AMERICAN REBEL HOLDINGS INC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024

(unaudited)

NOTE 1 –ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The Company was incorporated on December 15, 2014, under the laws of the State of Nevada, as CubeScape, Inc. Effective January 5, 2017, the Company amended its articles of incorporation and changed its name to American Rebel Holdings, Inc. On June 19, 2017, the Company completed a business combination with its majority stockholder, American Rebel, Inc. As a result, American Rebel, Inc. became a wholly-owned subsidiary of the Company.

Nature of Operations

The Company develops and sells branded products in the self-defense, safe storage and other patriotic product areas using a wholesale distribution network, utilizing personal appearances, musical venue performances, as well e-commerce and television. The Company’s products are marketed under the American Rebel Brand and are proudly imprinted with such branding. Through its “Champion Entities” (which consists of Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC, and Champion Safe De Mexico, S.A. de C.V.) the Company promotes and sells its safe and storage products through a growing network of dealers, in select regional retailers and local specialty safe, sporting goods, hunting and firearms retail outlets, as well as through online avenues, including website and e-commerce platforms. The Company sells its products under the Champion Safe Co., Superior Safe Company and Safe Guard Safe Co. brands as well as the American Rebel Brand. On August 9, 2023, the Company entered into a Master Brewing Agreement (the “Brewing Agreement”) with Associated Brewing Company, a Minnesota limited liability company (“Associated Brewing”). Under the terms of the Brewing Agreement, Associated Brewing has been appointed as the exclusive producer and seller of American Rebel branded spirits, with the initial product being the American Rebel Light Beer (“American Rebel Beer”). We established American Rebel Beverages, LLC as a wholly-owned subsidiary to hold our licenses with respect to the beer business. American Rebel Beer plans to launch regionally in 2024.

To varying degrees, the development of geopolitical conflicts, supply chain disruptions and government actions to slow rapid inflation in recent years have produced varying effects on our business. The economic effects from these events over the long term cannot be reasonably estimated at this time. Accordingly, estimates used in the preparation of our financial statements, including those associated with the evaluation of certain long-lived assets, goodwill and other intangible assets for impairment, expected credit losses on amounts owed to us (through accounts receivable) and the estimations of certain losses assumed under warranty and other liability contracts, may be subject to significant adjustments in future periods.

Interim Financial Statements and Basis of Presentation

The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the SEC set forth in Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by the U.S. GAAP for complete financial statements. The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Unaudited interim results are not necessarily indicative of the results for the full fiscal year. These financial statements should be read along with the Annual Report filed on Form 10-K of the Company for the period ended December 31, 2023, and notes thereto contained, filed on April 12, 2024.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, American Rebel, Inc., American Rebel Beverages, LLC, and the Champion Entities. All significant intercompany accounts and transactions have been eliminated.

Year-end

The Company’s year-end is December 31.

Cash and Cash Equivalents

For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.

Inventory and Inventory Deposits

Inventory consists of backpacks, jackets, safes, other storage products and accessories manufactured to our design and held for resale and are carried at the lower of cost (First-in, First-out Method) or net realizable value. The Company determines an estimate for the reserve of slow moving or obsolete inventories by regularly evaluating individual inventory levels, projected sales and current economic conditions. The Company makes deposit payments on certain inventory to be manufactured that are carried separately until the manufactured goods are received into inventory.

Fixed Assets and Depreciation

Property and equipment are stated at cost, net of accumulated depreciation. Additions and improvements are capitalized while ordinary maintenance and repair expenditures are charged to expense as incurred. Depreciation is recorded using the straight-line method over the estimated useful life of the asset, which ranges from five toseven years.

Revenue Recognition

In accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, revenues are recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods and services. To achieve this core principle, we apply the following five steps: (1) Identify the contract with a client; (2) Identify the performance obligations in the contract; (3) Determine the transaction price; (4) Allocate the transaction price to performance obligations in the contract; and (5) Recognize revenues when or as the company satisfies a performance obligation.

These steps are met when an order is received, a price is agreed to, and the product is shipped or delivered to that customer. Accounts receivable totaled $2,967,435, $2,816,541 and $1,613,489 as of March 31, 2024, December 31, 2023, and December 31, 2022, respectively.

