UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
for
the quarterly period ended
OR
for the transition period from ___ to ___
Commission
file number
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
| Registrant’s
telephone number, including area code: |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The
| ||||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s common stock outstanding as of August 14, 2024, was shares, which includes 67,723 shares of common stock authorized but unissued as of this date.
AMERICAN REBEL HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
| 2 |
Part I. Financial Information
Item 1.- Interim Condensed Consolidated Financial Statements (unaudited)
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2024 | December 31, 2023 | |||||||
| (audited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Prepaid expense | ||||||||
| Inventory | ||||||||
| Inventory deposits | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| OTHER ASSETS: | ||||||||
| Lease deposits and other | ||||||||
| Right-of-use lease assets | ||||||||
| Goodwill | ||||||||
| Total Other Assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and other payables | $ | $ | ||||||
| Accrued expenses | ||||||||
| Loans – Officer – related parties | ||||||||
| Loan – Director – related party | ||||||||
| Loans – Working capital | ||||||||
| Line of credit | ||||||||
| Right-of-use lease liabilities, current | ||||||||
| Total Current Liabilities | ||||||||
| Right-of-use lease liabilities, long-term | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT): | ||||||||
| Preferred stock, $ par value; shares authorized; , and issued and outstanding, respectively at June 30, 2024 and December 31, 2023 | ||||||||
| Series A Preferred Shares, shares authorized; and issued and outstanding, respectively, at June 30, 2024 and December 31, 2023 | ||||||||
| Series B Preferred Shares, shares authorized; and issued and outstanding, respectively, at June 30, 2024 and December 31, 2023 | ||||||||
| Series D Preferred Shares, shares authorized; and issued and outstanding, respectively, at June 30, 2024 and December 31, 2023 | ||||||||
| Common Stock, $ par value; shares authorized; issued and outstanding at June 30, 2024 and December 31, 2023 | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | $ | ||||||
See Notes to Financial Statements.
| 3 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the three months ended June 30, 2024 | For the three months ended June 30, 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Expenses: | ||||||||
| Consulting/payroll and other costs | ||||||||
| Compensation expense – officers – related party | ||||||||
| Compensation expense – officers – deferred comp – related party | ||||||||
| Rental expense, warehousing, outlet expense | ||||||||
| Product development costs | ||||||||
| Marketing and brand development costs | ||||||||
| Administrative and other | ||||||||
| Depreciation and amortization expense | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Employee retention credit funds, net of costs to collect | ||||||||
| Gain/(loss) on settlement of debt instrument | ( | ) | ||||||
| Gain/(loss) on sale of equipment | ||||||||
| ( | ) | |||||||
| Net income (loss) before income tax provision | ( | ) | ( | ) | ||||
| Provision for income tax | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted income (loss) per share | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||
See Notes to Financial Statements.
| 4 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the six months ended June 30, 2024 | For the six months ended June 30, 2023 | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross margin | ||||||||
| Expenses: | ||||||||
| Consulting/payroll and other costs | ||||||||
| Compensation expense – officers – related party | ||||||||
| Compensation expense – officers – deferred comp – related party | ||||||||
| Rental expense, warehousing, outlet expense | ||||||||
| Product development costs | ||||||||
| Marketing and brand development costs | ||||||||
| Administrative and other | ||||||||
| Depreciation and amortization expense | ||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Employee retention credit funds, net of costs to collect | ||||||||
| Gain/(loss) on settlement of debt instrument | ( | ) | ||||||
| Gain/(loss) on sale of equipment | ( | ) | ||||||
| ( | ) | |||||||
| Net income (loss) before income tax provision | ( | ) | ( | ) | ||||
| Provision for income tax | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Basic and diluted income (loss) per share | $ | ) | $ | ) | ||||
| Weighted average common shares outstanding - basic and diluted | ||||||||
See Notes to Financial Statements.
| 5 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)
| Common Stock | Common Stock Amount | Preferred Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||
| Balance – March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Sale of common stock | ||||||||||||||||||||||||
| Sale of pre-funded common stock warrants $ per share, exercise price of $ | - | |||||||||||||||||||||||
| Pre-funded common stock warrant offering costs and fees | - | ( | ) | ( | ) | |||||||||||||||||||
| Effect of reverse stock split – round lot shares of | ||||||||||||||||||||||||
| Post quarter effectuation of round lot share issuance | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss for the three months ending June 30, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance – March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Compensation component of vested and non-vested common stock equivalents attributable to Series A preferred stock – three (3) related parties | - | |||||||||||||||||||||||
| Issuance of Series D preferred stock through the settlement and conversion of an original Revenue Interest Purchase note payable of $ | - | |||||||||||||||||||||||
| Net loss for the three months ending June 30, 2024 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See Notes to Financial Statements.
| 6 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY/(DEFICIT)
| Common Stock | Common Stock Amount | Preferred Stock Amount | Additional Paid-in Capital | Accumulated Deficit | Total | |||||||||||||||||||
| Balance – December 31, 2022 (audited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Sale of common stock | ||||||||||||||||||||||||
| Sale of pre-funded common stock warrants $ per share, exercise price of $ | - | |||||||||||||||||||||||
| Pre-funded common stock warrant offering costs and fees | - | ( | ) | ( | ) | |||||||||||||||||||
| Effect of reverse stock split – round lot shares of | ||||||||||||||||||||||||
| Post quarter effectuation of round lot share issuance | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss for the six months ending June 30, 2023 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Balance – December 31, 2023 (audited) | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Compensation component of vested and non-vested common stock equivalents attributable to Series A preferred stock – three (3) related parties | - | |||||||||||||||||||||||
| Issuance of Series D preferred stock through the settlement and conversion of an original Revenue
Interest Purchase note payable of $ | - | |||||||||||||||||||||||
| Net loss for the six months ending June 30, 2024 | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance – June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See Notes to Financial Statements.
