front of thousands of people. Andy has the ability to present American Rebel to large numbers of potential customers through the appeal of his music and other supporting appearances. For example, his appearance on the History Channel hit show Counting Cars in February 2014 has been viewed by over 2 million times. Bringing innovative products that satisfy an existing demand to the market through exciting means is the American Rebel blueprint for success.

As a corporate policy, we will not incur any cash obligations that we cannot satisfy with known resources, of which there are currently none except as described in “Liquidity” below or elsewhere in this Quarterly Report. We believe that the perception that many people have of a public company makes it more likely that they will accept restricted securities from a public company as consideration for indebtedness to them than they would from a private company. We have not performed any studies of this matter. Our conclusion is based on our own observations. Additionally, the issuance of restricted shares will dilute the percentage of ownership interest of our stockholders.

The Company operates primarily as a designer, manufacturer and marketer of beverages, branded safes and personal security and self-defense products. Additionally, the Company designs and produces branded apparel and accessories.

We believe that when it comes to their homes, consumers place a premium on their security and privacy. Our products are designed to offer our customers convenient, efficient and secure home and personal safes from a provider that they can trust. We are committed to offering products of enduring quality that allow customers to keep their valuable belongings protected and to express their patriotism and style, which is synonymous with the American Rebel brand.

Our safes and personal security products are constructed primarily of U.S.-made steel. We believe our products are designed to safely store firearms, as well as store our customers’ priceless keepsakes, family heirlooms and treasured memories and other valuables, and we aim to make our products accessible at various price points for home and office use. We believe our products are designed for safety, quality, reliability, features and performance.

To enhance the strength of our brand and drive product demand, we work with our manufacturing facilities and various suppliers to emphasize product quality and mechanical development in order to improve the performance and affordability of our products while providing support to our distribution channel and consumers. We seek to sell products that offer features and benefits of higher-end safes at mid-line price ranges.

We believe that safes are becoming a ‘must-have appliance’ in a significant portion of households. We believe our current safes provide safety, security, style and peace of mind at competitive prices.

In addition to branded safes, we offer an assortment of personal security products as well as apparel and accessories for men and women under the Company’s American Rebel brand. Our backpacks utilize what we believe is a distinctive sandwich-method concealment pocket, which we refer to as Personal Protection Pocket, to hold firearms in place securely and safely. The concealment pockets on our Freedom 2.0 Concealed Carry Jackets incorporate a silent operation opening and closing with the use of a magnetic closure.

We believe that we have the potential to continue to create a brand community presence around the core ideals and beliefs of America, in part through our Chief Executive Officer, 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, sporting goods, hunting and firearms stores, as well as online, including our website and e-commerce platforms such as Amazon.com.

American Rebel is boldly positioning itself as “America’s Patriotic Brand” in a time when national spirit and American values are being rekindled and redefined. American Rebel is an advocate for the 2nd Amendment and conveys a sense of responsibility to teach and preach good common practices of gun ownership. American Rebel products keep you concealed and safe inside and outside the home. American Rebel Safes protect your firearms and valuables from children, theft, fire and natural disasters inside the home; and American Rebel Concealed Carry Products provide quick and easy access to your firearm utilizing American Rebel’s Proprietary Protection Pocket in its backpacks and apparel outside the home. The initial company product releases embrace the “concealed carry lifestyle” with a focus on concealed carry products, apparel, personal security and defense. “There’s a growing need to know how to protect yourself, your family, your neighbors or even a room full of total strangers,” says American Rebel’s Chief Executive Officer, Andy Ross. “That need is in the forethought of every product we design.”

The “concealed carry lifestyle” refers to a set of products and a set of ideas around the emotional decision to carry a gun everywhere you go. The American Rebel brand strategy is similar to the successful Harley-Davidson Motorcycle philosophy, referenced in this quote from Richard F. Teerlink, Harley’s chairman and former chief executive, “It’s not hardware; it is a lifestyle, an emotional attachment. That’s what we have to keep marketing to.” As an American icon, Harley has come to symbolize freedom, rugged individualism, excitement and a sense of “bad boy rebellion.” American Rebel – America’s Patriotic Brand has significant potential for branded products as a lifestyle brand. Its innovative Concealed Carry Product line and Safe line serve a large and growing market segment; but it is important to note we have product opportunities beyond Concealed Carry Products and Safes. One such opportunity is American Rebel Light Lager. American Rebel Light Beer is “America’s Patriotic, God-Fearing, Constitution-Loving, National Anthem-Singing, Stand Your Ground Beer.” Management believes a significant opportunity exists to enter the $110+ billion dollar beer industry with a premium domestic beer. Current distribution agreements are in place for the states of Kansas and Tennessee and portions of Ohio and Connecticut.

American Rebel Safes

Keeping your guns in a location only appropriate trusted members of the household can access should be one of the top priorities for every responsible gun owner. Whenever a new firearm is purchased, the owner should look for a way to store and secure it. Storing the firearm in a gun safe will prevent it from being misused by young household members, and it will prevent it from being stolen in a burglary or damaged in a fire or natural disaster. Gun safes may seem pricy at first glance, but once the consumer is educated on their role to protect expensive firearms and other valuables such as jewelry and important documents, the price is justified.

American Rebel produces large floor safes in a variety of sizes as well as small portable keyed safes. Additional opportunities exist for the Company to develop Wall Safes and Handgun Boxes.