The carrying amount of accounts receivables is reduced by a valuation allowance for expected credit losses, as necessary, that reflects management’s best estimate of the amount that will not be collected. This estimation takes into consideration historical experience, current conditions and, as applicable, reasonable supportable forecasts. Actual results could vary from the estimate. Accounts are charged against the allowance when management deems them to be uncollectible. The allowance for doubtful accounts was not material as of March 31, 2024, and December 31, 2023.

Advertising Costs

Advertising costs are expensed as incurred; Marketing costs which we consider to be advertising costs incurred were $265,055 and $252,725 for the three-month periods ended March 31, 2024, and 2023, respectively.

Fair Value of Financial Instruments

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2024, and December 31, 2023, respectively. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

Fair value is defined as the exchange value that would be received on the measurement date to sell an asset or to value the amount paid to transfer a liability in the principal or most advantageous market available to the entity in an orderly transaction between market participants. The three levels of the fair value hierarchy are as follows:

Level 1: Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 1 inputs provide the most reliable measure of fair value as of the measurement date.

Level 2: Inputs are based on significant observable inputs, including unadjusted quoted market prices for similar assets and liabilities in active markets, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.

Level 3: Inputs are significant unobservable inputs for the asset or liability.

The level of the fair value hierarchy within which the fair value measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

Stock-Based Compensation

The Company records stock-based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expense related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using the intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 718-10 and the conclusions reached ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by ASC 505-50.

Earnings per Share

Net loss per common share is computed by dividing net loss by the weighted average common shares outstanding during the period as defined by ASC 260, Earnings per Share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. Dilutive common share equivalents are negligible or immaterial as dilutive shares to be issued during net loss years were non-existent. For the three months ended March 31, 2024, and March 31, 2023, net loss per share was $(0.12) and $(0.34), respectively.

Fully diluted shares outstanding is the total number of shares that the Company would theoretically have if all dilutive securities were exercised and converted into shares. Dilutive securities include options, warrants, convertible debt, preferred stock and anything else that can be converted into shares. Potential dilutive shares consist of the incremental common shares issuable upon the exercise of dilutive securities, calculated using the treasury stock method. The calculation of dilutive shares outstanding excludes out-of-the-money options (i.e., such options’ exercise prices were greater than the average market price of our common shares for the period) because their inclusion would have been antidilutive. Out-of-the-money stock options totaled none as of March 31, 2024 and December 31, 2023, respectively. All other dilutive securities are listed below.

The following table illustrates the total number of common shares that would be converted from common stock equivalents issued and outstanding at the end of each period presented; as of March 31, 2024 and as of March 31, 2023, respectively.

In periods of losses, diluted loss per share is computed on the same basis as basic loss per share as the inclusion of any other potential shares outstanding would be anti-dilutive.

Income Taxes

The Company follows ASC Topic 740 for recording provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expense or benefit is based on the changes in the asset or liability for each period. If available evidence suggests that it is more likely than not that some portion or the entire deferred tax asset will not be realized, a valuation allowance is required to reduce the deferred tax asset to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income tax in the period of change.

Deferred income tax may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse.

The Company applies a more-likely-than-not recognition threshold for all tax uncertainties. ASC Topic 740 only allows the recognition of tax benefits that have a greater than fifty percent likelihood of being sustained upon examination by taxing authorities. As of March 31, 2024, and December 31, 2023, the Company reviewed its tax positions and determined there were no outstanding, or retroactive tax positions with less than a 50% likelihood of being sustained upon examination by the taxing authorities, therefore this standard has not had a material effect on the Company.

The Company classifies tax-related penalties and net interest as income tax expense. For the three-month periods ended March 31, 2024, and 2023, respectively, no income tax benefit has been recorded due to the recognition of a full valuation allowance.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.

Warranties

The Company’s safe manufacturing business estimates its exposure to warranty claims based on both current and historical (with respect to the Champion Entities) product sales data and warranty costs (actual) incurred. The Company assesses the adequacy of its recorded warranty liability each quarter and adjusts the amount as necessary. Warranty liability is included in our accrued expense accounts in the accompanying condensed consolidated balance sheets. We estimate that the warranty liability is nominal or negligible based on the superior quality of products and our excellent customer relationships. Warranty liability recorded as of March 31, 2024 and December 31, 2023 was less than $100,000.

Right of Use Assets and Lease Liabilities

ASC 842, Leases requires lessees to recognize almost all leases on the balance sheet as a Right-of-use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The Company elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.

Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

Operating leases are included in operating lease Right-of-use assets and operating lease liabilities, current and non-current, on the Company’s condensed consolidated balance sheets.