| 7 |
AMERICAN REBEL HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
| For the six months ended June 30, 2024 | For the six months ended June 30, 2023 | |||||||
| CASH FLOW FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | ||
| Depreciation and amortization | ||||||||
| (Gain)/loss on sale of equipment | ( | ) | ||||||
| Loss on settlement of debt | ||||||||
| Settlement of revenue interest purchase note through the issuance of preferred stock | ||||||||
| Recognition of deferred compensation attributable to convertibility of Series A preferred stock issued to three (3) related parties | ||||||||
| Adjustments to reconcile net loss to cash (used in) operating activities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Prepaid expenses | ||||||||
| Inventory, deposits and other | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Net Cash (Used in) Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOW FROM INVESTING ACTIVITIES: | ||||||||
| Disposition/(purchase) of fixed assets, net | ( | ) | ||||||
| Net Cash Provided by Investing Activities | ( | ) | ||||||
| CASH FLOW FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from the sale of common stock, net of offering costs | ||||||||
| Proceeds from the sale of prefunded warrants, net of offering costs | ||||||||
| Proceeds from initial drawdown of line of credit | ||||||||
| Proceeds from line of credit, net of payments | ( | ) | ||||||
| Proceeds from loans – officer - related parties, net | ||||||||
| Proceeds from loan – director - related party, net | ||||||||
| Proceeds from working capital loans | ||||||||
| Principal payments on working capital loans | ( | ) | ( | ) | ||||
| Net Cash Provided by Financing Activities | ||||||||
| CHANGE IN CASH | ( | ) | ||||||
| CASH AT BEGINNING OF PERIOD | ||||||||
| CASH AT END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash paid for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Note payable principal and interest associated with revenue interest purchase conversion - Series D preferred stock | $ | $ | ||||||
| Notes payable - related party principal increase from assessed interest obligations | $ | $ | ||||||
| Notes payable principal increase from assessed interest obligations | $ | $ | ||||||
See Notes to Financial Statements.
| 8 |
AMERICAN REBEL HOLDINGS, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2024
(unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The
Company was incorporated on
Nature of Operations
The Company develops and sells branded products in the beverage, self-defense, safe storage and other patriotic product areas using a wholesale distribution network, utilizing personal appearances, musical venue performances, as well e-commerce and television. The Company’s products are marketed under the American Rebel Brand and are proudly imprinted with such branding. Through its “Champion Entities” (which consists of Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC, and Champion Safe De Mexico, S.A. de C.V.) the Company promotes and sells its safe and storage products through a growing network of dealers, in select regional retailers and local specialty safe, sporting goods, hunting and firearms retail outlets, as well as through online avenues, including website and e-commerce platforms. The Company sells its products under the Champion Safe Co., Superior Safe Company and Safe Guard Safe Co. brands as well as the American Rebel Brand. On August 9, 2023, the Company entered into a Master Brewing Agreement (the “Brewing Agreement”) with Associated Brewing Company, a Minnesota limited liability company (“Associated Brewing”). Under the terms of the Brewing Agreement, Associated Brewing has been appointed as the exclusive producer and seller of American Rebel branded spirits, with the initial product being the American Rebel Light Beer (“American Rebel Beer”). We established American Rebel Beverages, LLC as a wholly-owned subsidiary to hold our licenses with respect to the beer business. American Rebel Beer launched regionally in 2024.
To varying degrees, the development of geopolitical conflicts, supply chain disruptions, government actions to slow rapid inflation in recent years and predictable sales cycles have produced varying effects on our business. The economic effects from these events over the long term cannot be reasonably estimated at this time. Accordingly, estimates used in the preparation of our financial statements, including those associated with the evaluation of certain long-lived assets, goodwill and other intangible assets for impairment, expected credit losses on amounts owed to us (through accounts receivable) and the estimations of certain losses assumed under warranty and other liability contracts, may be subject to significant adjustments in future periods.
Interim Financial Statements and Basis of Presentation
The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the SEC set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by the U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read along with the Annual Report filed on Form 10-K of the Company for the period ended December 31, 2023, and notes thereto contained, filed on April 12, 2024.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, American Rebel, Inc., American Rebel Beverages, LLC, and the Champion Entities. All significant intercompany accounts and transactions have been eliminated.
Year-end
The Company’s year-end is December 31.
| 9 |
Cash and Cash Equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Inventory and Inventory Deposits
Inventory consists of beer, backpacks, jackets, safes, other storage products and accessories manufactured to our design and held for resale and are carried at the lower of cost (First-in, First-out Method) or net realizable value. The Company determines an estimate for the reserve of slow moving or obsolete inventories by regularly evaluating individual inventory levels, projected sales and current economic conditions. The Company makes deposit payments on certain inventory to be manufactured that are carried separately until the manufactured goods are received into inventory.
Fixed Assets and Depreciation
Property
and equipment are stated at cost, net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance
and repair expenditures are charged to expense as incurred. Depreciation is recorded using the straight-line method over the estimated
useful life of the asset, which ranges from to
Revenue Recognition
In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: (1) Identify the contract with a client; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to performance obligations in the contract; and (5) Recognize revenues when or as the company satisfies a performance obligation.
These steps are met when an order is received, a price is agreed to, and the product is shipped or delivered to that customer.
