ITEM
1. BUSINESS
Recent
Events
Reverse
Stock Split
On
February 7, 2022, we effectuated a reverse split of our issued and outstanding shares of Common Stock at a ratio of 1-for-80. The share
numbers and pricing information in this annual report are adjusted to reflect the reverse stock split.
Public
Offering and Uplisting to Nasdaq
On
February 9, 2022, we closed on an underwritten public offering of 2,530,121 units (the “Common Units”), at a price to the
public of $4.15 per Common Unit, for aggregate gross proceeds of approximately $10.5 million, prior to deducting underwriting discounts,
commissions, and other estimated offering expenses. Each Common Unit consisted of one share of Common Stock and one warrant to purchase
one share of Common Stock (each a “Warrant” and collectively the “Warrants”). The Common Stock
and Warrants were immediately separable from the Common Units and were issued and trade separately. The Warrants are exercisable immediately,
expire five years from the date of issuance and have an exercise price of $5.1875 per share.
We
intend to use the net proceeds from this offering to repay various outstanding indebtedness and for general corporate purposes, including
working capital, increased research and development expenditures and funding our growth strategies.
The
shares of Common Stock and Warrants were approved to list on the Nasdaq Capital Market under the symbols “AREB”
and “AREBW,” respectively, and began trading on February 7, 2022.
Second
Amended and Restated Articles of Incorporation
Effective
January 20, 2022, we amended and restated our articles of incorporation (the “Second Amended
and Restated Articles”) through a filing with the Nevada Secretary of State.
The
Second Amended and Restated Articles provide modifications to: (i) adopt a forum selection provision (Article XIII) to require that any
or all internal corporate claims, including claims made in the right of the corporation, shall be brought solely and exclusively in any
or all of the courts of the State of Nevada; (ii) adopt a severability provision (Article XIV); and (c) restate the Articles of Incorporation.
The
Second Amended and Restated Articles were approved by written
consent of holders of shares of the Common Stock and Series A Preferred Stock, representing, at the time, approximately 62.35% of the
outstanding voting power of the Company and by unanimous consent of our board of directors.
The
foregoing summary is qualified in its entirety by reference to the Second Amended and Restated Articles, which are filed as Exhibit 3.4
to this annual report and incorporated by reference herein.
Amended
and Restated Bylaws
On
January 25, 2022, our Board of Directors, acting by unanimous written consent, approved certain
amendments to our Bylaws (the “Amended and Restated Bylaws”). The Amended and Restated Bylaws became effective on February
9, 2022, upon their execution by the Company’s Chief Executive Officer.
As
previously reported on our Schedule 14C Information Statement that was filed
with the SEC on November 26, 2021, the Amended and Restated Bylaws were amended to implement,
among other changes, a forum selection bylaw (the “Exclusive Forum Amendment”). The Exclusive Forum Amendment provides that,
unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (i) any derivative action or
proceeding brought on behalf of the Company, (ii) any action asserting a claim for or based on a breach of fiduciary duty owed by any
current or former director or officer or other employee of the Company to the Company or its stockholders, (iii) any action asserting
a claim against the Company or any current or former director or officer or other employee of the Company arising pursuant to any provision
of the Nevada Revised Statutes or the Company’s certificate of incorporation or Bylaws (as either may be amended from time to time),
and (iv) any action asserting a claim related to or involving the Company that is governed by the internal affairs doctrine, shall be
the courts located in Clark County in the State of Nevada (or, if the courts in Clark County in the State of Nevada does not have jurisdiction,
the federal district court for the District of Nevada).
The
Amended and Restated Bylaws were approved by written
consent of holders of shares of the Common Stock and Series A Preferred Stock, representing, at the time, approximately 62.35% of the
outstanding voting power of the Company.
The
foregoing summary is qualified in its entirety by reference to the Amended and Restated Bylaws, which were filed as Exhibit 3.1 to the
Form 8-K filed on February 15, 2022.
New
Officer and Directors
Concurrent
with the public offering discussed above, on February 8, 2022, we elected two new independent board members (Michael Dean Smith and Ken
Yonika) and appointed a new chief financial officer (John Garrison).
Corporate
Summary
American
Rebel Holdings, Inc. was incorporated on December 15, 2014, in the State of Nevada and is authorized to issue 600,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock of $0.001 par value.
The
Company operates primarily as a marketer and designer of 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 we aim to make our
products accessible at various price points for home use. We believe our products are designed for safety, quality, reliability, features
and performance.
To
enhance the strength of our brand and drive product demand, we work with our sole supplier and manufacturer 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. We are in the process of developing an additional newly designed
model safe, which is expected to be produced in the U.S. We anticipate our new model safe will offer and be equipped with technologically
advanced features, such as independent bolt works operation, double-steel door-jamb framing, and a standardized geared locking mechanism.
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 CEO, 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.
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 also 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 also 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:
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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. |
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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. |
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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. |
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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. |
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Do
people know you own guns? You might not know that many burglaries are carried out by people they know. |
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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. |
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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. |
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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. |
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 CEO 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:
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i. |
Large
Safes – our current large model safe collection consists of six premium safes. All of our large safes share the same high-quality
workmanship, are constructed out of 11-gauge U.S.-made steel and feature a double plate steel door, double-steel door casements and
reinforced door edges. Each of these safes provide up to 75 minutes of fire protection at 1200 degrees Fahrenheit. Our safes offer
a fully adjustable interior to fit our customers’ needs. Depending on the model, one side of the interior may have shelves
and the other side set up to accommodate long guns. There are optional additions such as Rifle Rod Kits and Handgun Hangers to increase
the storage capacity of the safe. These large safes offer greater capacity for secure storage
and protection, and our safes are designed to prevent unauthorized access, including
in the event of an attempted theft, natural disaster or fire. We believe that a large, highly visible safe also acts as a deterrent
to any prospective thief. |
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Personal
Safes – the safes in our compact safe collection are easy to operate and carry as they fit into briefcases, desks or under
vehicle seats. These personal safes meet Transportation Security Administration (“TSA”) airline
firearm guidelines and fit comfortably in luggage when required by travel regulations. |
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Vault
Doors – our U.S.-made vault doors combine style with theft and fire protection for a look that fits any decor. Newly-built,
higher-end homes often add vault rooms and we believe our vault doors, which we designed to facilitate secure access to such vault
rooms, provide ideal solutions for the protection of valuables and shelter from either storms or intruders. Whether it’s in
the context of a safe room, a shelter, or a place to consolidate valuables, our American Rebel in- and out-swinging vault doors provide
maximum functionality to facilitate a secure vault room. American Rebel vault doors are constructed of 4 ½” double steel
plate thickness, A36 carbon steel panels with sandwiched fire insulation, a design that provides greater rigidity, security and fire
protection. Active boltworks, which is the locking mechanism that bolts the safe door closed so that it cannot be pried open and
three external hinges that support the weight of the door, are some of the features of the vault door. For safety and when the door
is used for a panic or safe room, a quick release lever is installed inside the door. |
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Dispensary
Safes - our HG-INV Inventory Safe, a safe tailor-made for the cannabis community, provides cannabis and horticultural plant
home growers a reliable and safe solution to protect their inventory. Designed with medical
marijuana or recreational cannabis dispensaries in mind and increasing governmental and insurance industry regulation to lock inventory
after hours, we believe our HG-INV Inventory Safe delivers a high-level user experience. |
Upcoming
Product Offerings
To
further complement our diverse product offerings, we intend to introduce additional products in 2022. Below is a summary of our upcoming
product offerings:
i.
Biometrics Safes – we will be introducing our line of handgun boxes with biometrics, WiFi and Bluetooth technologies. These Biometric
Safes have been designed, engineered and are ready for production.
ii.
Personal Security Device – we are developing a non-lethal device that deters an attacker with an audible siren, which would draw
attention to the attacker, as well as notifying the user’s support network that help is needed and providing the location of the
attack.
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.
Youth Protection Backpack – with the objective of keeping kids safe at school, we are designing the Youth Protection Backpack,
which will incorporate a light-weight ballistic shield to provide protection when needed for our children as they go through their school
day activities.
Our
Competitive Strengths
We
believe we are progressing toward long-term, sustainable growth, and our business has, and our future success will be driven by, the
following competitive strengths:
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Powerful Brand Identity – we believe we have developed a distinctive brand that sets us apart from our competitors. This has contributed
significantly to the success of our business. Our brand is predicated on patriotism and quintessential American character: protecting
our loved ones. We strive to equip our safes with technologically advanced features that offer customers advanced security to provide
the peace of mind they need. Maintaining, protecting and enhancing the “American Rebel” brand is critical to expanding our
loyal enthusiasts base, network of dealers and other partners. Through our branded apparel and accessories, we seek to further enhance
our connection with the American Rebel community and share the values of patriotism and safety for which our Company stands for. We strive
to continue to meet their need for our safes and our success will depend largely on our ability to maintain customer trust, become a
gun safe storage leader and continue to provide high-quality safes.
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Product Design and Development – our current safe model relies on time-tested features, such as Four-Way Active Boltworks, pinning
the door shut on all four sides (compared to Three-Way Bolt works, which is prevalent in many of our competitors’ safes), and benefits
that would not often be available in our price point, including 11-gauge US-made steel. The sleek exterior of our safes has garnered
attention and earned the moniker from our dealers as the “safe with an attitude.” When we set out to enter the safe market,
we wanted to offer a safe that we would want to buy, one that would get our attention and provide excellent value for the cost.
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Focus on Product Performance - since the introduction of our first safes, we have maintained a singular focus on creating a full range
of safe, quality, reliable safes that were designed to help our customers keep their family and valuables safe at all times. We incorporate
advanced features into our safes that are designed to improve strength and durability. Key elements of our current model safes’
performance include:
Double
Plate Steel Door - 4 ½” Thick
Reinforced
Door Edge – 7/16” Thick
Double-Steel
Door Casement
Steel
Walls – 11-Gauge
Diameter
Door Bolts – 1 ¼” Thick
Four-Way
Active Boltworks – AR-50(14), AR-40(12), AR-30(10), AR-20(10), AR-15(8), AR-12(8)
Diamond-Embedded
Armor Plate
*
Double Plate Steel Door is formed from two U.S.-made steel plates with fire insulation sandwiched inside. Thicker steel is placed on
the outside of the door while the inner steel provides additional door rigidity and attachment for the locking mechanism and bolt works.
The door edge is reinforced with up to four layers of laminated steel. Pursuant to industry-standard strength tests performed, this exclusive
design offers up to 16 times greater door strength and rigidity than the “thin metal bent to look thick” doors.
*
Double-Steel Door Casement is formed from two or more layers of steel and is welded around the perimeter of the door opening. Pursuant
to industry-standard strength tests performed, it more than quadruples the strength of the door opening and provides a more secure and
pry-resistant door mounting. Our manufacturer installs a Double-Steel Door Casement™ on our safes. We believe the reinforced door
casement feature provides important security as the safe door is often a target for break-in attempts.
*
Diamond-Embedded Armor Plate Industrial diamond is bonded to a tungsten steel alloy hard plate. Diamond is harder than either a cobalt
or carbide drill. If drilling is attempted the diamond removes the cutting edge from the drill, thus dulling the drill bit to where it
will not cut.
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Trusted Brand - we believe that we have developed a trusted brand with both retailers and consumers for delivering reliable, secure safe
solutions.
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Customer Satisfaction - we believe we have established a reputation for delivering high-quality safes and personal security products
in a timely manner, in accordance with regulatory requirements and our retailers’ delivery requirements and supporting our products
with a consistent merchandising and marketing message. We also believe that our high level of service, combined with strong consumer
demand for our products and our focused distribution strategy, produces substantial customer satisfaction and loyalty. We also believe
we have cultivated an emotional connection with the brand which symbolizes a lifestyle of freedom, rugged individualism, excitement and
a sense of bad boy rebellion.
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Proven Management Team - our founder and Chief Executive Officer, Charles A. Ross, Jr., has
led the expansion and focus on the select product line we offer today. We believe that Mr.
Ross had an immediate and positive impact on our brand, products, team members, and customers.
Under Mr. Ross’s leadership, we believe that we have built a strong brand and strengthened
the management team. We are refocusing on the profitability of our products, reinforcing
the quality of safes to engage customers and drive sales. We believe our management team
possesses an appropriate mix of skills, broad range of professional experience, and leadership
designed to drive board performance and properly oversee the interests of the Company, including
our long-term corporate strategy. Our management team also reflects a balanced approach to
tenure that will allow the Board to benefit from a mix of newer members who bring fresh perspectives
and seasoned directors who bring continuity and a deep understanding of our complex business.