Recent Pronouncements

The Company evaluated recent accounting pronouncements through March 31, 2024, and believes that none have a material effect on the Company’s financial statements.

Concentration Risks

Prior to the closing of the Champion Entities in 2022, the Company purchased a substantial portion (over 20%) of its inventory from two third-party vendors. With the closing of the Champion Entities, the Company no longer purchases a substantial portion (over 20%) of its inventory from these third-party vendors. As of March 31, 2024 and December 31, 2023, the net amount due to these third-party vendors (accounts payable and accrued expense) was $0.

NOTE 2 –GOING CONCERN

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As noted above, the Company is in the growth and acquisition stage and, accordingly, has not yet reached profitability from its operations. Since inception, the Company has been engaged in financing activities and executing its plan of operations and incurring costs and expenses related to product development, branding, inventory buildup and product launch. As a result, the Company has continued to incur significant net losses for the three months ended March 31, 2024, and 2023 of ($2,701,278) and ($227,055), respectively. The Company’s accumulated deficit was ($47,914,872) as of March 31, 2024, and ($45,213,594) as of December 31, 2023. The Company’s working capital was $3,010,604 as of March 31, 2024, compared to $4,551,927 as of December 31, 2023.

The ability of the Company to continue as a going concern is dependent upon its ability to raise capital from the sale of its equity and, ultimately, the achievement of significant operating revenues and profitability. The Company is currently conducting a Reg. A+ offering on Form 1-A that became effective on March 13, 2024. Total amount to be sought under this Reg. A+ offering is approximately $20.0 million.

Management believes that sufficient funding can be secured through the obtaining of loans, as well as future offerings of its preferred and common stock. However, no assurance can be given that the Company will obtain this additional working capital, or if obtained, that such funding will not cause substantial dilution to its existing stockholders. If the Company is unable to secure such additional funds from these sources, it may be forced to change or delay some of its business objectives and efforts. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.

These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 3 –INVENTORY AND DEPOSITS

Inventory and deposits include the following:

The Company accounts for excess or obsolete inventory with a reserve that is established based on management’s estimates of the net realizable value of the related products. These reserves are product specific and are based upon analyses of product lines that are slow moving or expected to become obsolete due to significant product enhancements.

Included in inventory – finished goods are approximately $240,000 in finished products related to our American Rebel branded beer lager. This inventory is immediately available to the consumer and for distribution.

When inventory is physically disposed of, we account for the write-offs by making a debit to the reserve and a credit to inventory for the standard cost of the inventory item. Our valuation reserve is applied as an estimate to specific product lines. Since the inventory item retains its standard cost until it is either sold or written off, the reserve estimates will differ from the actual write-off. There wereno material write-offs or inventory reserves during the three months ended March 31, 2024 and 2023.

NOTE 4 –PROPERTY AND EQUIPMENT

Property and equipment include the following:

For the three-month periods ended March 31, 2024 and 2023 we recognized $24,315 and $29,090 in depreciation expense, respectively. We depreciate these assets over a period of 5 –7 years, which has been deemed their useful life.

NOTE 5 –RELATED PARTY NOTE PAYABLE AND RELATED PARTY TRANSACTIONS

Charles A. Ross, Jr. serves as the Company’s Chief Executive Officer. Compensation for Mr. Ross was $81,250 and $60,000 plus stock awards (granted and issued) of $0 and $0, respectively for the three months ended March 31, 2024 and 2023. Doug E. Grau serves as the Company’s President and Interim Principal Accounting Officer. Compensation for Mr. Grau was $66,250 and $30,000 plus stock awards (granted and issued) of $0 and $0, respectively for the three months ended March 31, 2024 and 2023.

Both Messrs. Ross and Grau serve as the Company’s Chief Executive Officer and President, respectively. Compensation for both, Messrs. Ross and Grau, includes a base salary and a bonus based upon certain performance measures approved by the board of directors. Three of our officers lent the Company approximately $396,507, net of repayments during the three months ended March 31, 2024, the loans are unsecured non-interest-bearing demand notes. These officers provided these loans as short-term funding and usually receives repayment a few months later, pending working capital needs.