The following table sets forth the approximate percentage of revenue by primary category:
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||
| Percentage of revenue | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Safes | % | % | % | % | ||||||||||||
| Soft goods | % | % | % | % | ||||||||||||
| Beverages | % | % | % | % | ||||||||||||
| Total | % | % | % | % | ||||||||||||
Accounts receivable
totaled $
The carrying amount of accounts receivables is reduced by a valuation allowance for expected credit losses, as necessary, that reflects management’s best estimate of the amount that will not be collected. This estimation takes into consideration historical experience, current conditions and, as applicable, reasonable supportable forecasts. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. The allowance for doubtful accounts was not material as of June 30, 2024 and December 31, 2023.
Advertising Costs
Advertising
costs are expensed as incurred; Marketing costs which we consider to be advertising costs incurred were $
Convertible Promissory Notes
The Company accounts for convertible promissory notes under ASC Topic 815, Derivatives and Hedging (“ASC 815”). Under ASC 815-15-25, the election can be made at the inception of a financial instrument to account for the instrument under the fair value option under ASC 815. The Company has not made any such elections for its promissory notes that may be convertible in the event of default (see Note 7 – Notes Payable – Working Capital). Using fair value option, the convertible promissory note would be required to be recorded at its initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the notes are recognized as non-cash change in the fair value of the convertible promissory note in the condensed consolidated statements of operations. The fair value of the option to convert into common stock would be valued utilizing either the Monte Carlo model or Black Scholes pricing model.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the condensed consolidated balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Fair Value of Financial Instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2024, and December 31, 2023, respectively. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, accounts receivable, and accounts payable, and the line of credit. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Fair value is defined as the exchange value that would be received on the measurement date to sell an asset or to value the amount paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. The three levels of the fair value hierarchy are as follows:
Level 1: Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 1 inputs provide the most reliable measure of fair value as of the measurement date.
| 10 |
Level 2: Inputs are based on significant observable inputs, including unadjusted quoted market prices for similar assets and liabilities in active markets, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3: Inputs are significant unobservable inputs for the asset or liability.
The level of the fair value hierarchy within which the fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The Company records stock-based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expense related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.
Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by ASC 260, Earnings per Share. Basic losses per common share (“EPS”) calculations are determined by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share calculations are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. Dilutive common share equivalents are negligible or immaterial as dilutive shares to be issued during net loss years were non-existent. For the three months and six months ended June 30, 2024, and June 30, 2023, net loss per share was $ and $ (for 2024), and $ and $ (for 2023), respectively.
Fully diluted shares outstanding is the total number of shares that the Company would theoretically have if all dilutive securities were exercised and converted into shares. Dilutive securities include options, warrants, convertible debt, preferred stock and anything else that can be converted into shares. Potential dilutive shares consist of the incremental common shares issuable upon the exercise of dilutive securities, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.
Income Taxes
The Company follows ASC Topic 740 for recording provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the changes in the asset or liability for each period. If available evidence suggests that it is more likely than not that some portion or the entire deferred tax asset will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income tax in the period of change.
Deferred income tax may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.
| 11 |
The
Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of
tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities. As of June
30, 2024, and December 31, 2023, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax
positions with
The Company classifies tax-related penalties and net interest as income tax expense. For the three and six-month periods ended June 30, 2024, and 2023, respectively, income tax benefit has been recorded due to the recognition of a full valuation allowance.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Warranties
The
Company’s safe manufacturing business estimates its exposure to warranty claims based on both current and historical (with
respect to the Champion Entities) product sales data and warranty costs (actual) incurred. The Company assesses the adequacy of its
recorded warranty liability each quarter and adjusts the amount as necessary. Warranty liability is included in our accrued expense
accounts in the accompanying condensed consolidated balance sheets. We estimate that the warranty liability is nominal or negligible
based on the superior quality of products and our excellent customer relationships. Warranty liability recorded as of June 30, 2024
and December 31, 2023 was approximately $
Right of Use Assets and Lease Liabilities
ASC 842, Leases requires lessees to recognize almost all leases on the balance sheet as a Right-of-use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.
Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.
Operating leases are included in operating lease Right-of-use assets and operating lease liabilities, current and non-current, on the Company’s condensed consolidated balance sheets.
Recent Pronouncements
The Company evaluated recent accounting pronouncements through June 30, 2024, and believes that none have a material effect on the Company’s financial statements.
| 12 |
Concentration Risks
Prior
to the closing of the Champion Entities in 2022, the Company purchased a substantial portion (over
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
NOTE 2 – GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the
recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is in the
growth and acquisition stage and, accordingly, has not yet reached profitability from its operations. Since inception, the Company has
been engaged in financing activities and executing its plan of operations and incurring costs and expenses related to product development,
branding, inventory buildup and product launch. As a result, the Company has continued to incur significant net losses for the six months
ended June 30, 2024, and 2023 of ($
The
ability of the Company to continue as a going concern is dependent upon its ability to raise capital from the sale of its equity and,
ultimately, the achievement of significant operating revenues and profitability. The Company is currently conducting a Reg. A+ offering
on Form 1-A that became effective on March 13, 2024. Total amount to be sought under this Reg. A+ offering is approximately $
Management believes that sufficient funding can be secured through the obtaining of loans, as well as future offerings of its preferred and common stock. However, no assurance can be given that the Company will obtain this additional working capital, or if obtained, that such funding will not cause substantial dilution to its existing stockholders. As indicated in our footnotes to our consolidated financial statements, most of our current debt instruments are charging high interest rates. These interest payments and/or premium repayments and prepayments may make it difficult for us to enter into new debt agreements. If the Company is unable to secure such additional funds from these sources, it may be forced to change or delay some of its business objectives and efforts. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
NOTE 3 – INVENTORY AND DEPOSITS
Inventory and deposits include the following:
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Inventory – Finished Goods and Work in Progress | $ | $ | ||||||
| Inventory – Raw Materials | ||||||||
| Total Inventory | $ | $ | ||||||
The Company accounts for excess or obsolete inventory with a reserve that is established based on management’s estimates of the net realizable value of the related products. These reserves are product specific and are based upon analyses of product lines that are slow moving or expected to become obsolete due to significant product enhancements.