Our
Growth Strategy
Our
goal is to enhance our position as a designer, producer and marketer of premium safes and personal security products. We have established
plans to grow our business by focusing on three key areas: (1) organic growth and expansion in existing markets; (2) targeted strategic
acquisitions that increase our on-premise and online product offerings, distributor and retail footprint and/or have the ability to increase
and improve our manufacturing capabilities and output, and (3) expanding the scope of our operation activities to the dispensaries
U.S. community.
We
have developed what we believe is a multi-pronged growth strategy, as described below, to help us capitalize on a sizable opportunity.
Through methodical sales and marketing efforts, we believe we have implemented several key initiatives we can use to grow our business
more effectively. We believe we have made significant progress in 2021 in the largest growing segment of the safe industry, sales
to first-time buyers. We also intend to opportunistically pursue the strategies described below to continue our upward trajectory and
enhance stockholder value. Key elements of our strategy to achieve this goal are as follows:
Organic
Growth and Expansion in Existing Markets - Build our Core Business
The
cornerstone of our business has historically been our safes product offering. We are focused on continuing to develop our home, office
and personal safes product lines. We are investing in adding what we believe are distinctive technology solutions to our safes.
We
are also working to increase floor space dedicated to our safes and strengthen our online presence in order to expand our reach to new
enthusiasts and build our devoted American Rebel community. We intend to continue to endeavor to create and provide retailers and customers
with what we believe are responsible, safe, reliable and stylish products, and we expect to concentrate on tailoring our supply and distribution
logistics in response to the specific demands of our customers.
We
are currently developing a new additional model of our home and office safes. Our new safe model, which we expect to introduce at industry
trade shows in 2022, is to be built in the U.S. through our collaboration with Industrial Maintenance Incorporated (“IMI”).
The new “Made in the USA” safe model is expected to be manufactured in Topeka, Kansas, and is ready to begin production.
We believe IMI’s location is very advantageous, as it is located near our sales office in Lenexa, Kansas.
We
expect the new planned model to include additional features, such as a reinforced door and upgraded locking mechanism, and increased
fire rating, among others. We are focused on developing a best in class, compelling combination of functionality, convenience and style
without compromising the performance of our safes. We intend to use our designing and developing processes to enhance technological and
time to market advantages over incumbent safe manufacturers.
While
we currently rely on third-party manufacturers for the production of our current line of safes, apparel and accessories, we believe that
the expected addition of manufacturing capabilities following the signing of the contract with the aforementioned manufacturer, which
we anticipate to work exclusively with us, would allow us, among other benefits, to ramp up our production levels to meet expected demand
for our products, provide us greater autonomy over the manufacturing process, and add what we believe are distinctive features.
Additionally,
our Concealed Carry Product line and Safe line serve a large and growing market segment. We believe that interest in safes increase,
as well as in our complimentary concealed carry backpacks and apparel as a byproduct, when interest of the general population in firearms
increase. To this extent, the FBI’s National Instant Criminal Background Check System (NICS), which we believe serves as a proxy
for gun sales since a background check is generally needed to purchase a firearm, reported a record number of background checks in 2020,
39,695,315. The prior annual record for background checks was 2019’s 28,369,750. In 2021, there were 38,876,673 background checks
conducted, similar to that of 2020’s annual record which was 40% higher than the previous annual record in 2019. While we do not
expect this increase in background checks to necessarily translate to an equivalent number of additional safes purchased, we do believe
it might be an indicator of the increased demand in the safe market. In addition, certain states (such as Massachusetts, California,
New York and Connecticut) are starting to legislate new storage requirements in respect of firearms, which is expected to have a positive
impact on the sale of safes.
We
continue to strive to strengthen our relationships and our brand awareness with our current distributors, dealers, manufacturers,
specialty retailers and consumers and to attract other distributors, dealers, and retailers. We believe that the success
of our efforts depends on the distinctive features, quality, and performance of our products; continued manufacturing capabilities and
meeting demand for our safes; the effectiveness of our marketing and merchandising programs; and the dedicated customer support.
In
addition, we seek to improve customer satisfaction and loyalty by offering distinctive, high-quality products on a timely and cost-attractive
basis and by offering efficient customer service. We regard the features, quality, and performance of our products as the most important
components of our customer satisfaction and loyalty efforts, but we also rely on customer service and support for growing our business.
Furthermore,
we intend to continue improving our business operations, including research and development, component sourcing, production processes,
marketing programs, and customer support. Thus, we are continuing our efforts to enhance our production by increasing daily production
quantities through equipment acquisitions, expanded shifts and process improvements, increased operational availability of our equipment,
reduced equipment down times, and increased overall efficiency.
We
believe that by enhancing our brand recognition, our market share might grow correspondingly. Industry sources estimate that 70 million
to 80 million people in the United States own an aggregate of more than 400 million firearms, creating a large potential market for our
safes and personal security products. We are focusing on the premium segment of the market through the quality, distinctiveness, and
performance of our products; the effectiveness of our marketing and merchandising efforts; and the attractiveness of our competitive
pricing strategies.
Targeted
Strategic Acquisitions for Long-term Growth
We
are consistently evaluating and considering acquisitions opportunities that fit our overall growth strategy as part of our corporate
mission to accelerate long-term value for our stockholders and create integrated value chains.
Along
these lines, in March of 2022 we entered into a letter of intent (“LOI”) to purchase a safe manufacturer. The final structure
of the acquisition will be determined by the parties following the receipt of tax, corporate and securities law advice. The acquisition
will be structured as an arm’s length transaction and pursuant to the terms of the LOI the parties intend to sign a definitive
agreement in respect of the acquisition on or before April 30, 2022. Under the terms of the LOI, we would acquire all of the outstanding
shares of capital stock of the acquisition target, free and clear of all encumbrances for a combination of cash and stock. As part of
the LOI, we gave the target a $250,000 non-refundable deposit, which will be credited to us at closing. Completion of the acquisition
is subject to a number of conditions, including but not limited to the following key conditions: the target obtaining an audit of its
financial statements; execution of the definitive and ancillary agreements; completion of mutually satisfactory due diligence; us obtaining
sufficient financing to complete the acquisition; and receipt of all required regulatory, corporate and third-party approvals, and the
fulfillment of all applicable regulatory requirements and conditions necessary to complete the acquisition.
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 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 generate material revenues from licensing fees, our management believes the
American Rebel brand name may in the future have significant licensing value to third parties that seek the American Rebel name to brand
their products to market to the American Rebel target demographic. For example, a tool manufacturer that wants to pursue an alternative
marketing plan for a different look and feel could license the American Rebel brand name for their line of tools and market their tools
under our distinct brand. This licensee would benefit from the strong American Rebel brand with their second line of American Rebel branded
tools as they would continue to sell both of the lines of tools. Conversely, American Rebel could potentially also benefit as a licensee
of products. If American Rebel determines a third party has designed, engineered, and manufactured a product that would be a strong addition
to the American Rebel catalog of products, American Rebel could license that product from the third-party and sell the licensed product
under the American Rebel brand.
Our
website address is www.americanrebel.com. The information on our website is not part of this Annual Report, Form 10-K.
Description
of Business
Our
Company
American
Rebel, America’s Patriotic Brand, operates primarily on designing and marketing branded safes and personal security and self-defense
products. Additionally, the Company designs and produces branded accessories and apparel, including with concealment pockets.
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 we aim to make our
products accessible at various sizes and price points for home 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 sole supplier and manufacturer 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. We are in the process of developing an additional newly designed
model safe, which is expected to be produced in the U.S. We anticipate our new model safe will offer and be equipped with technologically
advanced features, such as independent boltworks operation, double-steel door-jamb framing, and a standardized geared locking mechanism.
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.
Our
Products
We
design, market and sell branded safes and personal security products, including concealed carry/self-defense products, and design and
market an apparel line and complimentary accessories. We promote and sell our products primarily through retailers using a dealer network,
as well as online, through our website, and on Amazon.com, where customers can place an order for our branded backpacks and apparel items.
Safes
We
offer a wide range of home, office and personal safe models, in a broad assortment of sizes, features and styles, which are constructed
with U.S.-made steel. Our safes exhibit the strength and rugged independence that America was built upon. American Rebel’s design
makes keeping your firearms more secure in style. Products are marketed under the American Rebel brand. Although demand for our safes
is strong across all segments of our customers, including individuals and families who wish to protect their valuables, to collectors
and the dispensary servicing community, the demand for safe storage responsible solutions has been particularly strong among gun owners,
sportsmen, competitive shooters and hunters alike. We expect to benefit from increasing awareness of and need for safe storage of firearms
in future periods.
Large
Safes
Our
large safe collection consists of six safes in a range of sizes. All of our large safes share the same high-quality workmanship, are
constructed out of 11-gauge U.S.-made steel and feature a double plate steel door, double-steel door casements and reinforced door edges.
We believe that our large safes are ideal for storing valuables of significant size, and that they offer greater capacity for storage
and protection. Our safes offer a fully adjustable interior to fit our customers’ needs. Depending on the model, one side of the
interior may have shelves and the other side set up to accommodate long guns. The large safes are designed to be resistant to break-ins,
natural disasters and fire damage, and to prevent unauthorized access and to protect your family and their valuables. A large, highly
visible safe also is believed to act as a deterrent to any prospective thief. Safe storage is also top priority of our customer base
who seeks to responsibly secure their firearms. Whenever a new firearm is purchased, gun owners look for our premium solution to responsibly
secure them and protect their loved ones.
Our
large safes selection includes the following:
AR-50
The
AR-50 is our biggest safe. The AR-50 safe is designed to be strong, rugged, constructed of 11-gauge American-made steel and maintains
capacity to comfortably store over 40 firearms comfortably. This premium gun safe with a double plate steel door, double-steel door casement
and reinforced door edge is designed to give our customers added security and peace of mind, with 75 minutes of fire protection at 1200
degrees Fahrenheit as well as a customized shelf solution and optional additional accessories to increase the capacity to hold firearms.
72” tall, 40” wide with a depth of 28.5”.
AR-40
The
AR-40 has the same footprint as the AR-50; however, it is 12” shorter with a capacity of over 30 firearms. This
gun safe contains a double plate steel door, double-steel door casement and reinforced door edge, designed to give our customers secure
storage. It provides 75 minutes of fire protection at 1200 degrees Fahrenheit as well as a flexible shelving system to accommodate firearm
storage. The dimensions include 60” tall, 40” wide with a depth of 28.5”.
AR-30
The
AR-30 offers nearly 50,000 cubic inches of storage. Built with the same strength and ruggedness as the AR-50 and AR-40 models, this safe
holds over 20 firearms. This gun safe contains a double plate steel door, double-steel door casement
and reinforced door edge. It is designed to give our customers the ability to store their firearms and valuables securely, with 75 minutes
of fire protection at 1200 degrees Fahrenheit as well as offering optional add-on accessories to increase storage capacity. The dimensions
include 60” tall, 34” wide with a depth of 24.5”.
AR-20
The
AR-20 shares the quality workmanship as the other sizes with a capacity for over 15 firearms. This
gun safe contains a double plate steel door, double-steel door casement and reinforced door edge is designed to prevent theft and provide
protection from fire, flood and accidental access, with 75 minutes of fire protection at 1200 degrees Fahrenheit as well as a customized
shelving solution. The dimensions include 60” tall, 28” wide with a depth of 22.5”.
AR-15
The
AR-15 fits the bill for narrow spaces with room for over 10 firearms. Same quality construction as our other large safes including a
double plate steel door, double-steel door casement and reinforced door edge is designed to give our customers added security and peace
of mind, with 75 minutes of fire protection at 1200 degrees Fahrenheit as well as a customized shelving solution. The dimensions include
60” tall, 22” wide with a depth of 22.5”.
AR-12
The
AR-12 is our shortest safe. It is the perfect size to store AR rifles, handguns and personal valuables. It has a capacity of over 8 AR
rifles. Same quality construction as our other large safes including a double plate steel door,
double-steel door casement and reinforced door edge is designed to give our customers safe storage and peace of mind, with 75 minutes
of fire protection at 1200 degrees Fahrenheit as well as offering optional add-on accessories to increase storage capacity. The dimensions
include 40” tall, 26” wide with a depth of 23”.