Corey Lambrecht serves as the Company’s Chief Operating Officer. Mr. Lambrecht and the Company entered into an employment agreement on November 20, 2023. Mr. Lambrecht’s employment agreement provides for an initial annual base salary of $260,000, which may be adjusted by the board of directors of the Company. Mr. Lambrecht at this time ceased being an independent director of the Company. Mr. Lambrecht received approximately $65,000 for his services as an officer of the Company for the three months ended March 31, 20243, and $25,000 as an independent consultant for the Company for the three months ended March 31, 2023, respectively.

The Company in connection with its employment agreements (both recently entered (for Mr. Lambrecht) into as well as amended (for Mr. Ross and Mr. Grau)) with Messrs. Ross, Grau and Lambrecht reserved for issuance 62,500,000 shares of its common stock that are convertible under the Series A preferred stock conversion terms.

Per Mr. Lambrecht’s employment agreement entered into on November 20, 2023, the share-award grant is to vest 1/4 th upon the signing of Mr. Lambrecht’s employment, another 1/4 th on January 1, 2024, another 1/4 th on January 1, 2025 and the remaining 1/4 th on January 1, 2026. Mr. Lambrecht’s employment agreement has a term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company on November 20, 2023 for Mr. Lambrecht recognized $4,612,500 as a charge for the share-award grant and $246,000 in compensation expense for the 4 th quarter of 2023 for the share award grant and respective earn-outs of the common stock equivalents underlying that share award. For the three months ended March 31, 2024 the Company recognized an additional $225,667 in compensation expense attributable to the share award grant and respective earn-out. On January 1, 2024 another 6,250 shares of Series A preferred stock vested for Mr. Lambrecht, providing for a total of 6,250,000 of shares of common stock that Mr. Lambrecht may convert his Series A preferred shares into.

Per Mr. Ross’s amended employment agreement with an effective date of November 20, 2023, the already issued or existing share-award grant is to vest 1/5 th on January 1, 2024, another 1/5 th on January 1, 2025, 1/5 th on January 1, 2026, 1/5 th on January 1, 2027 and the remaining 1/5 th on January 1, 2028. Mr. Ross’s amended employment agreement has an effective term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company on October 31, 2023 for Mr. Ross recognized $8,752,500 as a charge for the share-award grant and recognized $466,800 in compensation expense for the 4 th quarter of 2023 for the share award grant and respective earn-outs of the common stock equivalents underlying that share award. For the three months ended March 31, 2024 the Company recognized an additional $454,167 in compensation expense attributable to the share award grant and respective earn-out. On January 1, 202410,000 shares of Series A preferred stock vested for Mr. Ross, providing for a total of 5,000,000 of shares of common stock that Mr. Ross may convert his Series A preferred shares into at any time.

Per Mr. Grau’s amended employment agreement with an effective date of November 20, 2023, the already issued or existing share-award grant is to vest 1/5 th on January 1, 2024, another 1/5 th on January 1, 2025, 1/5 th on January 1, 2026, 1/5 th on January 1, 2027 and the remaining 1/5 th on January 1, 2028. Mr. Grau’s amended employment agreement has an effective term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company on October 31, 2023 for Mr. Grau recognized $8,752,500 as a charge for the share-award grant and recognized $466,800 in compensation expense for the 4 th quarter of 2023 for the share award grant and respective earn-outs of the common stock equivalents underlying that share award. For the three months ended March 31, 2024 the Company recognized an additional $454,167 in compensation expense attributable to the share award grant and respective earn-out.

The Company in connection with various employment and independent directors’ agreements is required to issue shares of its common stock as payment for services performed or to be performed. The value of the shares issued is determined by the fair value of the Company’s common stock that trades on the Nasdaq Capital Market. This value on the date of grant is afforded to the Company for the recording of stock compensation to employees and other related parties or control persons and the recognition of this expense over the period in which the services were incurred or performed. Most of the Company’s agreement for stock compensation provide for services performed to have been satisfied by the initial grant, thereby incurring the cost immediately from the grant.

Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, the Company is required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations. Where the stock-based compensation is not an award, option, warrant or other common stock equivalent, the Company values the shares based on fair value with respect to its grant date and the price that investors may have been paying for the Company’s common stock on that date in its various exempt private placement offerings.

Taxable value of the stock-based compensation is recorded in accordance with the Internal Revenue Service’s regulations as it pertains to employees, control persons and others whereby they receive share-based payments. This may not always align with what the Company records these issuances in accordance with GAAP. There are no provisional tax agreements or gross-up provisions with respect to any of our share-based payments to these entities. The payment or withholding of taxes is strictly left to the recipient of the share-based payments, or the modification of share-based payments.