Included
in inventory – finished goods and work in progress is approximately $
When
inventory is physically disposed of, we account for the write-offs by making a debit to the reserve and a credit to inventory for
the standard cost of the inventory item. Our valuation reserve is applied as an estimate to specific product lines. Since the
inventory item retains its standard cost until it is either sold or written off, the reserve estimates will differ from the actual
write-off. There were
| 13 |
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment include the following:
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Plant, property and equipment | $ | $ | ||||||
| Vehicles | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| Net property and equipment | $ | $ | ||||||
For
the three-month and six-month periods ended June 30, 2024 and 2023 we recognized $
NOTE 5 – RELATED PARTY NOTES PAYABLE AND RELATED PARTY TRANSACTIONS
Charles
A. Ross, Jr. serves as the Company’s Chief Executive Officer. Compensation for Mr. Ross was $
Both
Messrs. Ross and Grau serve as the Company’s Chief Executive Officer and President, respectively. Compensation for both, Messrs.
Ross and Grau, includes a base salary and a bonus based upon certain performance measures approved by the board of directors. Three of
our officers lent the Company approximately $
Corey
Lambrecht serves as the Company’s Chief Operating Officer. Mr. Lambrecht and the Company entered into an employment agreement
on November 20, 2023. Mr. Lambrecht’s employment agreement provides for an initial annual base salary of $
The Company in connection with its employment agreements, as amended, reserved for issuance of shares of its common stock that are convertible under the Series A preferred stock conversion terms.
Per
Mr. Lambrecht’s employment agreement entered into on November 20, 2023, the share-award grant is to vest 1/4th upon
the signing of Mr. Lambrecht’s employment, another 1/4th on January 1, 2024, another 1/4th on January 1,
2025 and the remaining 1/4th on January 1, 2026. Mr. Lambrecht’s employment agreement has a term running from November
20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company on November 20, 2023 for Mr. Lambrecht recognized $
Per
Mr. Ross’s amended employment agreement with an effective date of November 20, 2023, the already issued or existing share-award
grant is to vest 1/5th on January 1, 2024, another 1/5th on January 1, 2025, 1/5th on January 1, 2026,
1/5th on January 1, 2027 and the remaining 1/5th on January 1, 2028. Mr. Ross’s amended employment agreement
has an effective term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company on October
31, 2023 for Mr. Ross recognized $
| 14 |
Per
Mr. Grau’s amended employment agreement with an effective date of November 20, 2023, the already issued or existing share-award
grant is to vest 1/5th on January 1, 2024, another 1/5th on January 1, 2025, 1/5th on January 1, 2026,
1/5th on January 1, 2027 and the remaining 1/5th on January 1, 2028. Mr. Grau’s amended employment agreement
has an effective term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company on October
31, 2023 for Mr. Grau recognized $
The Company in connection with various employment and independent directors’ agreements is required to issue shares of its common stock as payment for services performed or to be performed. The value of the shares issued is determined by the fair value of the Company’s common stock that trades on the Nasdaq Capital Market. This value on the date of grant is afforded to the Company for the recording of stock compensation to employees and other related parties or control persons and the recognition of this expense over the period in which the services were incurred or performed. Most of the Company’s agreement for stock compensation provide for services performed to have been satisfied by the initial grant, thereby incurring the cost immediately from the grant.
Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, the Company is required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations. Where the stock-based compensation is not an award, option, warrant or other common stock equivalent, the Company values the shares based on fair value with respect to its grant date and the price that investors may have been paying for the Company’s common stock on that date in its various exempt private placement offerings.
Taxable value of the stock-based compensation is recorded in accordance with the Internal Revenue Service’s regulations as it pertains to employees, control persons and others whereby they receive share-based payments. This may not always align with what the Company records these issuances in accordance with GAAP. There are no provisional tax agreements or gross-up provisions with respect to any of our share-based payments to these entities. The payment or withholding of taxes is strictly left to the recipient of the share-based payments, or the modification of share-based payments.