Personal
safes
Our
compact safes, which come in two sizes, are a responsible solution to safely secure smaller valuables or handguns. The AR-110 weighs
5 pounds and is 9.5” x 6.5” x 1.75”. The AR-120 weighs 6 pounds and is 10.5” x 7.5” x 2.1875”. These
small, personal safes are easy to operate and carry as they fit into a briefcase, desk or under
a vehicle seat. These personal safes meet (“TSA”) airline firearm guidelines and fit comfortably in luggage where travel
regulations require it.
Vault
doors
Our
U.S.-made Vault Doors combine style with theft and fire protection for a look that fits any decor. Designed to offer superior protection,
vault rooms provide an ideal solution for the protection of the family and any valuables. Newly-built, higher-end homes often add vault
rooms and we believe our vault doors, which we designed to facilitate secure access to such vault rooms, provide ideal solutions for
the protection of valuables and shelter from either storms or intruders. Whether it is a safe room, a shelter, or a place to consolidate
valuables, our American Rebel In-Swinging and Out-Swinging Vault Doors provide maximum functionality to a secure vault room. American
Rebel vault doors are constructed of two thick, A36 carbon steel panels with sandwiched fire insulation, a design that provides greater
rigidity, security and fire protection. The active boltworks and three external hinges are some of the features of the vault door. For
safety and to use the door for a panic or safe room door, a quick release lever is installed inside the door.
Dispensaries
Our
inventory control safe, the HG-INV Inventory Safe, provides cannabis dispensaries a reliable and safe solution. With
wide-spread legalization, medical marijuana or recreational cannabis dispensaries face increasing government regulation and insurance
requirements to lock their inventory after hours. Our HG-INV Inventory Safe delivers a higher level user experience with customized shelving
and our inventory notation system. The HG-INV has been introduced to the dispensary industry through trade show appearances and many
of our dealers are actively cultivating dispensary business. Expanding our marketing of the HG-INV can open new markets to American Rebel.
Personal
Security
Concealed
Carry Backpacks – consist of an assortment of sizes, features and styles. Our XL, Large,
and Medium concealed carry backpacks feature our proprietary “Personal Protection Pocket” which utilizes a sandwich
method to keep handguns secure and in the desired and easily accessible position. The sandwich method is comprised of two foam pads that
surround or sandwich the firearm in place. The user can access the isolated Protection Pocket from either side of the backpack. We believe
these distinctive concealed carry products are designed for everyday use while keeping your firearm concealed, safe and easily accessible.
The
Extra-Large Freedom and Cartwright CCW Backpack
Our
largest concealed carry backpack offers ample storage, including a dedicated top loading laptop pouch and additional tablet sleeve. Both
compartments are padded to protect your devices. Two large open compartments make this backpack practical for carrying documents and
folders or whatever you need to tote from one place to another. Our proprietary “Protection Pocket” allows quick and easy
access to your handgun from either side. Multiple interior compartments are strategically placed to secure extra magazines and accessories.
Available in the Freedom and Cartwright style as well as a variety of trim color options.
Large
Freedom and Cartwright CCW Backpack
Our
most popular concealed carry backpack. This backpack offers ample storage, including a dedicated top loading laptop pouch and an additional
tablet sleeve. Both compartments are padded to protect your devices. The size of the main compartment opening makes this backpack practical
for carrying documents, folders or whatever you need to tote from one place to another. Includes our proprietary “Protection Pocket”
and is available in the Freedom and Cartwright style as well as a variety of trim color options.
Medium
Freedom CCW Backpack
This
medium-sized backpack is designed for those who look to be more streamlined. This backpack offers ample storage, including a dedicated
top loading laptop/tablet compartment and two liquid container pouches. The laptop/tablet compartment is padded to protect your devices.
The main compartment is practical for carrying documents and folders or whatever you need for everyday use. Includes our proprietary
“Protection Pocket”. Available in a variety of trim color options.
Small
Plus CCW Backpack
Our
small one-strap concealed carry backpack is designed for use while running, jogging, biking or riding a motorcycle. Our concealment pocket
contains a holster and attaches to the interior with hook and loop material. Soft fleece lined pockets for your tablet, glasses case
and accessories are also included. Available in dark blue or in our signature patriotic “We The People” design.
Small
Freedom CCW Backpack
This
one strap pack also contains a holster and attaches to the interior with hook and loop material. There is also plenty of room for a small
tablet, cell phone, chargers and other necessities. Available in a variety of trim color options.
Apparel
We
offer a wide range of concealed carry jackets, vests and coats for men and women,
including our Freedom Jacket 2.0 which incorporates a significant advance in the operation of the concealment pocket.
We also proudly offer patriotic apparel for the whole family, with the imprint of the American Rebel brand. Our apparel line serves
as “point man” for the brand, often the first exposure that people have to all things American Rebel. Our branded apparel
line is forever relevant, current and bold. We place emphasis on styling that complements our enthusiast customers’ lifestyle,
representing the values of our community and quintessential American character. The American Rebel
clothing line style is not only a fashion statement; it is the sense of pride of belonging to our patriotic family, on your adventures
and in life. Our apparel collection consists of the following:
Cartwright
Coats and Vests
Engineered
for comfort, warmth, and versatility and mobility. Our Cartwright Concealed Carry Coats and Vests are designed with purpose and informed
by the rugged demands of the everyday hard worker. Its quality construction and workmanship are designed to keep you warm and shielded
from the elements. Left-hand and right-hand concealment pocket access provides for secure and safe concealment of your firearm with easy
access on either side.
Freedom
2.0 Jackets and Vests for men and women
Our
lightweight jackets collection is designed with magnetic pocket closures for silent, secure and safe concealment. Our lightweight jackets
are crafted to facilitate easy firearm access for both right-handed and left-handed carriers.
American
Rebel T-Shirts Collection
American
Rebel’s T-shirts collection is created to liberate the spirit of an endless summer inside everyone and to embrace their patriotism
Our
Competitive Strengths
We
believe we are moving forward on a path to long-term, sustainable growth, and our business has, and our future success will be driven
by, the following competitive strengths:
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Powerful
Brand Identity – we believe we have developed a strong brand that sets us apart from
our competitors. We believe this is a distinguishing factor and will contribute to the future success of our business. Our brand
is predicated on patriotism and quintessential American character: protecting our loved ones. We strive
to equip our safes with technologically advanced features that offer customers advanced security to provide the peace of mind
they need. Maintaining, protecting and enhancing the “American Rebel” brand is
critical to expanding our loyal enthusiasts base, network of dealers and other partners. Through branded apparel and accessories,
we seek to further develop our connection with the American Rebel community and share the values of patriotism and safety that our
Company stands for. We strive to continue to meet their demand for our premium safes and will
depend largely on our ability to maintain customer trust, be a gun safe storage leader and continue to provide high-quality safes,
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Product
Design and Development – our current safe model relies on what we believe are time-tested features, such as Four-Way Active
Boltworks, pinning the door shut on all four sides when Three-Way Boltworks are standard in our competitors’ safes, and benefits
that would not often be available in our price point, including 11-gauge US-made steel. The sleek exterior of our safes has garnered
attention and earned the moniker from our dealers as the “safe with an attitude.” When we set out to enter the safe market,
we wanted to offer a safe that we would want to buy, one that would get our attention and provide excellent value for the cost. |
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Focus
on Product Performance - since the introduction of our first safes, we have maintained a singular focus on creating a full range
of safe, quality, reliable safes that were designed to help our customers keep their family
and valuables safe at all times. We incorporate advanced features into our safes that are designed to improve strength and
durability. Key elements of our safes’ performance include: |
Double
Plate Steel Door - 4 ½” Thick
Reinforced
Door Edge – 7/16” Thick
Double-Steel
Door Casement
Steel
Walls – 11-Gauge
Diameter
Door Bolts – 1 ¼” Thick
Four-Way
Active Boltworks – AR-50(14), AR-40(12), AR-30(10), AR-20(10), AR-15(8), AR-12(8)
Diamond-Embedded
Armor Plate
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Double Plate Steel Door is formed from two American-made steel plates with fire insulation sandwiched inside. Thicker steel is placed
on the outside of the door while the inner steel provides additional door rigidity and attachment for the locking mechanism and bolt
works. The door edge is reinforced with up to four layers of laminated steel. This exclusive design offers up to 16 times greater door
strength and rigidity than the “thin metal bent to look thick” doors.
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Double-Steel Door Casement is created from two or more layers of steel welded around the perimeter of the door opening. It more than
quadruples the strength of the door opening and provides a more secure and pry-resistant door mounting. Our manufacturer installs a Double-Steel
Door Casement on all of its models. Most of our competitors do not offer the reinforced door casement.
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Diamond-Embedded Armor Plate - Industrial diamond is bonded to a tungsten steel alloy hard plate. Diamond is harder than either a cobalt
or carbide drill. If drilling is attempted the diamond removes the cutting edge from a drill – thus dulling the drill bit to where
it will not cut.
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Trusted
Brand - we believe that we have developed a trusted brand with both retailers and consumers for delivering reliable,
secure safe solutions. |
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Customer
Satisfaction - we believe we have established a reputation for delivering high-quality safes and personal security products in a
timely manner, in accordance with regulatory requirements and our retailers’ delivery requirements and supporting our products
with a consistent merchandising and marketing message. We also believe that our high level of service, combined with strong consumer
demand for our products and our focused distribution strategy, produces substantial customer satisfaction and loyalty. We also believe
we have cultivated an emotional connection with the brand which symbolizes a lifestyle of freedom, rugged individualism, excitement
and a sense of bad boy rebellion. |
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Proven
Management Team - our founder and Chief Executive Officer, Charles A. Ross, Jr., has led the expansion and focus on the select product
line we offer today. We believe that Mr. Ross had an immediate and positive impact on our brand, products, team members, and customers.
Under Mr. Ross’s leadership, we believe that we have built a strong brand and strengthened the management team. We are refocusing
on the profitability of our products, reinforcing the quality of safes and engaging customers and driving sales. We believe our management
team possess an appropriate mix of skills, broad range of professional experience, and leadership designed to drive board performance
and properly oversee the interests of the Company, including our long-term corporate strategy. Our management team also reflects
a balanced approach to tenure that will allow the Board to benefit from a mix of newer directors who bring fresh perspectives and
seasoned directors who bring continuity and a deep understanding of our complex business. |
Our
Growth Strategy
Our
goal is to enhance our position as a designer, producer and marketer of premium safes and personal security products. We have established
plans to grow our business by focusing on three key areas: (1) organic growth and expansion in existing markets; (2) targeted strategic
acquisitions that increase our on-premise and online product offerings, distributor and retail footprint and/or have the ability to increase
and improve our manufacturing capabilities and output, and (3) expanding the scope of our operation activities to the dispensaries
U.S. community.
We
have developed what we believe is a multi-pronged growth strategy, as described below, to help us capitalize on a sizable opportunity.
Through methodical sales and marketing efforts, we believe we have implemented several key initiatives we can use to grow our business
more effectively. We believe we have made significant progress in 2021 in the largest growing segment of the safe industry, sales
to first-time buyers. We also intend to opportunistically pursue the strategies described below to continue our upward trajectory
and enhance stockholder value. Key elements of our strategy to achieve this goal are as follows:
Organic
Growth and Expansion in Existing Markets - Build our Core Business
The
cornerstone of our business has historically been our safes product offering. We are focused on continuing to develop our home, office
and personal safes product lines. We are investing in adding what we believe are distinctive technology solutions to our safes.
We
are also working to increase floor space dedicated to our safes and strengthen our online presence in order to expand our reach to new
enthusiasts and build our devoted American Rebel community. We intend to continue to endeavor to create and provide retailers and customers
with what we believe are responsible, safe, reliable and stylish products, and we expect to concentrate on tailoring our supply and distribution
logistics in response to the specific demands of our customers.
We
are currently developing an additional new model of our home and office safes. Our new safe model,
which we expect to introduce at industry trade shows in 2022, is to be built in the U.S. We expect the new planned model to include additional
features, such as a reinforced door and upgraded locking mechanism, among others. We are focused on developing a best in class, compelling
combination of functionality, convenience and style without compromising performance of our safes. We intend to use our designing and
developing processes to enhance technological and time to market advantages over incumbent safe manufacturers.