Reasons gun owners should own a gun safe:

• If you are a gun owner and you have children, many states have a law in place that you have to have your gun locked in a safe, away from children. This will prevent your children from getting the gun and hurting themselves or someone else.
• Some states have a law in place that you have to keep your gun locked away when it is not in use even if you don’t have children in your home. California has a law that you have to have your gun locked in a firearms safety device that is considered safe by the California Department of Justice (DOJ). When you buy a safe, you should see if it has approval from the California DOJ.
• Many gun owners own more guns than insurance will cover. Many insurance companies only cover $3,000 worth of guns. Are your weapons worth more? If so, you should invest in a gun safe to make sure your guns are protected from fire, water, and thieves.
• Many insurance companies may give you a discount if you own a gun safe. If you own a gun safe or you purchase one, you should see if your insurance company is one that offers a discount for this. A safe can protect your guns and possibly save you money.
• Do people know you own guns? You might not know that many burglaries are carried out by people they know.
• If a person you know breaks into your home, steals your gun, and murders someone you could be charged with a crime you didn’t commit, or the victim’s family could sue you.
• Gun safes can protect your guns in the event your home goes up in flames. When buying a safe, you should see if it will protect your firearm or any other valuables from fire damage.
• You might be the type of person that has a gun in your home for protection. A gun locked in a safe can still offer you protection. There are quick access gun safes on the market. With a quick access gun safe, you can still retrieve your gun in a few seconds, but when it isn’t needed it will be protected.

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A gun safe is the best investment a gun owner can make because the safe can protect guns from thieves, fire, water, or accidents. Bills or ballot measures to require safe storage have been discussed in Delaware, Washington, Oregon, Missouri and Virginia; and various laws are on the books in California and Massachusetts. Even a figure as staunchly pro-gun as Texas’s Republican lieutenant governor, Dan Patrick, called on gun-owning parents to lock up their weapons after the Santa Fe shooting. The gun safe industry is experiencing rapid growth and innovation. American Rebel Chief Executive Officer Andy Ross and the rest of the American Rebel team are committed to fulfilling the opportunity in the gun safe market and filling the identified void with American Rebel Gun Safes.

Below is a summary of the different safes we offer:

Upcoming Product Offerings

To further complement our diverse product offerings, we intend to introduce additional products in 2025.

Below is a summary of potential upcoming product offerings:

i. Biometrics Safes – we intend to introduce a line of handgun boxes with biometrics, Wi-Fi and Bluetooth technologies. These Biometric Safes have been designed, engineered and are ready for production.

ii. 2A Lockers – we have developed a unique steel lockbox with a 5-point locking mechanism to provide a secure place to lock up ammunition and other items that may not require the safety and security of a safe, but prevents unauthorized access. We believe there is a strong market for this product that is priced between $349 - $449 depending on the model.

iii. Wall Safes – wall safes can be easily hidden and provide “free” storage space since they are able to be tucked into the space between your wall and studs.

iv. Economy Safe Line – we are exploring enhancing our safe line through the introduction of entry level safes built in North America to compete with other safes imported from overseas.

Our results of operations and financial condition may be impacted positively and negatively by certain general macroeconomic and industry wide conditions, 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

Establishment of American Rebel Beer

On August 9, 2023, the Company entered into a Master Brewing Agreement with Associated Brewing. Under the terms of the Brewing Agreement, Associated Brewing has been appointed as the exclusive producer and seller of American Rebel branded spirits, with the initial product being American Rebel Light Beer. American Rebel Light Beer will launch regionally in 2024. The Company paid a setup fee and security deposit to Associated Brewing. We established American Rebel Beverages, LLC as a wholly-owned subsidiary specifically to hold our alcohol licenses and conduct operations for our beer business.

Acquisition of Champion Entities

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, Safe Guard and Champion Safe Mexico, collectively, the (“Champion Entities”) and Mr. 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 Crosby. This transaction was completed on July 29, 2022. As of the date of this Report, the Champion Entities have been integrated with our existing operations and are under the control of our management team.

Champion Safe Combined Group

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”, “Champion Safe Combined Group” or “Champion”) and Mr. Ray Crosby (“Crosby”) (the “Champion Purchase Agreement”), pursuant to which the Company agreed to acquire all of the issued and outstanding capital stock and membership interests of the Champion Entities from Crosby. The closing occurred on July 29, 2022.

“Champion Safe Combined Group” consists of Champion Safe Co., Inc. (“Champion Safe”) a Utah corporation, Superior Safe, LLC (“Superior Safe”) a Utah limited liability company, Safe Guard Security Products, LLC (“Safe Guard”) a Utah limited liability company, Champion Safe De Mexico, S.A. de C.V. (“Champion Safe Mexico”) a corporation duly organized and existing under the laws of Mexico. Each of these entities is under common control and ownership by American Rebel Holdings, Inc.

Champion Safe Combined Group develops and sells branded products in the safe storage product using a wholesale distribution network, utilizing personal appearances, musical venue performances, as well e-commerce and television. Champion Safe Combined Group’s products are marketed under the Champion, Superior and Safe Guard brands. Champion Safe Combined Group promotes and sells its safe and storage products through a growing network of dealers, in select regional retailers and local specialty safe, sporting goods, hunting and firearms retail outlets, as well as through online avenues, including website and e-commerce platforms. Champion Safe Combined Group sells its products under the Champion Safe Co., Superior Safe Company and Safe Guard Safe Co. brands.

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.

Expansion into New Business Categories

Expanding Scope of Operations Activities by Offering Servicing Dispensaries and Brand Licensing

We continually seek to target new consumer segments for our safes. As we believe that safes are becoming a must-have household appliance, we strive to establish authenticity by selling our products to additional groups, and to expand our direct-to-consumer presence through our website and our showroom currently in Lenexa, Kansas.