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Working capital loan with a director of the Company on June 28, 2024. The prepayment or purchase price prior to July 31, 2024 is | ||||||||
| Total recorded as a current liability | $ | $ | ||||||
On
June 28, 2024, the Company entered into a short-term loan with a director, Lawrence Sinks (“Mr. Sinks”), evidenced by a promissory
note in the principal amount of $
NOTE 6 – LINE OF CREDIT – FINANCIAL INSTITUTION
During
February 2023, the Company entered into a $
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Line of credit from a financial institution. | $ | $ | ||||||
| Total recorded as a current liability | $ | $ | ||||||
As of June 30, 2024 and December 31, 2023 the total balance due of $
| 15 |
Initially
the Company drew down on the LOC in the amount of $
The
maturity date on the LOC was initially extended by Bank of America to April 30, 2024. The balance at the maturity was approximately $
NOTE 7 – NOTES PAYABLE – WORKING CAPITAL
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Working capital
loans with an irrevocable trust established in the state of Georgia, which assumed a previous loan held by a different limited liability
company in the amount of $ | ||||||||
| Working capital loan agreement with a limited liability company domiciled in the state of Virginia. The working capital loan requires an initial payment of $ | ||||||||
| Working capital loan agreement with a limited liability company domiciled in the state of Virginia. The working capital loan requires an initial payment of $ | ||||||||
| Working capital loan agreement with a limited liability company domiciled in the state of Delaware. The working capital loan requires an initial payment of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation
interest”) with a corporate entity domiciled in the state of California. The working capital loan provided for a purchase of an
ownership interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation
interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership
interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation
interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership
interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation
interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership
interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation
interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership
interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation
interest”) with a limited liability company domiciled in the state of Colorado. The working capital loan provided for a purchase
of an ownership interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement structured as a Revenue Interest Purchase Agreement (“revenue participation
interest”) with an individual domiciled in the state of California. The working capital loan provided for a purchase of an ownership
interest in the revenues of our Champion subsidiary. The revenue participation interest requires payments of $ | ||||||||
| Working capital loan agreement with a limited liability company domiciled in the state of New York. The working capital loan is secured by all the assets of the Company that is not secured by the first priority interest of the major financial institution line of credit facility as well as a personal guaranty by our Chief Executive Officer, Mr. Charles A Ross. The working capital loan requires payments of $ | ||||||||
| Working capital loan agreement with a limited liability company domiciled in the state of New York. The working capital loan is secured by all the assets of the Company that is not secured by the first priority interest of the major financial institution line of credit facility as well as a personal guaranty by our Chief Executive Officer, Mr. Charles A Ross. The working capital loan requires payments of $ | ||||||||
| Working capital loan agreement with a limited liability company domiciled in the state of New York. The working capital loan is secured by all the assets of the Company that is not secured by the first priority interest of the major financial institution line of credit facility as well as a personal guaranty by our Chief Executive Officer, Mr. Charles A Ross (Secured Loan #1). The working capital loan requires payments of $ | ||||||||
| $ | $ | |||||||
| Total recorded as a current liability | $ | $ | ||||||
| 16 |
At
June 30, 2024, and December 31, 2023, the outstanding balance due on all of the working capital notes payable was $
NOTE 8 – GOODWILL AND ACQUISITION OF THE CHAMPION ENTITIES
Goodwill
Goodwill is initially recorded as of the acquisition date, and is measured as any excess of the purchase price over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized, but rather is subject to impairment testing annually (on the first day of the fourth quarter), or between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. We first perform a qualitative assessment to evaluate goodwill for potential impairment. If based on that assessment it is more likely than not that the fair value of the reporting unit is below its carrying value, a quantitative impairment test is necessary. The quantitative impairment test requires determining the fair value of the reporting unit. We use the income approach, whereby we calculate the fair value based on the present value of estimated future cash flows using a discount rate that approximates our weighted average cost of capital. The process of evaluating the potential impairment of goodwill is subjective and requires significant estimates and assumptions about the future such as sales growth, gross margins, employment costs, capital expenditures, inflation and future economic and market conditions. Actual future results may differ from those estimates. If the carrying value of the reporting unit’s assets and liabilities, including goodwill, exceeds its fair value, impairment is recorded for the excess, not to exceed the total amount of goodwill allocated to the reporting unit.
As
of June 30, 2024 and December 31, 2023, we had goodwill of $
The
Company will review its goodwill for impairment periodically (based on economic conditions) and determine whether impairment is to be
recognized within its consolidated statement of operations.
NOTE 9 – INCOME TAXES
At
June 30, 2024 and December 31, 2023, the Company had a net operating loss carry forward of $
Components of net deferred tax asset, including a valuation allowance, are as follows:
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Deferred tax asset: | ||||||||
| Net operating loss carryforward | $ | $ | ||||||
| Total deferred tax asset | ||||||||
| Less: Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
Valuation
allowance for deferred tax assets as of June 30, 2024, and December 31, 2023, was $
Reconciliation between the statutory rate and the effective tax rate for both periods and as of June 30, 2024 and December 31, 2023:
| Federal statutory rate | ( | )% | ||
| State taxes, net of federal benefit | ( | )% | ||
| Change in valuation allowance | % | |||
| Effective tax rate | % |
On August 16, 2022, the Inflation Reduction Act of 2022 (“the 2022 act”) was signed into law. The 2022 act contains numerous provisions, including a 15% corporate alternative minimum income tax on “adjusted financial statement income”, expanded tax credits for clean energy incentives and a 1% excise tax on corporate stock repurchases. The provisions of the 2022 act become effective for tax years beginning after December 31, 2023. On December 27, 2022, the IRS and Department of Treasury issued initial guidance for taxpayers subject to the corporate alternative minimum tax. The guidance addresses several, but not all, issues that needed clarification. The IRS and Department of Treasury intend to release additional guidance in the future. We will continue to evaluate the impact of the 2022 act as more guidance becomes available. We currently do not expect an impact on our consolidated financial statements.
| 17 |
NOTE 10 – SHARE CAPITAL
The Company is authorized to issue shares of its $ par value common stock and shares of its $ par value preferred stock. At June 30, 2024, the shares of $ par value preferred stock were comprised of shares authorized and shares issued and outstanding of its Series A convertible preferred stock, shares authorized and shares issued and outstanding of its Series B convertible preferred stock, shares authorized and shares issued and outstanding of its Series C convertible preferred stock, and shares authorized and shares issued and outstanding of its Series D convertible preferred stock.
On
June 27, 2023, the Company effectuated a reverse split of its issued and outstanding shares of common stock at a ratio of
On April 23, 2024, the Company received notice from Nasdaq indicating that, while the Company has not regained compliance with the Bid Price Requirement, Nasdaq has determined that the Company is eligible for an additional 180-day period, or until October 21, 2024, to regain compliance. According to the notification from Nasdaq, the staff’s determination was based on (i) the Company meeting the continued listing requirement for market value of its publicly held shares and all other applicable Nasdaq initial listing standards, with the exception of the minimum bid price requirement, and (ii) the Company’s written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If at any time during this second 180-day compliance period, the closing bid price of the common stock is at least $ per share for a minimum of 10 consecutive business days, Nasdaq will provide the Company with written confirmation of compliance. If compliance cannot be demonstrated by October 21, 2024, Nasdaq will provide written notification that the common stock will be delisted. At that time, the Company may appeal Nasdaq’s determination to a Hearings Panel.