While
we currently rely on third-party manufacturers for the production of our current line of safes, apparel and accessories, we believe that
the expected addition of manufacturing capabilities following the signing of the contract with the aforementioned US manufacturer, which
we anticipate to work exclusively with us, would allow us, among other benefits, to ramp up our production levels to meet expected demand
for our products, provide us greater autonomy over the manufacturing process, and add what we believe are distinctive features.
Additionally,
our Concealed Carry Product line and Safe line serve a large and growing market segment. We believe that interest in safes increase,
as well as in our complimentary concealed carry backpacks and apparel as a byproduct, when interest of the general population in firearms
increase. To this extent, the FBI’s National Instant Criminal Background Check System (NICS), which we believe serves as a proxy
for gun sales since a background check is generally needed to purchase a firearm, reported a record number of background checks in 2020,
39,695,315. The prior annual record for background checks was 2019’s 28,369,750. In 2021, there were 38,876,673 background checks
conducted, similar to that of 2020’s annual record which was 40% higher than the previous annual record in 2019. While we do not
expect this increase in background checks to necessarily translate to an equivalent number of additional safes purchased, we do believe
it might be an indicator of the increased demand in the safe market. In addition, certain states (such as Massachusetts, California,
New York and Connecticut) are starting to legislate new storage requirements in respect of firearms, which is expected to have positive
impact on the sale of safes.
We
continue to strive to strengthen our relationships with our current distributors, dealers, manufacturers and specialty retailers and
to attract other distributors, dealers, and retailers. We believe that the success of our efforts depends on the distinctive features,
quality, and performance of our products; continued manufacturing capabilities and meeting demand for our safes; the effectiveness of
our marketing and merchandising programs; and the dedicated customer support.
In
addition, we seek to improve customer satisfaction and loyalty by offering distinctive, high-quality products on a timely and cost-attractive
basis and by offering efficient customer service. We regard the features, quality, and performance of our products as the most important
components of our customer satisfaction and loyalty efforts, but we also rely on customer service and support.
Furthermore,
we intend to continue improving our business operations, including research and development, component sourcing, production processes,
marketing programs, and customer support. Thus, we are continuing our efforts to enhance our production by increasing daily production
quantities through equipment acquisitions, expanded shifts and process improvements, increased operational availability of our equipment,
reduced equipment down times, and increased overall efficiency.
We
believe that by enhancing our brand recognition, our market share might grow correspondingly. Industry sources estimate that 70 million
to 80 million people in the United States own an aggregate of more than 400 million firearms, creating a large potential market for our
safes and personal security products. We are focusing on the premium segment of the market through the quality, distinctiveness, and
performance of our products; the effectiveness of our marketing and merchandising efforts; and the attractiveness of our competitive
pricing strategies.
Targeted
Strategic
Corporate Reorganization for Long-term Growth
We
are consistently evaluating and considering acquisitions opportunities, such as the acquisition LOI described above, that fit
our overall growth strategy as part of our overall mission to accelerate long-term value for our stockholders and create integrated value
chains.
Expanding
Scope of Operations Activities 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 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 to generate additional revenue from licensing fees earned from third parties who wish to engage
the American Rebel community. While the Company does not generate material revenues from licensing fees, our management believes the
American Rebel brand name may in the future have significant licensing value to third parties that seek the American Rebel name to brand
their products to market to the American Rebel target demographic. For example, a tool manufacturer that wants to pursue an alternative
marketing plan for a different look and feel could license the American Rebel brand name for their line of tools and market their tools
under our distinct brand. This licensee would benefit from the strong American Rebel brand with their second line of American Rebel branded
tools as they would continue to sell both the line of tools under their brand and the line under the American Rebel brand. Conversely,
American Rebel could potentially also benefit as a licensee of products. If American Rebel determines a third party has designed, engineered,
and manufactured a product that would be a strong addition to the American Rebel catalog of products, American Rebel could license that
product from the third-party and sell the licensed product under the American Rebel brand.
Competition
The
North American safe industry is dominated by a small number of companies. We compete primarily on the quality, safety, reliability,
features, performance, brand awareness, and price of our products. Our primary competitors include companies such as Liberty Safe, Fort
Knox Security Products, American Security, Sturdy Safe Company, Homeland Security Safes, SentrySafe and Champion Safe (who is also our
OEM manufacturer) as well as certain other domestic manufacturers, as well as certain China-based manufactured safes. Safes manufactured
in China, including Steelwater and Alpha-Guardian, have struggled under the import tariffs initiated under the administration of former
U.S President Donald Trump and continued by the current administration. We believe that given the current substantial
uncertainty related to the supply chain and delivery of international goods, we have a competitive advantage because our safes
are not manufactured overseas.
Intellectual
Property
Our
commercial success depends in part on our ability to obtain and maintain intellectual property protection for our brand and technology,
defend and enforce our intellectual property rights, preserve the confidentiality of our trade secrets, operate our business without
infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third parties and prevent third
parties from infringing, misappropriating or otherwise violating our intellectual property rights. We rely on a combination of patent,
copyright and trade secret laws in the United States to protect our proprietary technology. We also rely on a number of United States
registered, pending and common law trademarks to protect our brand “American Rebel”.
On
May 29, 2018, US Patent No. 9,984,552, Firearm Detecting Luggage, was issued to us. The term of the patent is 20 years from the issuance
date. In addition to our patent, we rely upon unpatented trade secrets and know-how and continuing technological development and maintain
our competitive position. Trade secrets and know-how, however, can be difficult to protect. We seek to protect our proprietary information,
in part, by entering into confidentiality and proprietary rights agreements with our employees and independent contractors.
Regulation
The
storage of firearms and ammunition is subject to increasing federal, state and local governmental laws. While the current legislative
climate does not appear to seek to limit possession of firearms, there is apparent momentum to require safe storage of firearms and ammunition.
Although our safes, which are the primary driver of our sales and revenues, are designed to protect any valuables, a significant number
of our safes’ end users have traditionally been gun enthusiasts, collectors, hunters, sportsmen and competitive shooters. Therefore,
we expect the increasing federal, state and local governmental regulation of gun storage to have a materially positive effect on our
business.
Our
Customers
We
primarily market and sell our products to safe-only specialty stores and independent gun stores nationwide. We also sell our products
online to individuals desiring home, personal and office protection, as well as to recreational shooters and hunters. Our customers choose
us for a number of reasons, including the breadth and availability of the products we offer, our extensive expertise, and the quality
of our customer service.
We
believe the nature of our solutions and our high-touch customer service model strengthens relationships, builds loyalty and drives repeat
business as our customers’ businesses expand. In addition, we feel as if our premium product lines and comprehensive product portfolio
position us well to meet our customers’ needs. Furthermore, we fully anticipate that we will be able to leverage all of the data
that we are collecting from our existing customer base to make continuous improvements to our offerings and better serve our current
and new customers in the future.
We
intend to expand our distribution to sporting goods stores, farm and home stores, other independent retailers as well as our online customer
base upon securing additional funding and setting up our first manufacturing facility.
Suppliers
We
are dependent on the continued supply and manufacturing of our safes, backpacks and apparel at third-party facilities locations, which
are critical to our success. Any event that causes a disruption of the operation of these facilities for even a relatively short period
of time would adversely affect our ability to ship and deliver our safes and other products and to provide service to our customers.
We have previously experienced, including during the first months after the spread of the COVID-19 pandemic, and may in the future experience,
launch and production ramp up delays for our products as a result of disruption at our suppliers manufacturing partners. Additionally,
we have to date fully qualified only a very limited number of such suppliers and have limited flexibility in changing suppliers. Any
disruption in the supply of our branded safes from our suppliers could limit our sales. In the long term, we intend to supplement safes
manufactured by our suppliers with safes manufactured by us, which we believe will be more efficient and result in a greater manufacturing
volume and under our control. Our efforts to develop and manufacture such safes, however, have required and may require significant investments,
and there can be no assurance that we will be able to achieve these targets in the timeframes that we have planned or at all. If we are
unable to do so, we may have to curtail our planned safes or procure additional safes from different suppliers at potentially greater
costs, either of which may harm our business and operating results.
Furthermore,
the cost of safes, whether manufactured by our suppliers or by us, depends in part upon the prices and availability of raw manufacturing
materials such as steel, locks, fireboard, hinges, pins and other metals. The prices for these materials fluctuate and their available
supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased global
production of electric vehicles and energy storage products. Any reduced availability of these materials may impact our access to these
parts and any increases in their prices may reduce our profitability if we cannot recoup the increased costs through increased safe prices.
Moreover, any such attempts to increase product prices may harm our brand, prospects and operating results.
We
currently rely on third-party suppliers to ship our products to our customers. We have found that dedicated truckloads from our warehouse
to our dealers reduce freight damage and provide the overall best shipping solution. Several companies offer dedicated truckload shipping.
Increased sales will offer the opportunity to establish regional distribution centers.
Sales
and Marketing
We
market our products to consumers through independent safe specialty stores, select national and regional retailers, local specialty firearms
stores, as well as via e-commerce. We maintain consumer-focused product marketing and promotional campaigns, which include print and
digital advertising campaigns; social and electronic media; product demonstrations; point-of-sales materials; in-store training; and
in-store retail merchandising. Our use of social media includes Facebook, and YouTube.
Marketing
Team Aligned with Sales Force to Maximize Our Industry Visibility to Drive Revenue
Our
Chief Executive Officer, Charles A. Ross, is familiar to many in the industry due to his twelve years on television as the host of Maximum
Archery and later American Rebel, that was broadcast on The Outdoor Channel, Sportsman Channel and the Pursuit Channel. Our
Marketing and Sales teams have established American Rebel as a brand that our customers want and a brand that they are proud to embrace
and bring into their homes.
Direct
Marketing
In
light of the expertise required to deliver and install safes that weigh 500-1000 pounds, direct marketing is utilized to create awareness
and provide information. Our website, AmericanRebel.com, has proven to be a very valuable tool in introducing potential customers to
our products. Infomercials and direct-to-consumer campaigns are vehicles to expand our reach at the appropriate time. Currently the demand
from our current customers and future customer pool of independent safe specialty stores is high. As the Company grows and seeks out
new customers to expand its customer base, direct marketing will be an asset for American Rebel. Chief Executive Officer, Charles A.
Ross, was basically making infomercials to promote his Ross Archery products when he was filming Maximum Archery during the mid-2000s.
Social
Media and Thought Leadership
A
portion of marketing dollars will be directed to social media. American Rebel and Chief Executive Officer Charles A. Ross have large
followings on social media and a dedicated social media campaign will efficiently reach large numbers of potential customers and brand
adopters. We will leverage our social media assets to cross-promote locally with independent safe specialty store customers to pull out
product through the sales channel. Driving demand and awareness of our products to our customers will expand their loyalty to American
Rebel and increase each stores’ commitment to our brand.
Trade
Shows
Trade
shows have been an important medium to introducing our brand and our products. The NRA Annual Meeting, a consumer trade show, is a valuable
opportunity to meet and greet our final customers. When we launched our Concealed Carry line of products at the NRA Annual Meeting in
Atlanta, GA, in the Spring of 2017, the response from the meeting attendees was overwhelming. We immediately knew the product line resonated
with consumers. Similarly, when we introduced our line of safes at the 2019 NRA Annual Meeting in the Spring of 2019, we knew we were
on to something significant. The USCCA (United States Concealed Carry Association) has an annual Concealed Carry and Home Defense Expo.
This is also an excellent opportunity to meet, greet and sell product to our final customers, the buying public. The Iowa Deer Classic
and Illinois Deer Classic are carryovers from our Chief Executive Officer Charles A. Ross’ hosting duties on Maximum Archery,
but we have found that many potential safe buyers attend these shows.
Two
industry-only trade shows we attend are the SHOT Show and Nation’s Best Sports (NBS) Spring and Fall Buying Markets. The SHOT Show
is very high profile show that most movers and shakers in the firearms industry attend. Operated by the National Shooting Sports Foundation,
the SHOT Show is the first trade show of the calendar year and is a great opportunity to introduce the year’s new products. NBS
operates buying group shows where retailers who are members of NBS attend the Spring and Fall Market Buying shows to place orders. NBS
provides an excellent base of customers for us to introduce our products to.
Paid
Advertising
We
will occasionally purchase paid print advertising to support editorial and events. The American Shooting Journal has been very supportive
of our business has featured an interview with our Chief Executive Officer in one of past issues of the magazine.