Further, we expect the cannabis dispensary industry to be a material growth segment for our business. Several cannabis dispensary operators have expressed interest in the opportunity to help them with their inventory locking needs. Cannabis dispensaries have various insurance requirements and local ordinances requiring them to secure their inventory when the dispensary is closed. Dispensary operators have been purchasing gun safes and independently taking out the inside themselves to allow them to store cannabis inventory. Recognizing what seems to be a growing need for cannabis dispensary operators, we have designed a safe tailor-made for the cannabis industry. With the legal cannabis hyper-growth market expected to exceed $43 billion by 2025, and an increasing number of states where the growth and cultivation of cannabis is legal (California, Colorado, Hawaii, Maine, Maryland, Michigan, Montana, New Mexico, Oregon, Rhode Island, Vermont and Washington), we believe we are well positioned to address the need of dispensaries. American Rebel has a long list of dispensary operators, growers, and processors interested in the Company’s inventory control solutions. We believe that dispensary operators, growers, and processors are another fertile new growth market for our Vault Doors products, as many in the cannabis space have chosen to install entire vault rooms instead of individual inventory control safes—the American Rebel Vault Door has been the choice for that purpose.

Further, we believe that American Rebel has significant potential for branded products as a lifestyle brand. As the American Rebel Brand continues to grow in popularity, we anticipate generating additional revenues from licensing fees earned from third parties who wish to engage the American Rebel community. While the Company does not currently generate material revenues from licensing fees, our management team believes the American Rebel brand name may in the future have significant licensing value to third parties that seek the American Rebel name to brand their products to market to the American Rebel target demographic. For example, a tool manufacturer that wants to pursue an alternative marketing plan for a different look and feel could license the American Rebel brand name for their line of tools and market their tools under our distinct brand. This licensee would benefit from the strong American Rebel brand with their second line of American Rebel branded tools as they would continue to sell both of the lines of tools. Conversely, American Rebel could potentially benefit as a licensee of products. If American Rebel determines a third party has designed, engineered, and manufactured a product that would be a strong addition to the American Rebel catalog of products, American Rebel could license that product from the third-party and sell the licensed product under the American Rebel brand.

Results of Operations

From inception through June 30, 2024, we have generated an operating deficit of $55,856,751. We expect to incur additional losses during fiscal year ending December 31, 2024, and beyond, principally as a result of our increased investment in inventory, manufacturing capacity, marketing and sales expenses, and other growth initiatives.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

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

For the three months ended June 30, 2024, we reported Revenues of $3,255,393 compared to Revenues of $3,670,571 for the three months ended June 30, 2023. The decrease in Revenues of $415,178 (or -11% period over period (PoP)) for the current period compared to the three months ended June 30, 2023, is attributable to slower sales for 2024 and current market conditions. For the three months ended June 30, 2024, we reported Cost of Goods Sold of $3,224,738, compared to Cost of Goods Sold of $2,982,688 for the three months ended June 30, 2023. The increase in Cost of Goods Sold of $242,050 (or 8% period over period (PoP)) for the current period is primarily attributable to a marginal decrease in sales along with higher costs of goods sold for the period. For the three months ended June 30, 2024, we reported Gross Margin of $30,655, compared to Gross Margin of $687,883 for the three months ended June 30, 2023. The decrease in Gross Margin of $657,228 (or -96% period over period (PoP)) for the three months ending June 30, 2024, compared to the three months ending June 30, 2023 is again due a decrease in sales and increased costs of goods sold. Gross Margin percentages for the three months ended June 30, 2024 was 1% compared to 19% for the three months ended June 30, 2023. We expect our Gross Margin percentages for this time of year to be consistently in the 20% range. If not within this range we will try to increase our sales volume to in order to increase our margins, with better pricing power, better buying power on costs of goods, inventory and of course inventory management. In general, second amendment businesses have experienced a slowdown in sales volume during the past twelve months and this is in line with what we have experienced in our business.

Operating Expenses

Total operating expenses for the three months ended June 30, 2024 were $3,978,576 compared to $2,238,722 for the three months ended June 30, 2023 as further described below. Overall, we experienced a $1,739,854 increase in operating expenses or a 77% period over period (PoP) increase in operating expenses from the prior year comparable period. This increase is due to the recognition of the deferred compensation expense. 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 June 30, 2024, we incurred consulting/payroll and other costs (along with officer compensation) of $2,001,691 compared to consulting/payroll and other costs (along with officer compensation) of $931,505 for the three months ended June 30, 2023. The increase in consulting/payroll and other costs of $1,070,186 (or 115% period over period (PoP)) was due to the recognition of the deferred compensation expense due to common stock equivalents on our Series A preferred stock. The Company expects to try and maintain its consulting/payroll and other costs as we endeavor to further expand our sales volume.

For the three months ended June 30, 2024, we incurred rental expense, warehousing, outlet expense of $80,515, compared to rental expense, warehousing, outlet expense of $275,474 for the three months ended June 30, 2023. The decrease in rental expense, warehousing, outlet expense of $194,959 is due to cost cutting on leases and properties that the Company rents to conduct the Champion business acquisition as well as other cost cutting measures or efficiencies put in place. The Company expects to maintain this level of expense on a go-forward basis with its leases and rented properties for the near term. The Company may look to consolidate some of its space as needed as it fine tunes the Champion business.