On April 24, 2024, the Company received notice from Nasdaq indicating that Staff determined to grant the Company an extension until June 15, 2024 to regain compliance with the rule by holding an annual meeting of shareholders. At the annual meeting, shareholders must be afforded the opportunity to discuss company affairs with management and, if required by the company’s governing documents, to elect directors. The Company expects to hold an annual meeting within such timeframe. While the compliance plan is pending, the Company’s securities will continue to trade on NASDAQ.
On May 3, 2024, the Securities and Exchange Commission (the “Commission”) entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC (“Borgers”) and its sole audit partner, Benjamin F. Borgers CPA, permanently barring Mr. Borgers and Borgers (collectively, “BF Borgers”) from appearing or practicing before the Commission as an accountant (the “Order”). As a result of the Order, BF Borgers may no longer serve as the Company’s independent registered public accounting firm, nor can BF Borgers issue any audit reports included in Commission filings or provide consents with respect to audit reports.
On May 3, 2024, the Company dismissed BF Borgers as its independent registered public accounting firm. The Company’s audit committee unanimously approved the decision to dismiss BF Borgers.
The Company is required to re-audit its financial statements for the years ending December 31, 2022 and 2023. The Company and its auditors are in process of completing these audits for the two years described above and if any changes to the financial statements are needed to be made the Company will issue a non-reliance notice to the public on Current Report on Form 8-K. No report is needed as of the date of this Report.
Common Stock and Preferred Stock
For
the month of June 2023, the following transactions occurred: On June 27, 2023, we entered into a PIPE transaction with Armistice Capital
for the purchase and sale of $
| 18 |
Pursuant to the PIPE transaction shares of common stock were issued to Armistice Capital. The 2023 Prefunded Warrants held by Armistice Capital were not exercised for the month of July.
For the month of September 2023, the following transactions occurred: On September 8, 2023, the Company, entered into an inducement offer letter agreement (the “Inducement Letter”) with Armistice Capital the holders of existing common stock purchase warrants to purchase shares of common stock of the Company. The existing common stock purchase warrants were issued on July 8, 2022 and June 28, 2023 and had an exercise price of $ and $, respectively per share.
Pursuant
to the Inducement Letter, Armistice Capital agreed to exercise for cash their existing common stock purchase warrants to purchase an
aggregate of
On
September 8, 2023,
Shares Reserved for Issuance Pursuant to Certain Executive Employment Agreements
The Company in connection with its employment agreement with Messrs. Ross, Grau and Lambrecht reserved for issuance shares of its common stock that are convertible under the Series A preferred stock. Per Mr. Lambrecht’s employment agreement entered into on November 20, 2023, . The Company values the shares granted and earned out, as well as the additional shares granted but not earned out in accordance with ASC 718 and employee share-awards. Market value for the Company’s publicly traded stock at the time of grant for Mr. Lambrecht’s shares was $.
| 19 |
Per Mr. Ross’s amended employment agreement with an effective date of November 20, 2023, The Company values the shares granted and earned out, as well as the additional shares granted but not earned out in accordance with ASC 718 and employee share-awards. Market value for the Company’s publicly traded stock at the time of modification of the terms of the Series A preferred stock for Mr. Ross’s shares was $.
Per Mr. Grau’s amended employment agreement with an effective date of November 20, 2023, The Company values the shares granted and earned out, as well as the additional shares granted but not earned out in accordance with ASC 718 and employee share-awards. Market value for the Company’s publicly traded stock at the time of modification of the terms of the Series A preferred stock for Mr. Grau’s shares was $.
Shares Issued as Compensation
The Company in connection with various consulting and advisory agreements is required to issue shares of its common stock. The value of the shares issued is determined by the fair value of the Company’s common stock that trades on the Nasdaq Capital Market. This value on the date of grant is afforded to the Company for the recording of stock compensation to non-employees and the recognition of this expense over the period in which the services were incurred or performed. Most of the Company’s agreement for stock compensation provide for services to have been satisfied upon the initial grant, thereby incurring the cost immediately from the grant.
Stock-based compensation is presented in accordance with the guidance of ASC 718. Under the provisions of ASC 718, the Company is required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations. Where the stock-based compensation is not an award, option, warrant or other common stock equivalent, the Company values the shares based on fair value with respect to its grant date and the price that investors may have been paying for the Company’s common stock on that date in its various exempt private placement offerings.
Modified Terms of Series A Preferred Stock
On October 31, 2023, the Company board of directors approved amending and restating the certificate of designation of the Company’s Series A Convertible Preferred Stock to increase the number of shares from to and to allow for the conversion of the Series A Preferred Stock under certain circumstances and vesting requirements. Based on the vesting schedule afforded to the holders of the Series A Preferred Stock, shares of common stock could be issued upon the conversion of shares of Series A Preferred Stock as of December 31, 2023, and immediately subsequent to December 31, 2023, another shares of common stock could be issued upon the conversion of shares of Series A Preferred Stock on January 1, 2024. The conversion of the Series A Preferred Stock is at the discretion of the holder unless there are special circumstances. The Company will recognize the stock compensation expense attributable to each awarded employee over the vesting term.
| 20 |
New Preferred Stock Series and Designations and Reg. A+ Offering
On November 3, 2023, the Company’s board of directors approved the designation of a new Series C Convertible Cumulative Preferred Stock (the “Series C Designation”).