Effects
of COVID-19
Coronavirus
(“COVID-19”) and Related Market Impact. The COVID-19
outbreak has presented evolving risks and developments domestically and internationally, as well
as new opportunities for our business. Although the pandemic has not materially impacted our results and operations adversely,
our ability to satisfy demand for our products could be negatively impacted by mandatory forced production disruptions of our safes’
sole third-party manufacturer and strategic partners. Any significant disruption to communications and travel, including travel restrictions
and other potential protective quarantine measures against COVID-19 by governmental agencies, could make it difficult for us to deliver
goods and services to our customers. Further, travel restrictions and protective measures against COVID-19 could cause the Company to
incur additional unexpected labor costs and expenses or could restrain the Company’s ability to retain the highly skilled personnel
the Company needs for its operations. The extent to which COVID-19 impacts the Company’s business, sales and results of operations
will depend on future developments, which are uncertain and cannot be currently predicted.
Additionally,
as a result of COVID-19, at any time we may be subject to increased operating costs, supply interruptions, and difficulties in obtaining
raw materials and components. To address these challenges, we continue to monitor our supply chain. We have recently entered into a contract
with a third-party manufacturer to exclusively assemble our upcoming additional new line of safes. We believe that this vertical integration
would allow us, among other benefits, to ramp up our production levels to meet expected demand for our products, provide us greater autonomy
over the manufacturing process, and add what we believe are distinctive features to our safes.
We
expect that the demand for home, office and personal safety and security products would remain stable, in part due to customers spending
more time working remotely, increasing regulation mandating safe storage, and substantial uncertainty related to the supply chain and
delivery of international goods, which in turn translate into, we believe, growth in demand for our home and personal safes as a U.S.
company. We, however, cannot guarantee, that demand for our safes and personal security products will keep growing through the end of
the 2022 calendar year and beyond.
Further,
due to the effects of COVID-19, our management have reduced unnecessary marketing expenditures as part of continued efforts to adjust
the Company’s operations to address changes in the safes and vault industry, and particularly to improve staff and human capital
expenditures, while maintaining overall workforce levels.
Due
to the substantial uncertainty related to the effects of the pandemic, its duration and the related market impacts, including the economic
stimulus activity, we are unable to predict the specific impact the pandemic and related restrictions (including the lifting or re-imposing
of restrictions due to any current or future variants of the COVID-19 virus or otherwise) will have on our results of operations, liquidity
or long-term financial results.
ITEM
1A. Risk Factors
The
following risk factors should be considered in connection with an evaluation of our business:
In
addition to other information in this Report, the following risk factors should be carefully considered in evaluating our business because
such factors may have a significant impact on our business, operating results, liquidity and financial condition. As a result of the
risk factors set forth below, actual results could differ materially from those projected in any forward-looking statements. Additional
risks and uncertainties not presently known to us, or that we currently consider to be immaterial, may also impact our business, result
of operations, liquidity and financial condition. If any such risks occur, our business, operating results, liquidity and financial condition
could be materially affected in an adverse manner. Under such circumstances, if and when a trading market for our securities is established,
the trading price of our securities could decline, and you may lose all or part of your investment.
OUR
SECURITIES INVOLVE A HIGH DEGREE OF RISK AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE PURCHASED BY
PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THE ENTIRE INVESTMENT.
RISKS
RELATED TO OUR BUSINESS AND INDUSTRY
We
currently do not own a manufacturing facility, and rely on a sole manufacturer and supplier for the production of our safes; while we
have obtained favorable financing arrangements in the past from this manufacturer and supplier, there is no assurance that a future supplier
would provide similar favorable financing arrangements
We
currently rely on a sole manufacturer and supplier for the production of our safes. We do not have
control over the operations of the facilities of the third-party manufacturer that we use. While we may acquire our own manufacturing
facility in the future, or acquire our sole manufacturer, to provide us greater flexibility and control over our products manufacturing
needs, the operation of such a future plant might prove unsuccessful and fail.
The
manufacturer of our safes has extended favorable financing arrangements in the past, but there is no assurance that a future supplier
would provide similar favorable financing arrangements. Therefore, the continued supply and manufacturing of our sales by our
sole manufacturer and supplier are critical to our success. Any event that causes a disruption of the operation of our safes’ sole
manufacturer for even a relatively short period of time would adversely affect our ability to ship and deliver our safes and other products
and to provide service to our customers. We have previously experienced, including during the first months after the spread of COVID-19
pandemic, and may in the future experience, launch and production ramp up delays for our products as a result of disruption at our supplier’s
manufacturing partners.
Additionally,
we have fully qualified only a very limited number of suppliers in the past and have limited flexibility in changing suppliers. Any disruption
in the supply of our branded safes from our supplier could limit the availability of our sales and negatively impact our revenues. In
the long term, we intend to supplement safes manufactured by our supplier with safes manufactured by us, which we believe will be more
efficient and result in a greater manufacturing volume and under our control. Our efforts to develop and manufacture such safes, however,
have required and may require significant investments, and there can be no assurance that we will be able to achieve these targets in
the timeframes that we have planned or at all. If we are unable to do so, we may have to curtail our planned safes or procure additional
safes from suppliers at potentially greater costs, either of which may harm our business and operating results.
Furthermore,
the cost of safes, whether manufactured by our supplier or by us, depends in part upon the prices and availability of raw manufacturing
materials such as steel, locks, fireboard, hinges, pins and other metals. The prices for these materials fluctuate and their available
supply may be unstable, depending on market conditions and global demand for these materials, including as a result of increased global
production of electric vehicles and energy storage products. Any reduced availability of these materials may impact our access to these
parts and any increases in their prices may reduce our profitability if we cannot recoup the increased costs through increased safe prices.
Moreover, any such attempts to increase product prices may harm our brand, prospects and operating results.
We
have secured an exclusivity contract with a third-party manufacturer to assemble our new line of safes. We believe that this vertical
integration would allow us, among other benefits, to ramp up our production levels to meet expected demand for our products, provide
us greater autonomy over the manufacturing process
Our
success depends upon our ability to introduce new products that track customer preferences.
Our
success depends upon our ability to introduce new products that track consumer preferences. Our efforts to introduce new products into
the market may not be successful, and new products that we introduce may not result in customer or market acceptance. We develop new
products that we believe will match consumer preferences. The development of a new product is a lengthy and costly process and may not
result in the development of a marketable or profitable product. Failure to develop new products that are attractive to consumers could
decrease our sales, operating margins, and market share and could adversely affect our business, operating results, and financial condition.
Our
business depends on maintaining and strengthening our brand, as well as our reputation as a producer of high-quality goods, to maintain
and generate ongoing demand for our products, and any harm to our brand could result in a significant reduction in such demand which
could materially adversely affect our results of operations.
The
“American Rebel” name and brand image are integral to the growth of our business, as well as to the implementation of our
strategies for expanding our business. Our success depends on the value and reputation of our brand, which, in turn, depends on factors
such as the quality, design, performance, functionality and durability of our products, e-commerce sales and retail partner floor spaces,
our communication activities, including advertising, social media and public relations, and our management of the customer experience,
including direct interfaces through customer service. Maintaining, promoting, and positioning our brand are important to expanding our
customer base and will depend largely on the success of our marketing and merchandising efforts and our ability to provide consistent,
high-quality consumer experiences. To sustain long-term growth, we must continue to successfully promote our products to consumers, as
well as other individuals, who value and identify with our brand.
Ineffective
marketing, negative publicity, product diversion to unauthorized distribution channels, product or manufacturing defects, and those and
other factors could rapidly and severely diminish customer confidence in us. Maintaining and enhancing our brand image are important
to expanding our customer base. If we are unable to maintain or enhance our brand in current or new markets, or if we fail to continue
to successfully market and sell our products to our existing customers or expand our customer base, our growth strategy and results of
operations could be harmed.
Additionally,
independent third parties and consumers often review our products as well as those of our competitors. Perceptions of our offerings in
the marketplace may be significantly influenced by these reviews, which are disseminated via various media, including the Internet. If
reviews of our products are negative, or less positive as compared to those of our competitors, our brand may be adversely affected and
our results of operations materially harmed.
As
a significant portion of our revenues is derived by demand for our safes and personal security products for firearms storage purposes,
we depend on the availability and regulation of firearm/ammunition storage, as well as various economic, social and political factors.
Our
performance is influenced by a variety of economic, social, and political factors. General economic conditions and consumer spending
patterns can negatively impact our operating results. Economic uncertainty, unfavorable employment levels, declines in consumer confidence,
increases in consumer debt levels, increased commodity prices, and other economic factors may affect consumer spending on discretionary
items and adversely affect the demand for our products. In times of economic uncertainty, consumers tend to defer expenditures for discretionary
items, which affects demand for our products. Any substantial deterioration in general economic conditions that diminish consumer confidence
or discretionary income could reduce our sales and adversely affect our operating results. Economic conditions also affect governmental
political and budgetary policies. As a result, economic conditions also can have an effect on the sale of our products to law enforcement,
government, and military customers.
Political
and other factors also can affect our performance. Concerns about presidential, congressional, and state elections and legislature and
policy shifts resulting from those elections can affect the demand for our products. As most of our revenue is generated from sales of
safes, which are purchased in large numbers for firearms storage, speculation surrounding control of firearms, firearm products, and
ammunition at the federal, state, and local level and heightened fears of terrorism and crime can affect consumer demand for our products.
Often, such concerns result in an increase in near-term consumer demand and subsequent softening of demand when such concerns subside.
Inventory levels in excess of customer demand may negatively impact operating results and cash flow.
Federal
and state legislatures frequently consider legislation relating to the regulation of firearms, including amendment or repeal of existing
legislation. Existing laws may also be affected by future judicial rulings and interpretations firearm products, ammunition, and safe
gun storage. If such restrictive changes to legislation develop, we could find it difficult, expensive, or even impossible to comply
with them, impeding new product development and distribution of existing products.
Shortages
of components and materials, as well as supply chain disruptions, may delay or reduce our sales and increase our costs, thereby harming
our results of operations.
The
inability to obtain sufficient quantities of raw materials and components, including those necessary for the production of our products
could result in reduced or delayed sales or lost orders. Any delay in or loss of sales or orders could adversely impact our operating
results. Many of the materials used in the production of our products are available only from a limited number of suppliers. We do not
have long-term supply contracts with any suppliers. As a result, we could be subject to increased costs, supply interruptions, and difficulties
in obtaining raw materials and components.
Our
reliance on third-party suppliers for various raw materials and components for our products exposes us to volatility in the availability,
quality, and price of these raw materials and components. Our orders with certain of our suppliers may represent a very small portion
of their total orders. As a result, they may not give priority to our business, leading to potential delays in or cancellation of our
orders. A disruption in deliveries from our third-party suppliers, capacity constraints, production disruptions, price increases, or
decreased availability of raw materials or commodities could have an adverse effect on our ability to meet our commitments to customers
or increase our operating costs. Quality issues experienced by third party suppliers can also adversely affect the quality and effectiveness
of our products and result in liability and reputational harm.
We
do not have long-term purchase commitments from our customers, and their ability to cancel, reduce, or delay orders could reduce our
revenue and increase our costs.
Our
customers do not provide us with firm, long-term volume purchase commitments, but instead issue purchase orders for our products as needed.
As a result, customers can cancel purchase orders or reduce or delay orders at any time. The cancellation, delay, or reduction of customer
purchase orders could result in reduced sales, excess inventory, unabsorbed overhead, and reduced income from operations.
We
often schedule internal production levels and place orders for products with third party manufacturers before receiving firm orders from
our customers. Therefore, if we fail to accurately forecast customer demand, we may experience excess inventory levels or a shortage
of products to deliver to our customers. Factors that could affect our ability to accurately forecast demand for our products include
the following:
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an
increase or decrease in consumer demand for our products or for the products of our competitors; |
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our
failure to accurately forecast consumer acceptance of new products; |
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new
product introductions by us or our competitors; |
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changes
in our relationships within our distribution channels; |
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changes
in general market conditions or other factors, which may result in cancellations of orders or a reduction or increase in the rate
of reorders placed by retailers; |
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changes
in laws and regulations governing the activities for which we sell products, such as hunting and shooting sports; and |
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changes
in laws and regulations regarding the possession and sale of medical or recreational controlled- substances. |
Inventory
levels in excess of consumer demand may result in inventory write-downs and the sale of excess inventory at discounted prices, which
could have an adverse effect on our business, operating results, and financial condition. If we underestimate demand for our products,
our suppliers may not be able to react quickly enough to meet consumer demand, resulting in delays in the shipment of products and lost
revenue, and damage to our reputation and customer and consumer relationships. We may not be able to manage inventory levels successfully
to meet future order and reorder requirements.