For the three months ended June 30, 2024, we incurred product development expenses of $337,771, compared to product development expenses of $0 for the three months ended June 30, 2023. The increase in product development expenses of $337,771 (or incalculable period over period (PoP)) is due to some of the Company’s current product development expenses in the three months ended June 30, 2023 period being included in consulting/payroll and other costs accounts which we believe provides for a better presentation of our historical business expenses than pure product development expense. For these three months ended June 30, 2024 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 June 30, 2024, we incurred marketing and brand development expenses of $299,655, compared to marketing and brand development expenses of $172,617 for the three months ended June 30, 2023. The increase in marketing and brand development expenses of $127,038 (or 74% period over period (PoP)) relates primarily to initial market awareness efforts for American Rebel Beer as well as expenses associated with our Tony Stewart activities and general push forward on sales efforts.

For the three months ended June 30, 2024, we incurred administrative and other expense of $1,228,163, compared to administrative and other expense of $833,851 for the three months ended June 30, 2023. The increase in administrative and other expense of $394,312 (or 47% 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 June 30, 2024, we incurred depreciation and amortization expense of $30,681, compared to depreciation and amortization expense of $25,275 for the three months ended June 30, 2023. 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 June 30, 2024, we incurred interest expense of $1,055,282, compared to interest expense of $148,437 for the three months ended June 30, 2023. The increase in interest expense of $906,845 is due to a significant number of notes being paid during 2023 that were able to be paid in full from the various financings, offset by the increased borrowing costs that we have on our working capital notes payable and line of credit. We are currently paying an interest rate of approximately 7% on our line of credit, in excess of 18% on our existing working capital notes payable, and on our new working capital notes payable we are paying more than 40% per annum on these debt instruments. The Company believes that it will 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 reasonable amount as we grow the business and its sales volume. For the three months ended June 30, 2024, we incurred a loss on settlement of debt of $250,000. This loss on the settlement of debt was in association with the Company negotiating with a revenue interest purchase note payable holder to convert their debt into equity of the Company. This payment was to induce the holder to settle and convert this debt instrument prior to June 30, 2024. This was a one-time event.

Net Loss

Net loss for the three months ended June 30, 2024, amounted to $5,253,004, resulting in a loss per share of $0.89, compared to $590,204 for the three months ended June 30, 2023, resulting in a loss per share of $0.87. The increase in the net loss from the three months ended June 30, 2023 to the three months ended June 30, 2024 is from a myriad of expenses that the Company incurred in the quarter, such as professional and legal fees, increased costs in marketing, the softening of gross margin on sales, and the recognition of deferred compensation expense. The Company’s management believes with increasing sales volume, launching new products and strict adherence to cost cutting measures in its legacy business and best practices that net positive income can be achieved for the business.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

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

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For the six months ended June 30, 2024, we reported Revenues of $7,299,230 compared to Revenues of $8,072,670 for the six months ended June 30, 2023. The decrease in Revenues of $773,440 (or -10% period over period (PoP)) for the current period compared to the six months ended June 30, 2023, is attributable to slower sales for 2024 and current market conditions. For the six months ended June 30, 2024, we reported Cost of Goods Sold of $6,427,252, compared to Cost of Goods Sold of $5,774,014 for the six months ended June 30, 2023. The increase in Cost of Goods Sold of $653,238 (or 10% period over period (PoP)) for the current period is primarily attributable to a marginal decrease in sales along with higher costs of goods sold for the period. For the six months ended June 30, 2024, we reported Gross Margin of $871,978, compared to Gross Margin of $2,298,656 for the six months ended June 30, 2023. The decrease in Gross Margin of $1,426,678 (or -62% period over period (PoP)) for the six months ending June 30, 2024, compared to the six months ending June 30, 2023 is again due a decrease in sales and increased costs of goods sold. Gross Margin percentages for the six months ended June 30, 2024 was 12% compared to 28% for the six months ended June 30, 2023. We expect our Gross Margin percentages for this time of year to be consistently in the 20% range. If not within this range we will try to increase our sales volume to in order to increase our margins, with better pricing power, better buying power on costs of goods, inventory and of course inventory management. In general, second amendment businesses have experienced a slowdown in sales volume during the past twelve months and this is in line with what we have experienced in our business.

Operating Expenses

Total operating expenses for the six months ended June 30, 2024 were $7,097,168 compared to $4,069,440 for the six months ended June 30, 2023 as further described below. Overall, we experienced a $3,027,728 increase in operating expenses or a 74% period over period (PoP) increase in operating expenses from the prior year comparable period. This increase is directly attributable to the recognition of deferred compensation expense. 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 six months ended June 30, 2024, we incurred consulting/payroll and other costs (along with officer compensation) of $3,900,204 compared to consulting/payroll and other costs (along with officer compensation) of $1,876,104 for the six months ended June 30, 2023. The increase in consulting/payroll and other costs of $2,024,100 (or 108% period over period (PoP)) was due to cost controls put in place on the post-acquisition of the Champion Entities offset by increased compensation costs due to common stock equivalents on our Series A preferred stock. The Company expects to try and maintain its consulting/payroll and other costs as we endeavor to further expand our sales volume.

For the six months ended June 30, 2024, we incurred rental expense, warehousing, outlet expense of $232,181, compared to rental expense, warehousing, outlet expense of $502,134 for the six months ended June 30, 2023. The decrease in rental expense, warehousing, outlet expense of $269,953 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 six months ended June 30, 2024, we incurred product development expenses of $436,400, compared to product development expenses of $16,495 for the six months ended June 30, 2023. The increase in product development expenses of $419,905 (or 2,546% 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 six months ended June 30, 2024 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 six months ended June 30, 2024, we incurred marketing and brand development expenses of $564,710, compared to marketing and brand development expenses of $425,342 for the six months ended June 30, 2023. The increase in marketing and brand development expenses of $139,368 (or 33% period over period (PoP)) relates primarily to an increase of activities related to the launch of American Rebel Beer as well as expenses associated with our Tony Stewart activities and general push forward on sales efforts.