The
Company filed a registration statement on Form 1-A offering up to
shares of Series C Preferred Stock, at an offering price of $
per share, for a maximum offering amount of $
On May 10, 2024, the Company’s board of directors approved the designation of a new Series D Convertible Preferred Stock (the “Series D Designation”). The Series D Designation was filed by the Company with the Secretary of State of Nevada on May 10, 2024, and designated shares of Series D Preferred Stock, $ par value per share. The Series D Preferred Stock has the following rights:
Stated Value. Each share of Series D Preferred Stock has an initial stated value of $, subject to appropriate adjustment in relation to certain events, such as recapitalizations, stock dividends, stock splits, stock combinations, reclassifications or similar events affecting the Series D Preferred Stock.
Conversion
at Option of Holder. Each share of Series D Preferred Stock shall be convertible into shares of Common Stock at a fixed price
per share of $ (1 share of Series C Preferred Stock converts into shares of Common Stock), at the option of the holder thereof,
at any time following the issuance date of such share of Series D Preferred Stock at the Company’s office or any transfer agent
for such stock. The conversion price ($
Forced Conversion – If the closing price of the Company’s Common Stock during any ten consecutive trading day period has been at or above $ per share (as adjusted for stock splits, stock dividends recapitalizations and similar events), then the Company shall have the right to require the holder of the Series D Preferred Stock to convert all, or any portion of, the shares of Series D Preferred Stock held by such holder for shares of Common Stock. If the Company elects to cause a forced conversion of the shares of Series D Preferred Stock, then it must simultaneously take the same action with respect to all of the other shares of Series D Preferred Stock then outstanding on a pro rata basis.
Voting Rights. The Series D Preferred Stock has no voting rights relative to matters submitted to a vote of the Company’s stockholders (other than as required by law). The Company may not amend its articles of incorporation or the Series D Designation (whether by merger, consolidation, or otherwise) to materially and adversely change the rights, preferences or voting power of the Series D Preferred Stock without the affirmative vote of at least two-thirds of the votes entitled to be cast on such matter by holders of the Company’s outstanding shares of Series D Preferred Stock, voting together as a class.
Conversion of Revenue Interest Loan for Preferred Stock Series D and Potential Issuance of Common Stock Equivalents from the Conversion of Series D
On
May 13, 2024 the Company and the holder of the Revenue Interest Loan #1 entered into a settlement and conversion agreement
(“Securities Exchange Agreement”) whereby the Company is to issue a certain number of shares of Series D convertible
preferred stock as full satisfaction for the revenue participation interest agreement or loan. The Series D convertible preferred
stock was purchased at $
per share. Total loan balance and premium payment for inducement for Revenue Interest Loan #1 on the date of settlement and
conversion was $
| 21 |
The Company issued one hundred thirty-three thousand three hundred thirty-four () shares of the Series D Preferred Stock. The Securities Exchange Agreement is intended to be effected as an exchange of securities issued by the Company pursuant to Section 3(a)(9) of the Securities Act. For the purposes of Rule 144, the Company acknowledges that the holding period of the Securities Exchange Agreement (and upon conversion thereof, if any, into shares of the Company’s common stock) may be tacked onto the holding period of the Series D Preferred Stock received by the holder. The Company agrees not to take a position contrary to this unless required by regulatory authorities and their determination to the contrary.
At June 30, 2024 and December 31, 2023, there were and shares of common stock issued (which includes reserved for) and outstanding, respectively; and and shares of Series B preferred stock issued and outstanding, respectively, and and shares of its Series A preferred stock issued and outstanding, respectively; and and shares of its Series D preferred stock issued and outstanding, respectively. No Series C preferred stock was issued or outstanding at June 30, 2024 or December 31, 2023.
As
of June 30, 2024, no Prefunded Warrants remained issued and outstanding with respect to the July PIPE transaction. The Prefunded Warrants
were purchased in their entirety by the holders of the warrants for $
Calvary
Fund exercised all of its Calvary Warrants by November 30, 2022 requiring the payment of an additional $
Along
with the Prefunded Warrants the PIPE investors were issued immediately exercisable warrants to purchase up to
| 22 |
On
June 27, 2023, we entered into a PIPE transaction with Armistice Capital for the purchase and sale of $ of securities, consisting
of (i) shares of common stock at $ per share, (ii) prefunded warrants (the “2023 Prefunded Warrants”) that are
exercisable into
On
September 8, 2023, the Company, entered into an inducement offer letter agreement with Armistice Capital the holders of existing common
stock purchase warrants to purchase shares of common stock of the Company. The existing common stock purchase warrants were issued on
July 8, 2022 and June 28, 2023 and had an exercise price of $
Pursuant
to the Inducement Letter, Armistice Capital agreed to exercise for cash their existing common stock purchase warrants to purchase an
aggregate of
Along
with the Prefunded Warrants the previous year’s PIPE investors were issued immediately exercisable warrants to purchase up to
As
of June 30, 2024 and December 31, 2023, there were
The Company evaluates outstanding warrants as derivative liabilities and will recognize any changes in the fair value through earnings. The Company determined that the warrants have an immaterial fair value at December 31, 2023 and June 30, 2024. The warrants do not trade in a highly active securities market, and as such, the Company estimated the fair value of these common stock equivalents using Black-Scholes and the following assumptions:
| 23 |
Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term which due to their maturity period as expiry, it was three years. The Company had no reason to believe future volatility over the expected remaining life of these common stock equivalents was likely to differ materially from historical volatility. Expected life was based on three years due to the expiry of maturity. The risk-free rate was based on the U.S. Treasury rate that corresponded to the expected term of the common stock equivalents.