We
face intense competition that could result in our losing or failing to gain market share and suffering reduced sales.
We
operate in intensely competitive markets that are characterized by price erosion and competition from major domestic and international
companies. Competition in the markets in which we operate is based on a number of factors, including price, quality, performance, reliability,
styling, product features, and warranties, and sales and marketing programs. This intense competition could result in pricing pressures,
lower sales, reduced margins, and lower market share.
Our
competitors include nationwide safe manufacturers and various smaller manufacturers and importers. Most of our competitors have greater
market recognition, larger customer bases, and substantially greater financial, technical, marketing, distribution, and other resources
than we possess and that afford them competitive advantages. As a result, they may be able to devote greater resources to the promotion
and sale of products, to invest more funds in intellectual property and product development, to negotiate lower prices for raw materials
and components, to deliver competitive products at lower prices, and to introduce new products and respond to consumer requirements more
quickly than we can.
Our
competitors could introduce products with superior features at lower prices than our products and could also bundle existing or new products
with other more established products to compete with us. Certain of our competitors may be willing to reduce prices and accept lower
profit margins to compete with us. Our competitors could also gain market share by acquiring or forming strategic alliances with other
competitors.
Finally,
we may face additional sources of competition in the future because new distribution methods offered by the Internet and electronic commerce
have removed many of the barriers to entry historically faced by start-up companies. Retailers also demand that suppliers reduce their
prices on products, which could lead to lower margins. Any of the foregoing effects could cause our sales to decline, which would harm
our financial position and results of operations.
Our
ability to compete successfully depends on a number of factors, both within and outside our control. These factors include the following:
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our
success in developing, producing, marketing, and successfully selling new products; |
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our
ability to efficiently manage our operations; |
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our
ability to implement our strategies and business plans; |
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our
ability to achieve future operating results; |
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our
ability to address the needs of our consumer customers; |
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the
pricing, quality, performance, and reliability of our products; |
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the
quality of our customer service; |
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the
efficiency of our production; and |
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product
or technology introductions by our competitors. |
Because
we believe technological and functional distinctions among competing products in our markets are perceived by many end-user consumers
to be relatively modest, effectiveness in marketing and manufacturing are particularly important competitive factors in our business.
We
have a limited operating history on which you can evaluate our company.
We
have a limited operating history on which you can evaluate our company. The corporate entity has existed since 2014 and started engaging
in its current primary business operations in April 2019. As a result, our business will be subject to many of the problems, expenses,
delays, and risks inherent in the establishment of a relatively new business enterprise.
We
have a limited operating history upon which an evaluation of our business plan or performance and prospects can be made. Our business
and prospects must be considered in the light of the potential problems, delays, uncertainties and complications encountered in connection
with a newly established business and creating a new line of products. The risks include, in part, the possibility that we will not be
able to develop functional and scalable products, or that although functional and scalable, our products and will not be economical to
market; that our competitors hold proprietary rights that preclude us from marketing such products; that our competitors market a superior
or equivalent product; that our competitors have such a significant advantage in brand recognition that our products will not be considered
by potential customers; that we are not able to upgrade and enhance our technologies and products to accommodate new features as the
market evolves; or the failure to receive necessary regulatory clearances for our products. To successfully introduce and market our
products at a profit, we must establish brand name recognition and competitive advantages for our products. There are no assurances that
we can successfully address these challenges. If it is unsuccessful, we and our business, financial condition and operating results could
be materially and adversely affected.
The
current and future expense levels are based largely on estimates of planned operations and future revenues. It is difficult to accurately
forecast future revenues because our business is relatively new, and our market is rapidly developing. If our forecasts prove incorrect,
the business, operating results and our financial condition will be materially and adversely affected. Moreover, we may be unable to
adjust our spending in a timely manner to compensate for any unanticipated reduction in revenue. As a result, any significant reduction
in revenues would immediately and adversely affect our business, financial condition and operating results.
We
are highly dependent on Charles A. Ross, our Chief Executive Officer. The loss of our Chief Executive Officer, whose knowledge, leadership
and industry reputational upon which we rely, could harm our ability to execute our business plan.
We
are highly dependent on Charles A. Ross, our Chief Executive Officer, Chairman of our Board of Directors and largest stockholder. Our
success depends heavily upon the continued contributions of Mr. Ross, whose leadership, industry reputation entrepreneurial background
and creative marketing skills may be difficult to replace at this stage in our business development, and on our ability to attract and
retain similarly positioned prominent leaders. If we were to lose the services of our Chief Executive Officer, our ability to execute
our business plan may be harmed and we may be forced to limit operations until such time as we could hire suitable replacements.
We
cannot predict when we will achieve profitability.
We
have not been profitable and cannot predict when or if we will achieve profitability. We have experienced net losses since our inception
in December 2014.
We
cannot predict when we will achieve profitability, if ever. Our inability to become profitable may force us to curtail or temporarily
discontinue our research and development programs and our day-to-day operations. Furthermore, there can be no assurance that profitability,
if achieved, can be sustained on an ongoing basis. As of December 31, 2021, we had an accumulated deficit of $26,969,657.
We
have limited financial resources. Our independent registered auditors’ report includes an explanatory paragraph stating that there
is substantial doubt about our ability to continue as a going concern.
As
a result of our deficiency in working capital at December 31, 2021 and other factors, our auditors have included a paragraph in their
audit report regarding substantial doubt about our ability to continue as a going concern. Our plans in this regard are to increase product
sales, increase production, obtain inventory financing, seek strategic alternatives and to seek additional capital through future equity
private placements or debt facilities. In February of 2022, we completed a public offering for $10.5 million, which will allow us to
operate through fiscal 2022.
We
have recorded net losses since inception and have significant accumulated deficits. We have relied upon loans and equity financings for
operating capital. Total revenues will be insufficient to pay off existing debt and fund operations. We may be required to rely on further
debt financing, further loans from related parties, and private placements of our common and preferred stock for our additional cash
needs. Such funding sources may not be available, or the terms of such funding sources may not be acceptable to the Company.
American
Rebel has limited financial resources. There is substantial doubt about our ability to continue as a going concern if we are unable to
raise additional funds.
We
expect to require additional funds to further develop our business plan, including the anticipated launch of new products, in addition
to continuing to market 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 need to 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 may be dilutive to existing
stockholders. Along these lines, in February of 2022, we completed a public offering for $10.5 million, which will allow us to operate
through fiscal 2022.
The
sales of our safes are dependent in large part on the sales of firearms.
We
market safes and other personal security products for sale to a wide variety of consumers. Although our customer base is large and diverse,
and our products serve our customers’ different needs, our products have been particularly popular among collectors, hunters, sportsmen,
competitive shooters, and gun enthusiasts. The sale of safe firearms storage and security components is influenced by the sale and usage
of firearms. Sales of firearms are influenced by a variety of economic, social, and political factors, which may result in volatile sales.
Our
financial results may be affected by tariffs or border adjustment taxes or other import restrictions.
Our
current backpack and apparel suppliers have facilities both in China and Mexico and the imposition of tariffs or border adjustment taxes
may affect our financial results. The current political climate is hostile to companies manufacturing goods outside of the US. At the
current manufacturing levels, it is impractical to seek manufacturing facilities in the United States as US manufacturers are unable
to meet or even approach the cost of manufacturing small quantities of custom-made goods. We are in the process of locating an alternative
supplier which will have the capacity to produce commercial volumes of our backpacks and apparel to meet our expected demands. However,
we have not yet located a suitable supplier and, even if we are able to do so, there is no guarantee that our manufacturing process will
scale to produce our products in quantities sufficient to meet demand.
An
inability to expand our e-commerce business and sales organization to effectively address existing and new markets that we intend to
target could reduce our future growth and impact our business and operating results.
Consumers
are increasingly purchasing products online. We operate a direct-to-consumer e-commerce store to maintain an online presence with our
end users. The future success of our online operations depends on our ability to use our marketing resources to communicate with existing
and potential customers. We face competitive pressure to offer promotional discounts, which could impact our gross margin and increase
our marketing expenses. We are limited, however, in our ability to fully respond to competitor price discounting because we cannot market
our products at prices that may produce adverse relationships with our customers that operate brick and mortar locations as they may
perceive themselves to be at a disadvantage based on lower e-commerce pricing to end consumers. There is no assurance that we will be
able to successfully expand our e-commerce business to respond to shifting consumer traffic patterns and direct-to-consumer buying trends.
In
addition, e-commerce and direct-to-consumer operations are subject to numerous risks, including implementing and maintaining appropriate
technology to support business strategies; reliance on third-party computer hardware/software and service providers; data breaches; violations
of state, federal or international laws, including those relating to firearms and ammunition sales; online privacy; credit card fraud;
telecommunication failures; electronic break-ins and similar disruptions; and disruption of Internet service. Our inability to adequately
respond to these risks and uncertainties or to successfully maintain and expand our direct-to-consumer business may have an adverse impact
on our business and operating results.
We
sell products that create exposure to potential product liability, warranty liability, or personal injury claims and litigation.
Our
products are used to store, in part, items that involve risk of personal injury and death. Our products expose us to potential product
liability, warranty liability, and personal injury claims and litigation relating to the use or misuse of our products, including allegations
of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product or activities associated with the
product, negligence, and strict liability. If successful, any such claims could have a material adverse effect on our business, operating
results, and financial condition. Defects in our products may result in a loss of sales, recall expenses, delay in market acceptance,
and damage to our reputation and increased warranty costs, which could have a material adverse effect on our business, operating results,
and financial condition. Although we maintain product liability insurance in amounts that we believe are reasonable, we may not be able
to maintain such insurance on acceptable terms, if at all, in the future and product liability claims may exceed the amount of insurance
coverage. In addition, our reputation may be adversely affected by such claims, whether or not successful, including potential negative
publicity about our products.
Despite
the Company’s indebtedness levels, we are able to incur substantially more debt. This could further increase the risks associated
with its leverage.
We
may incur substantial additional indebtedness in the future, although certain terms of current debt agreements prohibit us from doing
so. To the extent that we incur additional indebtedness, the risks associated with its substantial indebtedness describe above, including
its possible inability to service its debt, will increase.
At
this stage of our business operations, even with our good faith efforts, investors in our company may lose some or all of their investment.
Because
the nature of our business is expected to change as a result of shifts in the industries in which we operate, competition, and the development
of new and improved technology, management forecasts are not necessarily indicative of future operations and should not be relied upon
as an indication of future performance. Further, we have raised substantial debt and equity to fund our business operations, which to
date have generated insufficient revenue to support our working capital needs.
While
management believes its estimates of projected occurrences and events are within the timetable of its business plan, our actual results
may differ substantially from those that are currently anticipated. If our revenues do not increase to a level to support our working
capital needs, we will be forced to seek equity capital to fund our operations and repay our substantial debt balances, which may not
be available to us on acceptable terms or at all.
Product
defects could adversely affect the results of our operations.
The
design, manufacture and marketing of our products involve certain inherent risks. Manufacturing or design defects, unanticipated use
of our products, or inadequate disclosure of risks relating to the use of our products can lead to injury or other adverse events. The
Company may not properly anticipate customer applications of our products and our products may fail to survive such unanticipated customer
use. If the Company’s products fail to adequately perform to meet the customer’s expectations, the customer may demand refunds
or replacements which will negatively affect the Company’s profitability.
We
could be exposed to significant liability claims if we are unable to obtain insurance at acceptable costs and adequate levels or otherwise
protect ourselves against potential product liability claims.
Our
products support the use and access to firearms and if our products are ineffective, we could require protection against potential product
liability claims.
We
will not be profitable unless we can demonstrate that our products can be manufactured at low prices.
To
date, we have manufactured our products in limited volume. As the Company creates demand for its products, our projections require the
benefit of volume discounts as we increase the size of our order. We can offer no assurance that either we or our manufacturing partners
will develop efficient, automated, low-cost manufacturing capabilities and processes to meet the quality, price, engineering, design
and production standards or production volumes required to successfully mass market our products. Even if we or our manufacturing partners
are successful in developing such manufacturing capability and processes, we do not know whether we or they will be timely in meeting
our product commercialization schedule or the production and delivery requirements of potential customers. A failure to develop such
manufacturing processes and capabilities could have a material adverse effect on our business and financial results.