For the six months ended June 30, 2024, we incurred administrative and other expense of $1,908,6677, compared to administrative and other expense of $1,195,000 for the six months ended June 30, 2023. The increase in administrative and other expense of $713,677 (or 60% 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 six months ended June 30, 2024, we incurred depreciation and amortization expense of $54,996, compared to depreciation and amortization expense of $54,365 for the six months ended June 30, 2023. 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 six months ended June 30, 2024, we incurred interest expense of $1,479,141, compared to interest expense of $155,547 for the six months ended June 30, 2023. The increase in interest expense of $1,323,594 is due to a significant number of notes being paid during 2023 that were able to be paid in full from the various financings, offset by the increased borrowing costs that we have on our working capital notes payable and line of credit. We are currently paying an interest rate of approximately 7% on our line of credit, in excess of 18% on our existing working capital notes payable, and on our new working capital notes payable we are paying more than 40% per annum on these debt instruments. The Company believes that it will 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 reasonable amount as we grow the business and its sales volume. For the six months ended June 30, 2024, we incurred a loss on settlement of debt instrument of $250,000. This loss on the settlement of debt was in association with the Company negotiating with revenue interest purchase note payable holder to convert their debt into equity of the Company. This payment was to induce the holder to settle and convert this debt instrument prior to June 30, 2024. This was a one-time event.

Net Loss

Net loss for the six months ended June 30, 2024, amounted to $7,954,282, resulting in a loss per share of $1.35, compared to $817,259 for the six months ended June 30, 2023, resulting in a loss per share of $1.21. The increase in the net loss from the six months ended June 30, 2023 to the six months ended June 30, 2024 is from a myriad of expenses that the Company incurred in the quarter, such as professional and legal fees, increased costs in marketing, the softening of gross margin on sales, and the recognition of deferred compensation expense. The Company’s management believes with increasing sales volume from the launch of new products, strict adherence to cost cutting measures in its legacy business, and best practices that net positive income can be achieved for the business.

Liquidity and Capital Resources

We are a company still in the growth and acquisition stage and our revenue from operations does not cover our operating expenses. Working capital decreased by $4,421,987 period over period where we had a working capital balance of $4,551,927 at December 31, 2023 compared to a working capital balance of $129,940 at June 30, 2024. This working capital decrease was due to increased expenses launching new products and slowing sales in its legacy business. We have funded our operations primarily through the issuance of capital stock, convertible debt, and other securities and will continue so into the near future and beyond.

During the six months ended June 30, 2024, we raised net cash of approximately $0 through the issuance of equity, as compared to approximately $2,464,528 for the six months ended June 30, 2023. During the six months ended June 30, 2024, we raised net cash of approximately $3,000,000 through the issuance of notes payable and maintaining a line of credit with a national financial institution secured by inventory and other assets, as compared to approximately $1,700,000 for the six months ended June 30, 2023.

As we continue with the launch of American Rebel Beer and continue to maintain the American Rebel branded safes and concealed carry product line as well our Champion line of products, we expect to continue to devote significant resources in the areas of capital expenditures 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.

Promissory Notes – Working Capital

Over the past twelve months we entered into the following:

On April 14, 2023, the Company entered into a $1,000,000 Business Loan and Security Agreement (the “Secured Loan #1”) with an accredited investor lending source. Under the Secured Loan #1, the Company received the loan net of fees of $20,000. The Secured Loan #1 requires 64 weekly payments of $20,000 each, for a total repayment of $1,280,000. The Secured Loan #1 bears interest at 41.4%. The Secured Loan #1 is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan #1. The Secured Loan #1 provides for a default fee of $15,000 for any late payments on the weekly payments. No prepayment of the loan is allowed as well as any default by the Company allows the lender to take necessary actions to secure its collateral and recovery of funds. The Company was required to pay a fee associated with the lender and its introduction to the Company of $80,000 to be made in equity of the Company at the time the loan was entered into. The Company issued 3,721 post-reverse stock split shares, which on the date of issuance had a value of approximately $2,900. Since the number of shares had been established upon consummation of the loan but not valued or recorded on the books at the time, because of the leeway on grant date; total cost to the Company for the issuance of the 3,721 shares of common stock on the grant date was $2,900 which was recorded to interest expense and attributable to the loan.

On July 1, 2023 the Company received a release from the lender of the working capital loans that were in default since June 30, 2023, and the accredited lender of the new working capital loans paid the holder of the old working capital loans $450,000 which required no additional working capital outlay from the Company. The terms of the new loan are 12% per annum and interest only payments that are due by last day of the quarter based on a calendar year. This reduces the Company’s interest payments on the working capital loans (old) of $600,000 from $18,000 per quarter to just $13,500 per quarter (for quarter ending December 31, 2023) and $9,000 per quarter thereafter (for quarters ending June 30, 2024 and June 30, 2024).