| June 30, 2024 | December 31, 2023 | |||||||
| (unaudited) | (audited) | |||||||
| Stock Price | $ | $ | ||||||
| Exercise Price | $ | $ | ||||||
| Term (expected in years) | ||||||||
| Volatility | % | % | ||||||
| Annual Rate of Dividends | % | % | ||||||
| Risk Free Rate | % | % | ||||||
Stock Purchase Warrants
| Shares | Weighted- Average Exercise Price Per Share | Remaining term | Intrinsic value | |||||||||||||
| Outstanding and Exercisable at December 31, 2022 (audited) | $ | years | ||||||||||||||
| Granted | $ | years | ||||||||||||||
| Granted in Debt Conversion | $ | years | - | |||||||||||||
| Granted Prefunded Warrants | $ | years | - | |||||||||||||
| Granted in PIPE transaction | $ | * | years | - | ||||||||||||
| Exercised | ( | ) | $ | years | - | |||||||||||
| Expired | - | - | ||||||||||||||
| Outstanding and Exercisable at December 31, 2023 (audited) | $ | years | ||||||||||||||
| Granted | $ | - | ||||||||||||||
| Exercised | $ | - | ||||||||||||||
| Expired | $ | - | ||||||||||||||
| Outstanding and Exercisable at June 30, 2024 (unaudited) | $ | years | ||||||||||||||
| - |
| 24 |
NOTE 12 – LEASES AND LEASED PREMISES
Rental Payments under Non-cancellable Operating Leases and Equipment Leases
The Company through its purchase of Champion acquired several long-term (more than month-to-month) leases for two manufacturing facilities, three office spaces, five distribution centers and five retail spaces. Four of its distribution centers also have retail operations for which it leases its facilities. Lease terms on the various spaces’ expiry from a month-to-month lease (30 days) to a long-term lease expiring in September of 2028.
Rent
expense for operating leases totaled approximately $
The Company does not have any equipment leases whereby we finance this equipment needed for operations at competitive finance rates. New equipment to be financed in the near term, if necessary, may not be obtainable at competitive pricing with increasing interest rates.
Right of Use Assets and Lease Liabilities
Lease expense for operating leases consists of the lease payments plus any initial direct costs, net of lease incentives, and is recognized on a straight-line basis over the lease term.
The
Company’s operating leases are comprised primarily of facility leases and as such we have no finance leases for our vehicles or
equipment currently at this time. The Company added approximately $
Balance sheet information related to our leases is presented below:
| Balance Sheet location | June 30, 2024 | December 31, 2023 | ||||||||
| (unaudited) | (unaudited) | |||||||||
| Operating leases: | ||||||||||
| Right-of-use lease assets | $ | $ | ||||||||
| Right-of-use lease liability, current | Other current liabilities | |||||||||
| Right-of-use lease liability, long-term | Right-of-use operating lease liability | |||||||||
| 25 |
Other information related to leases is presented below:
| Six Months Ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| (unaudited) | (unaudited) | |||||||
| Cash Paid for Amounts Included in Measurement of Liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Weighted Average Remaining Lease Term: | ||||||||
| Operating leases | ||||||||
| Weighted Average Discount Rate: | ||||||||
| Operating leases | % | % | ||||||
The minimum future annual payments under non-cancellable leases during the next five years and thereafter, at rates now in force, are as follows:
| Operating leases | ||||
| July 1, 2024 – June 30, 2025 | $ | |||
| July 1, 2025 – June 30, 2026 | ||||
| July 1, 2026 – June 30, 2027 | ||||
| July 1, 2027 – June 30, 2028 | ||||
| July 1, 2028 – June 20, 2029 | ||||
| Thereafter | ||||
| Total future minimum lease payments, undiscounted | ||||
| Less: Imputed interest | ( | ) | ||
| Present value of future minimum lease payments | $ | |||
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
Various claims and lawsuits, incidental to the ordinary course of our business, may be brought against the Company from time-to-time. In the opinion of management, and after consultation with legal counsel, resolution of any of these matters (of which there are none) is not expected to have a material effect on the condensed consolidated financial statements.
Contractual Obligations
The
Company does not believe there are any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect
on the condensed consolidated financial statements. As of June 30, 2024 and December 31, 2023 there were
Executive Employment Agreements and Independent Contractor Agreements
The Company has written employment agreements with various other executive officers. All payments made to its executive officers and significant outside service providers are analyzed and determined by the board of directors’ compensation committee; some payments made to independent contractors (or officer payments characterized as non-employee compensation) may be subject to backup withholding or general withholding of payroll taxes, may make the Company responsible for the withholding and remittance of those taxes. Generally outside service providers are responsible for their own withholding and payment of taxes. Certain state taxing authorities may otherwise disagree with that analysis and Company policy.
| 26 |
NOTE 14 – OTHER INCOME – EMPLOYEE RETENTION CREDIT
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 preparation
of tax filings for (tax) credits available under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). During
the year ended December 31, 2023, the Company received approximately $
NOTE 15 – SUBSEQUENT EVENTS
The Company evaluated all events that occurred after the balance sheet date of June 30, 2024, through the date the financial statements were issued and determined that there were the following subsequent events:
The
maturity date on the Champion line of credit was initially extended by Bank of America to April 30, 2024. The balance at the maturity
date was approximately $
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 $
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 $
On July 10, 2024, the Company entered into a Conversion
Agreement (the “Conversion Agreement”) with Series D convertible preferred stock holder, pursuant to which the holder agreed
to convert the shares of Series D convertible preferred stock it held into shares of common stock, par value $
As
a result of the July 10, 2024 conversion of Series D convertible preferred stock, the exercise price of
On July 22, 2024, the Company and an accredited investor
lending source entered into an agreement whereby $