Our
profitability in part is dependent on material and other manufacturing costs. We are unable to offer any assurance that either we or
a manufacturing partner will be able to reduce costs to a level that will allow production of a competitive product or that any product
produced using lower cost materials and manufacturing processes will not suffer from a reduction in performance, reliability and longevity.
War,
terrorism, other acts of violence or natural or manmade disasters such as a pandemic, epidemic,
outbreak of an infectious disease or other public health crisis may affect the markets in which the Company operates, the Company’s
customers, the Company’s delivery of products and customer service, and could have a material adverse impact on our business, results
of operations, or financial condition.
Our
business and supply chain may be adversely affected by instability, disruption or destruction in a geographic region in which it operates,
regardless of cause, including war, terrorism, riot, civil insurrection or social unrest, and natural or manmade disasters, including
famine, food, fire, earthquake, storm or pandemic events and spread of disease (including the outbreak of COVID-19).
Such
events may cause customers to suspend their decisions on using the Company’s products and services, make it impossible to access
some of our inventory, and give rise to sudden significant changes in regional and global economic conditions and cycles that could interfere
with purchases of goods or services and commitments to develop new products and services. These events also pose significant risks to
the Company’s personnel and to physical facilities, transportation and operations, which could materially adversely affect the
Company’s financial results.
Any
significant disruption to communications and travel, including travel restrictions and other potential protective quarantine measures
against COVID-19 or other public health crisis by governmental agencies, could make it difficult
for the Company to deliver goods services to its customers. War, riots, or other disasters may increase the need for our products and
demand by government and military may make it difficult for use to provide products to customers. Further, travel restrictions and protective
measures against COVID-19 could cause the Company to incur additional unexpected labor costs and expenses or could restrain the Company’s
ability to retain the highly skilled personnel the Company needs for its operations. Due to the
substantial uncertainty related to the effects of the pandemic, its duration and the related market impacts, including the economic stimulus
activity, we are unable to predict the specific impact the pandemic and related restrictions (including the lifting or re-imposing of
restrictions due to the Omicron variant or otherwise) will have on our results of operations, liquidity or long-term financial results.
We
believe COVID-19 has not yet had a materially adverse effect on our operational results, but could at any time and without notice in
the foreseeable future. As a result of COVID-19, at any time we may be subject to increased operating costs, supply interruptions, and
difficulties in obtaining raw materials and components. COVID-19 has resulted in restrictions, postponements and cancelations of meetings,
conferences, trade shows and the impact, extent and duration of the government-imposed restrictions on travel and public gatherings as
well as the overall effect of the COVID-19 virus is currently unknown.
The
costs of being a public company could result in us being unable to continue as a going concern.
As
a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits
and internal control. The costs of maintaining public company reporting requirements could be significant and may preclude us from seeking
financing or equity investment on terms acceptable to us and our stockholders. We estimate these costs to be in excess of $100,000 per
year and may be higher if our business volume or business activity increases significantly. Our current estimate of costs does not include
the necessary expenses associated with compliance, documentation and specific reporting requirements of Section 404 as we will not be
subject to the full reporting requirements of Section 404 until we exceed $700 million in public float market capitalization.
If
our revenues are insufficient or non-existent, or we cannot satisfy many of these costs through the issuance of shares or debt, we may
be unable to satisfy these costs in the normal course of business. This would certainly result in our being unable to continue as a going
concern.
Any
acquisitions that we potentially undertake will involve significant risks, and any acquisitions that we undertake in the future could
disrupt our business, dilute stockholder value, and harm our operating results.
Part
of our growth strategy is to expand our operations through strategic acquisitions to enhance existing products and offer new products,
enter new markets and businesses, strengthen and avoid interruption from our supply chain, and enhance our position in current markets
and businesses. Acquisitions involve significant risks and uncertainties. We cannot accurately predict the timing, size, and success
of any future acquisitions. We may be unable to identify suitable acquisition candidates or to complete the acquisitions of candidates
that we identify. Increased competition for acquisition candidates or increased asking prices by acquisition candidates may increase
purchase prices for acquisitions to levels beyond our financial capability or to levels that would not result in the returns required
by our acquisition criteria. Unforeseen expenses, difficulties, and delays frequently encountered in connection with expansion through
acquisitions could inhibit our growth and negatively impact our operating results.
Our
ability to complete acquisitions that we desire to make will depend upon various factors, including the following:
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availability of suitable acquisition candidates at attractive purchase prices; |
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ability to compete effectively for available acquisition opportunities; |
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availability of cash resources, borrowing capacity, or stock at favorable price levels to provide required purchase prices in acquisitions; |
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We
may have little or no experience with certain acquired businesses, which could involve significantly different supply chains, production
techniques, customers, and competitive factors than our current business. This lack of experience would require us to rely to a great
extent on the management teams of these acquired businesses. These acquisitions also could require us to make significant investments
in systems, equipment, facilities, and personnel in anticipation of growth. These costs could be essential to implement our growth strategy
in supporting our expanded activities and resulting corporate structure changes. We may be unable to achieve some or all of the benefits
that we expect to achieve as we expand into these new markets within the time frames we expect, if at all. If we fail to achieve some
or all of the benefits that we expect to achieve as we expand into these new markets, or do not achieve them within the time frames we
expect, our business, financial condition, and results of operations could be adversely affected.
Unforeseen
expenses, difficulties, and delays frequently encountered in connection with future acquisitions could inhibit our growth and negatively
impact our profitability. Any future acquisitions may not meet our strategic objectives or perform as anticipated. In addition, the size,
timing, and success of any future acquisitions may cause substantial fluctuations in our operating results from quarter to quarter. These
interim fluctuations could adversely affect the market price of our Common Stock.
If
we finance any future acquisitions in whole or in part through the issuance of Common Stock or securities convertible into or exercisable
for Common Stock, existing stockholders will experience dilution in the voting power of their Common Stock and earnings per share could
be negatively impacted. The extent to which we will be able or willing to use our Common Stock for acquisitions will depend on the market
price of our Common Stock from time-to-time and the willingness of potential acquisition candidates to accept our Common Stock as full
or partial consideration for the sale of their businesses. Our inability to use our Common Stock as consideration, to generate cash from
operations, or to obtain additional funding through debt or equity financings to pursue an acquisition could limit our growth.
We
may not be able to successfully fund future acquisitions of new businesses due to the lack of availability of debt or equity financing
on acceptable terms, which could impede the implementation of our acquisition strategy and materially adversely impact our financial
condition, business and results of operations.
In
order to make future acquisitions, we intend to raise capital primarily through debt financing, additional equity offerings, the sale
of stock or assets of our businesses, and by offering equity in the businesses to the sellers of target businesses or by undertaking
a combination of any of the above. Since the timing and size of acquisitions cannot be readily predicted, we may need to be able to obtain
funding on short notice to benefit fully from attractive acquisition opportunities. Such funding may not be available on acceptable terms.
In addition, the level of our indebtedness may impact our ability to borrow funds on acceptable terms. Another source of capital for
us may be the sale of additional shares of Common Stock, subject to market conditions and investor demand for the shares at prices that
we consider to be in the interests of our stockholders. These risks may materially adversely affect our ability to pursue our acquisition
strategy successfully and materially adversely affect our financial condition, business and results of operations.
RISKS
RELATED TO OUR LEGAL AND REGULATORY ENVIRONMENT
Failure
to comply with applicable laws and changing legal and regulatory requirements could harm our business and financial results.
Our
policies and procedures are reasonably designed to comply with applicable laws, accounting and reporting requirements, tax rules and
other regulations and requirements, including those imposed by the SEC, and foreign countries, as well as applicable trade, labor, safety,
environmental, labeling and gun safety related laws, such as the Protection of Lawful Commerce
in Arms Act as well as state laws. The complexity of the regulatory environment in which we operate and the related cost of compliance
are both increasing due to additional or changing legal and regulatory requirements, our ongoing expansion into new markets and new channels,
and the fact that foreign laws occasionally conflict with domestic laws. In addition to potential damage to our reputation and brand,
failure by us or our business partners to comply with the various applicable laws and regulations, as well as changes in laws and regulations
or the manner in which they are interpreted or applied, may result in litigation, civil and criminal liability, damages, fines and penalties,
increased cost of regulatory compliance and restatements of our financial statements and have an adverse impact on our business and financial
results.
Our
ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
As
of December 31, 2021, and December 31, 2020, we had net operating loss carryforwards, or NOLs, for federal and state income tax purposes
of $26,969,657 and $20,870,713, respectively, which begins to expire in 2034. Net operating loss carryforwards are available to reduce
future taxable income. The federal net operating losses generated before 2018 will begin to expire in 2032. The federal net operating
losses generated in and after 2018 may be carried forward indefinitely. The expiration of state NOL carryforwards vary by state and begin
to expire in 2024. It is possible that we will not generate taxable income in time to use NOLs before their expiration, or at all. Under
Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation undergoes an “ownership
change,” the corporation’s ability to use its pre-change NOLs and other tax attributes to offset its post-change income may
be limited. In general, an “ownership change” will occur if there is a cumulative change in our ownership by “5 percent
stockholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws.
Our ability to use NOLs and other tax attributes to reduce future taxable income and liabilities may be subject to annual limitations
as a result of prior ownership changes and ownership changes that may occur in the future (which may be outside our control).
Under
the Tax Cuts and Jobs Act of 2017, or the Tax Act, as amended by the CARES Act, NOLs arising in tax years beginning after December 31,
2017, are subject to an 80% of taxable income limitation (as calculated before taking the NOLs into account) for tax years beginning
after December 31, 2020. In addition, NOLs arising in tax years 2018, 2019, and 2020 are subject to a five-year carryback and indefinite
carryforward, while NOLs arising in tax years beginning after December 31, 2020, also are subject to indefinite carryforward but cannot
be carried back. Our NOLs may also be subject to limitations in other jurisdictions. For example, California recently enacted legislation
suspending the use of NOLs for taxable years 2020, 2021, and 2022 for many taxpayers. In future years, if and when a net deferred tax
asset is recognized related to our NOLs, the changes in the carryforward/carryback periods as well as the new limitation on use of NOLs
may significantly impact our valuation allowance assessments for NOLs generated after December 31, 2017.
If
we are unable to protect our intellectual property, we may lose a competitive advantage or incur substantial litigation costs to protect
our rights.
Our
future success depends upon our proprietary technology. Our protective measures, including patent and trade secret protection, may prove
inadequate to protect our proprietary rights. The right to stop others from misusing our trademarks, service marks, and patents in commerce
depends to some extent on our ability to show evidence of enforcement of our rights against such misuse in commerce. Our efforts to stop
improper use, if insufficient, may lead to loss of trademark and service mark rights, brand loyalty, and notoriety among our customers
and prospective customers. The scope of any patent that we have or may obtain may not prevent others from developing and selling competing
products. The validity and breadth of claims covered in technology patents involve complex legal and factual questions, and the resolution
of such claims may be highly uncertain, and expensive. In addition, our patents may be held invalid upon challenge, or others may claim
rights in or ownership of our patents. Company owned trademarks are listed under the heading Intellectual Property on page 20.
We
are subject to the periodic reporting requirements of Section 15(d) and 12(g) of the Exchange Act that require us to incur audit fees
and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn
a profit.
We
are required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder.
In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements
on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist
in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this
time because factors such as the number and type of transactions that we engage in, and the complexity of our reports cannot be determined
at this time and will affect the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will
obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a
profit.
However,
for as long as we remain a smaller reporting company as defined in Item 10(f)(1) of Regulation S-K, we may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not smaller reporting companies
including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley
Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, reduced
financial statement disclosure in registration statements, which must include two years of audited financial statements, reduced financial
statement disclosure in annual reports on Form 10-K, and exemptions from the auditor attestation
of management’s assessment of internal control over financial reporting. We may take advantage of these reporting exemptions
until we are no longer a smaller reporting company.
If
we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose
confidence in our reported financial information, and the trading price of our Common Stock, if a market ever develops, could drop significantly.
Our
internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated
to the public.