On December 19, 2023, the Company entered into a $500,000 Revenue Interest Purchase Agreement (the “Revenue Interest Loan #1”) with an accredited lender. Under the Revenue Interest Loan #1, the Company received the purchase price/loan net of fees of $5,000. The Revenue Interest Loan #1 required monthly payments of $75,000, until the Revenue Interest Loan #1 is repurchased by the Company. Upon entering into the agreement, the Revenue Interest Loan #1 bore an effective interest of more than 100%. The Revenue Interest Loan #1 is secured by all of the product revenues of the Company and its subsidiaries second to a first priority lien secured the holder of the line of credit. Furthermore, the Company’s is obligated to provide for 50% of the Reg. 1-A offering proceeds to the holder of the Revenue Interest Loan #1 as payment towards the amounts due. The Revenue Interest Loan #1 may be repurchased by the Company at any time. The repurchase price for the Revenue Interest Loan #1 prior to April 1, 2024 is 125% or $625,000, the repurchase price for the Revenue Interest Loan #1 after April 1, 2024 and prior to May 5, 2024 is 137.5% or $687,500, thereafter the repurchase price of the Revenue Interest Loan #1 is $687,500 plus monthly payments of $75,000 due and payable on the fifth calendar day until repurchased by the Company in its entirety.

On May 13, 2024 the Company and the holder of the Revenue Interest Loan #1 entered into a settlement and conversion agreement (“Securities Exchange Agreement”) whereby the Company issued 133,334 shares Series D convertible preferred stock as full satisfaction for the revenue participation interest agreement or loan. The Series D convertible preferred stock was purchased at $7.50 per share. Total loan balance on the date of settlement and conversion was $750,005. The Company paid approximately $250,005 in interest on a loan balance of $500,000 that it entered into on December 19, 2023. The Company also paid a premium payment of $250,000 to induce the holder to settle and convert their debt instrument. The Series D convertible preferred stock is convertible at the option of the holder into common stock of the Company at a fixed price per share of $1.50 per share.

On July 10, 2024, the Company entered into a Conversion Agreement (the “Conversion Agreement”) with Series D convertible preferred stock holder, pursuant to which the holder agreed to convert the 133,334 shares of Series D convertible preferred stock it held into 2,232,143 shares of common stock, par value $0.001 per share, of the Company. The shares of common stock were priced at $0.448 per share (which price represents the closing price for the Company’s common stock on NASDAQ for the day immediately preceding the date of the Conversion Agreement).

On December 29, 2023, the Company entered into a $500,000 Business Loan and Security Agreement (the “Secured Loan #2”) with an accredited investor lending source. Under the Secured Loan #2, the Company received loan proceeds net of fees of $10,000. The Secured Loan #2 requires 52 weekly payments of $11,731 each, for a total repayment of $610,000. The Secured Loan #2 bears interest at 40.5%. The Secured Loan #2 is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan #2. The Secured Loan #2 provides for a default fee of $15,000 for any late payments on the weekly payments. No prepayment of the loan is allowed as well as any default by the Company allows the lender to take necessary actions to secure its collateral and recovery of funds. The Company is required to pay a fee associated with the lender and its introduction to the Company of $40,000 to be made in equity of the Company at the time the loan was entered into.

On March 21, 2024, the Company entered into a securities purchase agreement with an accredited investor lending source, pursuant to which the lender made a loan to the Company, evidenced by a promissory note in the principal amount of $235,750 (“Promissory Note #1). A one-time interest charge or points amounting to 15.0% (or $35,362) and fees of $5,000 were applied at the issuance date, resulting in net proceeds to the Company of $200,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in seven payments; the first payment shall be in the amount of $162,667.20 and is due on June 30, 2024 with six (6) subsequent payments each in the amount of $18,074.14 due on the 30th of each month thereafter (total repayment of $271,112 on or by December 31, 2023). the Company has the right to prepay the note within one hundred eighty days at a discount of 5%.

On March 22, 2024, the Company entered into another Revenue Interest Purchase Agreement (the “Revenue Interest Loan #2”) with an individual accredited investor lending source, in the amount of $100,000. As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #2, the holder has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Furthermore, the Company’s is obligated to provide for 5.15% of the Reg. 1-A offering proceeds to the holder of the Revenue Interest Loan #2 as payment towards the amounts due. The Revenue Interest Loan #2 may be repurchased by the Company at any time. The repurchase price for the Revenue Interest Loan #2 prior to May 31, 2024 is 140% or $140,000, the repurchase price for the Revenue Interest Loan #2 after May 31, 2024 and prior to July 5, 2024 is 154 % or $154,000, thereafter the repurchase price of the Revenue Interest Loan #2 is $154,000 plus monthly payments of $10,000 due and payable on the fifth calendar day until repurchased by the Company in its entirety.

On March 27, 2024, the Company entered into a $1,300,000 Business Loan and Security Agreement (the “Secured Loan #3”) with an accredited investor lending source. Under the Secured Loan #3, the Company received the loan net of fees of $26,000. The Company repaid two outstanding secured notes payable (Secured Loan #1 and Secured Loan #2) to affiliates of the lender totaling $769,228, resulting in net proceeds to the Company of $504,772. The Secured Loan #3 requires 64 weekly payments of $26,000 each, for a total repayment of $1,664,000. The Secured Loan #3 is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan #3. The Secured Loan #3 provides for a default fee of $15,000 for any late payments on the weekly payments. As long as the Secured Loan #3 is not in default, the Company may prepay the Secured Loan #3 pursuant to certain prepayment amounts set forth in the Secured Loan #3. Further, any default by the Company allows the lender to take necessary actions to secure its collateral and recovery of funds.

On April 1, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $100,000 (“Revenue Interest Loan #3). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #3, the holder has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #3, the Company has an option to repurchase the Revenue Interest Loan #3 at any time upon two days advance written notice. Additionally, the holder has an option to terminate the Revenue Interest Loan #3 and to require the Company to repurchase the Revenue Interest Loan #3 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $140,000 if repurchased on or before May 31, 2024; and (ii) $154,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.