NOTE 6 –LINE OF CREDIT – FINANCIAL INSTITUTION

During February 2023, the Company entered into a $2 million master credit agreement (credit facility) with a major financial institution (“Line of Credit”). The Line of Credit accrues interest at a rate determined by the Bloomberg Short-Term Bank Yield Index (“BSBY”) Daily Floating Rate plus 2.05 percentage points (which at March 31, 2024 and December 31, 2023 for the Company was 7.45% and 7.48%, respectively), and is secured by all the assets of the Champion Entities. The Line of Credit expired February 28, 2024. The outstanding amount due on the Line of Credit at March 31, 2024 and December 31, 2023 was, respectively.

Current and long-term portion. As of March 31, 2024 and December 31, 2023 the total balance due of $1,818,441 and $1,456,929 is reported as current as the Line of Credit is to be repaid within one year, with subsequent drawdowns as needed by the Company. Upon inception the Company paid a one-time loan fee equal to 0.1% of the Line of Credit amount available. In the likelihood of default, the default interest automatically increases to 6% over the BSBY plus an additional 2.05% rate.

Initially the Company drew down on the Line of Credit in the amount of $1.7 million, with subsequent net payments and draws on the Line of Credit in the amount of approximately $250,000. The Company recently increased the Line of Credit amount beyond its initial drawdown. The Company intends to keep the Line of Credit open and in existence to enhance the profitability and working capital needs of the Champion entities and may in the future seek to expand the Line of Credit, The Company received an extension on the Line of Credit and as of the date of this Report has not entered into an amended agreement for the Line of Credit.

NOTE 7 –NOTES PAYABLE – WORKING CAPITAL

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

On July 1, 2023, the Company entered into an assignment and assumption loan agreement (the “Assumption Loan”) with an accredited lender. Under the Assumption Agreement the Company agreed to pay $150,000 immediately to the holder of the $600,000 working capital loans that the Company had in place. The Assumption Agreement provided for the accredited lender, who effectively had the same management and ownership as the old working capital holders and assumed the debt instruments under the same terms and conditions and is due one year from the date of the Assumption Agreement, June 30, 2024 for one of the loans and the other loan (in the amount of $150,000) is due and payable on December 31, 2023. The Company made a one-time payment of $150,000 to the holder and was released from the prior obligations and the default status that it had been in with that holder since March 31, 2023.

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

On December 19, 2023, the Company entered into a $500,000 Revenue Interest Purchase Agreement (the “Revenue Interest Loan”) with an accredited lender. Under the Revenue Interest Loan, the Company received the revenue interest purchase price/loan net of fees of $5,000. The Revenue Interest Loan requires monthly payments of $75,000 each, until the Revenue Interest Loan is repurchased by the Company. Upon entering into the agreement, the Revenue Interest Loan bore an effective interest of more than 100%. The Revenue Interest Loan is secured by all of the product revenues of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s is obligated to provide for 50% of the Reg. 1-A offering proceeds to the holder of the Revenue Interest Loan as payment towards the amounts due. The Revenue Interest Loan may be repurchased by the Company at any time. The repurchase price for the Revenue Interest Loan prior to April 1, 2024 is 125% or $625,000, the repurchase price for the Revenue Interest Loan after April 1, 2024 and prior to May 5, 2024 is 137.5% or $687,500, thereafter the repurchase price of the Revenue Interest Loan is $687,500 plus monthly payments of $75,000 due and payable on the fifth calendar day until repurchased by the Company in its entirety. The Revenue Interest Loan bears an effective interest of 81.3% as of March 31, 2024, an effective interest rate of 87.3% through May 4, 2024, and an effective interest rate of 111.3% thereafter until the Company repurchases the Revenue Interest Loan from the holder.

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

On March 21, 2024, the Company entered into a securities purchase agreement with an accredited investor, pursuant to which the lender made a loan to the Company, evidenced by a promissory note in the principal amount of $235,750. A one-time interest charge or points amounting to 15% (or $35,362) and fees of $5,000 were applied at the issuance date, resulting in net proceeds to the Company of $200,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in seven payments; the first payment shall be in the amount of $162,667.20 and is due on June 30, 2024 with six (6) subsequent payments each in the amount of $18,074.14 due on the 30 th of each month thereafter (total repayment of $271,112 on or by December 31, 2023). the Company has the right to prepay the note within one hundred eighty days at a discount of 5%. Effective interest rate on this loan is 81.1% with 15 points paid up front as a fee as of March 31, 2024.