Our
management is responsible for establishing and maintaining adequate internal control over our financial reporting. As defined in Exchange
Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive
and principal financial officer and effected by the Board of Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and procedures that:
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pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets
of the Company; |
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provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and/or directors of the Company; and |
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provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements. |
Our
internal controls may be inadequate or ineffective, which could cause financial reporting to be unreliable and lead to misinformation
being disseminated to the public. Furthermore, our accounting policies and methods are fundamental to how we report our financial condition
and results of operations, and they may require our management to make estimates about matters that are inherently uncertain. Investors
relying upon this misinformation may make an uninformed investment decision.
Failure
to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to
lose confidence in our reported financial information, either of which could have a material adverse effect on the Company’s business,
financial condition, results of operations and future prospects.
However,
our auditors will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to
Section 404 until we are no longer a smaller reporting company.
RISKS
RELATED TO AN INVESTMENT IN OUR SECURITIES
Stockholders’
voting power and ownership interest may be diluted significantly through our efforts to obtain financing and satisfy obligations through
issuance of additional shares.
Our
Second Amended and Restated Articles of Incorporation authorizes our Board of Directors to issue up to 600,000,000 shares of Common Stock
and up to 10,000,000 shares of preferred stock, of which we have designated 100,000 shares as Series A – Super Voting Convertible
Preferred Stock (“Series A Preferred Stock”) (which were issued to two members of our current management, Messrs. Charles
A. Ross, Jr. and Doug E. Grau, and have superior voting rights of 1,000 to 1 over shares of our Common Stock, resulting in nearly 96%
of the available stockholder votes). While the Certificate of Designation is named “Certificate of Designation of Series A Convertible
Preferred Stock”, the Company’s Existing Series A Preferred Stock is not convertible into shares of Common Stock of the Company
or redeemable by either the Company or another person. The power of the Board of Directors to issue shares of Common Stock, preferred
stock or warrants or options to purchase shares of Common Stock or preferred stock is generally not subject to stockholder approval,
except for issuances of more than 20% of the company’s outstanding Common Stock or voting power.
While we just completed a
capital raise utilizing a financial institution, we may attempt to raise additional capital by returning to the market to sell shares,
possibly at a deep discount. These actions may result in dilution of the ownership interests and voting power of existing stockholders,
further dilute Common Stock book value, and may delay, defer or prevent a change of control.
Additionally,
series of preferred stock may carry the preferred right to our assets upon liquidation, the right to receive dividend payments before
dividends are distributed to the holders of Common Stock, superior voting or conversion rights and the right to the redemption of the
shares, together with a premium, prior to the redemption of our Common Stock.
Our
board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to
Common Stockholders and with the ability to affect adversely stockholder voting power and perpetuate their control over us.
Our
Second Amended and Restated Articles of Incorporation allow us to issue shares of preferred stock without any vote or further action
by our stockholders. Our Board of Directors has the authority to fix and determine the relative rights and preferences of preferred stock.
As a result, our Board of Directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred
right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of Common Stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our Common Stock.
Our
Common Stock may be affected by limited trading volume and our share price may be volatile, which could adversely impact the value of
our Common Stock.
There
can be no assurance that an active trading market in our Common Stock will be maintained. Our Common Stock is likely to experience significant
price and volume fluctuations in the future, which could adversely affect the market price of our Common Stock without regard to our
operating performance and the market price of our Common Stock may drop below the price paid by
investors. In addition, we believe that factors such as our operating results, quarterly fluctuations in our financial results
and changes in the overall economy or the condition of the financial markets, including as the result of the COVID-19 pandemic, could
cause the price of our Common Stock to fluctuate substantially. These fluctuations may also cause short sellers to periodically enter
the market in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore,
can offer no assurances that the market for our Common Stock will be stable or appreciate over time.
Warrants
are speculative in nature.
The
Warrants included in our February 2022 public offering do not confer any rights of Common Stock ownership on their holders, such as voting
rights or the right to receive dividends, but rather merely represent the right to acquire shares of our Common Stock at a fixed price
for a limited period of time. Specifically, commencing on the date of issuance, holders of the Warrants may exercise their right to acquire
the Common Stock and pay an exercise price of per share, prior to five years from the date of issuance, after which date any unexercised
Warrants will expire and have no further value. Until holders of the Warrants acquire Common Stock upon exercise of the Warrants, the
holders will have no rights with respect to the Common Stock issuable upon exercise of the Warrants. Upon exercise of the Warrants, the
holder will be entitled to exercise the rights of a Stockholder as to the security exercised only as to matters for which the record
date occurs after the exercise. Moreover, the market value of the Warrants is uncertain and there can be no assurance that the market
value of the Warrants will equal or exceed their public offering price. There can be no assurance that the market price of the Common Stock will ever equal or exceed the exercise price of the Warrants, and consequently, whether it will ever be profitable for holders
of the Warrants to exercise the Warrants.
Provisions
of the Warrants sold in our February 2022 public offering could discourage an acquisition of us by a third party.
In
addition to the discussion of the provisions of our governing organizational documents, certain provisions of the Warrants offered in
our February 2022 public offering could make it more difficult or expensive for a third party to acquire us. The Warrants prohibit us
from engaging in certain transactions constituting “fundamental transactions” unless, among other things, the surviving entity
assumes our obligations under the Warrants. These and other provisions of the Warrants could prevent or deter a third party from acquiring
us even where the acquisition could be beneficial to our stockholders.
Our
executive officers and directors, and their affiliated entities, own a significant percentage of our stock and will be able to exert
significant control over matters subject to stockholder approval.
Our
executive officers and directors beneficially own approximately 12% of our Common Stock. In addition, as referenced above, we issued
100,000 shares of Series A Preferred Stock to two members of our current management, Messrs. Charles A. Ross, Jr. and Doug E. Grau, which
have superior voting rights of 1,000 to 1 over shares of our Common Stock, resulting in nearly 96% of the available stockholder votes.
While the Certificate of Designation is named “Certificate of Designation of Series A Convertible Preferred Stock”, the Company’s
Existing Series A Preferred Stock is not convertible into shares of Common Stock of the Company or redeemable by either the Company or
another person.
Accordingly,
these stockholders may, as a practical matter, continue to be able to control the election
of a majority of our directors and the determination of all corporate actions after this
offering. This concentration of ownership could delay or prevent a change in control of the
Company.
We
do not anticipate that we will pay dividends on our Common Stock and, consequently, your ability to achieve a return on your investment
will depend on appreciation in the price of our Common Stock.
We
have never paid cash dividends on our Common Stock. We do not expect to pay cash dividends on our Common Stock at any time in the foreseeable
future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other
factors that our Board of Directors will consider. Since we do not anticipate paying cash dividends on our Common Stock, return on your
investment, if any, will depend solely on an increase, if any, in the market value of our Common Stock.
RISKS
RELATED TO THE INDUSTRY
The
industry in which we operate is competitive, price sensitive and subject to risks of governmental regulations or laws. If our competitors
are better able to develop and market products that are more effective, less costly, easier to use, or are otherwise more attractive,
we may be unable to compete effectively with other companies.
The
safe and personal security industry is characterized by intense competition. We will face competition on the basis of product features,
reliability, price, apparent value, and other factors. Competitors may include large safe makers and other companies, some of which have
significantly greater financial and marketing resources than we do, and firms that are more specialized than we are with respect to particular
markets. Our competition may respond more quickly to new or emerging styles, undertake more extensive marketing campaigns, have greater
financial, marketing and other resources than ours or may be more successful in attracting potential customers, employees and strategic
partners.
Our
industry could experience greater scrutiny and regulation by governmental authorities, which may lead to greater governmental regulation
in the future.
The
rapidly growing interest in new concealed carry products that this rapidly growing market may attract the attention of government regulators
and legislators. The current trend in legislation is to roll back or minimize access to firearms restrictions, but there can be no assurance
that this trend will continue.
RISKS RELATED TO THE CANNABIS INDUSTRY
Federal
regulation and enforcement may adversely affect the implementation of medical controlled substance laws and regulations may negatively
impact our revenues and profits.
Currently,
many states plus the District of Columbia have laws or regulations that recognize, in one form or another, legitimate medical uses for
cannabis and consumer use of cannabis in connection with medical treatment. Many other states are considering similar legislation. Conversely,
under the Controlled Substance Act (the “CSA”), the policies and regulations of the Federal government and its agencies are
that cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited.
Unless and until Congress amends the CSA with respect to medical marijuana, as to the timing or scope of any such potential amendments
there can be no assurance, there is a risk that federal authorities may enforce current federal law. Active enforcement of the current
federal regulatory position on cannabis may thus indirectly and adversely affect our revenues and profits. The risk of strict enforcement
of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain.
The
DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana
for use on private property but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses
its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana
in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted
by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further
Continuing Appropriations Act may be used to prevent certain states, including Nevada and California, from implementing their own laws
that authorized the use, distribution, possession, or cultivation of medical marijuana.
Variations
in state and local regulation and enforcement in states that have legalized medical controlled substance that may restrict marijuana-related
activities, including activities related to medical cannabis and Biotech complex work on cannabis, may negatively impact our revenues
and profits.
Individual
state laws do not always conform to the federal standard or to other states laws. A number of states have decriminalized marijuana to
varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalization and
medical laws. Nineteen states and the District of Columbia and Guam have legalized the recreational use of cannabis. Variations exist
among states that have legalized, decriminalized, or created medical marijuana exemptions. For example, Alaska and Colorado have limits
on the number of marijuana plants that can be homegrown. In most states, the cultivation of marijuana for personal use continues to be
prohibited except for those states that allow small-scale cultivation by the individual in possession of medical marijuana needing care
or that person’s caregiver. Active enforcement of state laws that prohibit personal cultivation of marijuana may indirectly and
adversely affect our business and our revenue and profits.
It
is possible that federal or state legislation could be enacted in the future that would prohibit us or potential customers from using
our products, and if such legislation were enacted, our revenues could decline, leading to a loss in your investment.
We
are not aware of any federal or state regulation that regulates the sale of indoor cultivation equipment to medical or recreational marijuana
growers. The extent to which the regulation of drug paraphernalia under the CSA is applicable to the sale of our dispensaries is found
in the definition of “drug paraphernalia.” Drug paraphernalia means any equipment, product, or material of any kind that
is primarily intended or designed for use in manufacturing, compounding, converting, concealing, producing processing, preparing, injecting,
ingesting, inhaling, or otherwise introducing into the human body a controlled substance, possession of which is unlawful.
Marijuana
remains illegal under federal law
Cannabis
is illegal under U.S. federal law. In those states in which the use of cannabis has been legalized, its use remains a violation of federal
law pursuant to the Controlled Substances Act (21 U.S.C. § 811). The Controlled Substances Act classifies cannabis as a Schedule
I controlled substance, and as such, medical and adult use cannabis use is illegal under U.S. federal law. Unless and until Congress
amends the Controlled Substances Act with respect to cannabis (and the President approves such amendment), there is a risk that federal
authorities may enforce current federal law. Since federal law criminalizing the use of cannabis pre-empts state laws that legalize its
use, enforcement of federal law regarding cannabis is a significant risk and would likely result in our inability to precede with our
business plans, especially in respect of expanding the reach of our dispensaries sale.
We
are indirectly engaged in the medical and adult use cannabis industry in the United States where local state law permits such activities.
The legality of the production, cultivation, extraction, distribution, retail sales, transportation and use of cannabis differs among
states in the United States. Due to the current regulatory environment in the United States, new risks may emerge, and management may
not be able to predict all such risks.
As
of September 2021, there were 36 states, plus the District of Columbia (and the territories of Guam, Puerto Rico, the U.S. Virgin Islands
and the Northern Mariana Islands), that have laws and/or regulations that recognize, in one form or another, legitimate medical uses
for cannabis and consumer use of cannabis in connection with medical treatment. In addition, Alaska, California, Colorado, Illinois,
Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, Washington and the District of Columbia have legalized cannabis for adult use.
Due
to the conflicting views between state legislatures and the federal government regarding cannabis, cannabis businesses are subject to
inconsistent laws and regulations. There can be no assurance that the federal government will not enforce federal laws relating to cannabis
and seek to prosecute cases involving cannabis businesses that are otherwise compliant with state laws in the future. While we are not
subject to these laws, the uncertainty of U.S. federal enforcement practices going forward and the inconsistency between U.S. federal
and state laws and regulations present risks for our dispensary safes business, including incurring substantial costs associated with
compliance or altering certain aspects of our business plan.