On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $100,000 (“Revenue Interest Loan #4). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #4 the holder has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #4, the Company has an option to repurchase the Revenue Interest Loan #4 at any time upon two days advance written notice. Additionally, the holders has an option to terminate the Revenue Interest Loan #4 and to require the Company to repurchase the Revenue Interest Loan #4 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $140,000 if repurchased on or before May 31, 2024; and (ii) $154,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.

On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $300,000 (“Revenue Interest Loan #5). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #5, the holder has a right to receive $30,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #5, the Company has an option to repurchase the Revenue Interest Loan #5 at any time upon two days advance written notice. Additionally, the holder has an option to terminate the Revenue Interest Loan #5 and to require the Company to repurchase Revenue Interest Loan #5 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $420,000 if repurchased on or before May 31, 2024; and (ii) $462,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.

On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an individual accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $75,000 (Revenue Interest Loan #6). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #6, the holder has a right to receive $7,500 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Loan #6, the Company has an option to repurchase the Revenue Interest Loan #6 at any time upon two days advance written notice. Additionally, the holder has an option to terminate the Revenue Interest Loan #6 and to require the Company to repurchase the Revenue Interest Loan #6 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $105,000 if repurchased on or before May 31, 2024; and (ii) $115,500 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.

On April 19, 2024, the Company entered into a Revenue Interest Purchase Agreement with an accredited investor lending source, pursuant to which the holder purchased a revenue interest from the Company for $500,000 (“Revenue Interest Loan #7”). As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #7, the holder has a right to receive $50,000 per month from the Company generated from its operating subsidiaries (the “Revenue Interest”). Under the Revenue Interest Loan #7, the Company has an option (the “Call Option”) to repurchase the Revenue Interest at any time upon two days advance written notice. Additionally, the Purchasers have an option (the “Put Option”) to terminate the Revenue Interest Loan #7 and to require the Company to repurchase the Revenue Interest Loan #7 upon the Company consummating a public offering. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $700,000 if repurchased on or before May 31, 2024; and (ii) $770,000 after June 1, 2024; in each case of (i) or (ii), minus all other payments made by the Company to the holder prior to such date.

The Company entered into seven (7) Revenue Interest Purchase Agreements with seven (7) accredited investor lending sources. As part of the loan agreements the Company was not aware that in the aggregate the loan agreements required the holders have the right to receive certain payments per month from the Company generated from its operating subsidiaries that far exceeds its free-cash flow from these operating subsidiaries, subjecting the subsidiaries to borrow additional funding to supplement these required cash payments. Furthermore, the Company’s is obligated to provide in excess of 100.0% of the Reg. 1-A offering proceeds to the collective group of holders of the Revenue Interest Loan’s as payment towards the amounts due to the holders.

On May 28, 2024, the Company entered into a securities purchase agreement with an accredited investor lending source, pursuant to which the holder made a loan to the Company, evidenced by a promissory note in the principal amount of $111,550 (“Promissory Note #2). An original issue discount of $14,550 and fees of $7,000 were applied on the issuance date, resulting in net loan proceeds to the Company of $90,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in nine payments in the amount of $13,881.78, with the first payment due on June 30, 2024, and remaining eight payments due on the last day of each month thereafter (a total payback to the holder of $124,936.00). The securities purchase agreement allows for the holder to purchase shares of the Company’s common stock at a discount to market which as of the date of this Report has been determined to be $0.448 per share. These shares and the conversion of the loan payable is triggered if the Company is in default or technical default with respect to the Promissory Note #2. The Company has reserved for 3X the number of shares that would be considered common stock equivalents under the terms of the Promissory Note #2.

On June 14, 2024, the Company entered into a securities purchase agreement with an accredited investor lending source, pursuant to which the holder made a loan to the Company, evidenced by a promissory note in the principal amount of $111,550 (“Promissory Note #3). An original issue discount of $14,550 and fees of $7,000 were applied on the issuance date, resulting in net loan proceeds to the Company of $90,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in nine payments in the amount of $13,881.78, with the first payment due on June 30, 2024, and remaining eight payments due on the last day of each month thereafter (a total payback to holder of $124,936.00). The securities purchase agreement allows for the holder purchase shares of the Company’s common stock at a discount to market which as of the date of this Report has been determined to be $0.448 per share. These shares and the conversion of the loan payable is triggered if the Company is in default or technical default with respect to Promissory Note #3. The Company has reserved for 3X the number of shares that would be considered common stock equivalents under the terms of Promissory Note #3.

On July 2, 2024, American Rebel, Inc., a wholly-owned subsidiary of the Company, entered into a Standard Merchant Cash Advance Agreement (the “Factoring Agreement”), with an accredited investor lending source (“Financier”). Under the Factoring Agreement, our wholly-owned subsidiary sold to Financier a specified percentage of its future receipts (as defined by the Factoring Agreement, which include any and future revenues of Champion Safe Company, Inc. (“Champion”), another wholly-owned subsidiary of the Company, and the Company) equal to $357,500 for $250,000, less origination and other fees of $12,500. Our wholly-owned subsidiary agrees to repay this purchased receivable amount in equal weekly installments of $17,875. Financier has specified customary collection procedures for the collection and remittance of the weekly payable amount including direct payments from specified authorized bank accounts. The Factoring Agreement expressly provides that the sale of the future receipts shall be construed and treated for all purposes as a true and complete sale and includes customary provisions granting a security interest under the Uniform Commercial Code in accounts and the proceeds, subject to existing liens. The Factoring Agreement also provides customary provisions including representations, warranties and covenants, indemnification, arbitration and the exercise of remedies upon a breach or default. The obligations of our wholly-owned subsidiary, Champion and the Company under the Factoring Agreement are irrevocably, absolutely, and unconditionally guaranteed by Charles A. Ross, Jr., the Company’s Chairman and Chief Executive Officer. The Personal Guaranty of Performance by Mr. Ross to Financier provides customary provisions, including representations, warranties and covenants.

On July 8, 2024, the Company, and two of its subsidiaries (American Rebel, Inc. and Champion Safe Company, Inc.) entered into a subordinated business loan and security agreement (“Loan”) with an accredited investor lending source and a subsidiary to that accredited investor lending source as collateral agent, which provides for a term loan in the amount of $1,312,500 which principal and interest (of $577,500) is due on January 20, 2025. Commencing July 15, 2024, the Company is required to make weekly payments of $67,500 until the due date. The loan may be prepaid subject to a prepayment fee. An administrative agent fee of $62,500 was initially paid on the loan. A default interest rate of 5% becomes effective upon the occurrence of an event of default. In connection with the loan, the holder was issued a subordinated secured promissory note, dated July 8, 2024, in the principal amount of $1,312,500 which note is secured by all of the borrower’s assets, including receivables, subject to certain outstanding liens and agreements.

On July 10, 2024, the Company entered into a Conversion Agreement (the “Conversion Agreement”) with Series D convertible preferred stock holder, pursuant to which the holder agreed to convert the 133,334 shares of Series D convertible preferred stock it held into 2,232,143 shares of common stock, par value $0.001 per share, of the Company. The shares of common stock underlying the Series D convertible preferred stock was reduced and repriced from $1.50 per share to $0.448 per share (which this price represents the closing price for the Company’s common stock on NASDAQ for the day immediately preceding the date of the Conversion Agreement).

On July 22, 2024, the Company and an accredited investor lending source entered into an agreement whereby $300,000 of the Assumption Loan was acquired by the accredited investor lending source from the original holder. The agreement entered into was structured as an installment purchase between the two accredited investor lending sources. The Company entered into an amended note payable, which by its terms became a $300,000 no interest convertible note, due and payable on July 22, 2025 (“Amended Convertible Note Payable”). The conversion price is fixed at $0.448 per share, with the normal share reserve and conversion mechanics. The Company issued 223, 214 shares of common stock to the holder of the amended note payable and retiring $100,000 of this $300,000 debt. The shares were issued to the holder without restrictive legend and a new amended convertible note payable of $200,000, due and payable on July 22, 2025.

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 June 30, 2024 was 7.44%), and is secured by all of the assets of the Champion Entities. The maturity date on the line of credit was initially extended by Bank of America to April 30, 2024. The balance at the maturity date was approximately $1.9 million and access to the line of credit with Bank of America was terminated. Subsequent to quarter end, Bank of America put the Company on notice that the Line of Credit is in default; however, Champion and Bank of America have continued dialogue and the Company is currently negotiating a forbearance or other cure to the default and a plan for repayment of the Line of Credit within sixty (60) to ninety (90) days with its assigned relationship manager at the bank.

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

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

On June 29, 2022, the Company entered into a stock and membership interest purchase agreement with Champion Safe Co., Inc. (“Champion Safe”), Superior Safe, LLC (“Superior Safe”), Safe Guard Security Products, LLC (“Safe Guard”), Champion Safe De Mexico, S.A. de C.V. (“Champion Safe Mexico” and, together with Champion Safe, Superior Safe, and Safe Guard, collectively, the “Champion Entities”) and Mr. Ray Crosby (“Crosby”) (the “Champion Purchase Agreement”), pursuant to which the Company agreed to acquire all of the issued and outstanding capital stock and membership interests of the Champion Entities from Crosby.

The closing of the acquisition occurred on July 29, 2022. Under the terms of the Champion Purchase Agreement, the Company paid Crosby (i) cash consideration in the amount of $9,150,000, along with (ii) cash deposits in the amount of $350,000, and (iii) reimbursed Seller for $397,420 of agreed upon acquisitions and equipment purchases completed by Crosby and the Champion Entities since June 30, 2021.

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

Critical Accounting 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.

During February 2023, we entered into a $2 million master credit agreement (credit facility) with Bank of America. The credit facility is secured by all the assets of our Champion subsidiaries and guaranteed by us, the Champion subsidiaries and our CEO. The Line of Credit expired on February 28, 2024, but we and Champion Safe Company have been actively working with the bank to extend or modify the credit facility.

Despite being current on all payments under the credit facility and actively working with the bank for a long-term solution to repay the credit facility, on July 25, 2024, Champion Safe Company received a notice of default and demand for payment from the bank. The current balance owing to the bank is $2,017,539.27 and interest is accruing at $743.38 per day. We are currently negotiating a forbearance or other cure to the default and a plan for repayment of the credit facility within sixty (60) to ninety (90) days with its assigned relationship manager at the bank.

However, if we are unable to cure the default, or extend or replace the credit facility, it would have a material impact on us and our Champion subsidiaries’ working capital needs. In addition, our having to raise equity or debt financing to repay the credit facility or obtaining a new credit facility may be on substantially worse terms than the current credit facility.

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 June 30, 2024, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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, 2023. These risks are not the only risks that we face. Additional risks not presently known to us or that we do not currently consider significant may also have an adverse effect on the Company. If any of the risks actually occur, our business, results of operations, cash flows or financial condition could suffer.