On March 22, 2024, the Company entered into another Revenue Interest Purchase Agreement (the “Revenue Interest Loan #2”) with an individual accredited investor, in the amount of $100,000. As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Loan #2, the investor has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Furthermore, the Company’s is obligated to provide for 5.15% of the Reg. 1-A offering proceeds to the holder of the Revenue Interest Loan as payment towards the amounts due. The Revenue Interest Loan may be repurchased by the Company at any time. The repurchase price for the Revenue Interest Loan prior to May 31, 2024 is 140% or $140,000, the repurchase price for the Revenue Interest Loan after May 31, 2024 and prior to July 5, 2024 is 154 % or $154,000, thereafter the repurchase price of the Revenue Interest Loan is $154,000 plus monthly payments of $10,000 due and payable on the fifth calendar day until repurchased by the Company in its entirety. The Revenue Interest Loan bears an effective interest of more than 200% as of March 31, 2024, an effective interest rate of 188.8% through May 31, 2024, and an effective interest rate of 183.4% thereafter until the Company repurchases the Revenue Interest Loan from the holder.

On March 27, 2024, the Company entered into a $1,300,000 Business Loan and Security Agreement (the “Secured Loan #3”) with an accredited investor lending source. Under the Secured Loan #3, the Company received the loan net of fees of $26,000. The Company repaid two outstanding secured notes payable (Secured Loan #1 and Secured Loan #2) to affiliates of the lender totaling $769,228, resulting in net proceeds to the Company of $504,772. The Secured Loan #3 requires 64 weekly payments of $26,000 each, for a total repayment of $1,664,000. The Secured Loan #3 bears an effective interest 40.9%. The Secured Loan #3 is secured by all of the assets of the Company and its subsidiaries second to a first priority lien secured the holder of the Line of Credit. Furthermore, the Company’s Chief Executive Officer, provided a personal guaranty for the Secured Loan #3. The Secured Loan #3 provides for a default fee of $15,000 for any late payments on the weekly payments. As long as the Secured Loan #3 is not in default, the Company may prepay the Secured Loan #3 pursuant to certain prepayment amounts set forth in the Secured Loan #3. Further, any default by the Company allows the lender to take necessary actions to secure its collateral and recovery of funds.

At March 31, 2024, and December 31, 2023, the outstanding balance due on all of the working capital notes payable was $2,675,750 and $1,954,214, respectively. These amounts do not include any interest payable on the various notes where interest was not paid in full per the terms of the notes.

NOTE 8 –GOODWILL AND ACQUISITION OF THE CHAMPION ENTITIES

Goodwill

Goodwill is initially recorded as of the acquisition date, and is measured as any excess of the purchase price over the estimated fair value of the identifiable net assets acquired. Goodwill is not amortized, but rather is subject to impairment testing annually (on the first day of the fourth quarter), or between annual tests whenever events or changes in circumstances indicate that the fair value of a reporting unit may be below its carrying amount. We first perform a qualitative assessment to evaluate goodwill for potential impairment. If based on that assessment it is more likely than not that the fair value of the reporting unit is below its carrying value, a quantitative impairment test is necessary. The quantitative impairment test requires determining the fair value of the reporting unit. We use the income approach, whereby we calculate the fair value based on the present value of estimated future cash flows using a discount rate that approximates our weighted average cost of capital. The process of evaluating the potential impairment of goodwill is subjective and requires significant estimates and assumptions about the future such as sales growth, gross margins, employment costs, capital expenditures, inflation and future economic and market conditions. Actual future results may differ from those estimates. If the carrying value of the reporting unit’s assets and liabilities, including goodwill, exceeds its fair value, impairment is recorded for the excess, not to exceed the total amount of goodwill allocated to the reporting unit.

As of March 31, 2024 and December 31, 2023, we had goodwill of $2,000,000 presented within other long-term assets in our consolidated balance sheets, directly related to our 2022 acquisition of the Champion Entities.

The Company will review its goodwill for impairment periodically (based on economic conditions) and determine whether impairment is to be recognized within its consolidated statement of operations. No impairment charges were recognized during the three months ended March 31, 2024 and 2023.

NOTE 9 –INCOME TAXES

At March 31, 2024 and December 31, 2023, the Company had a net operating loss carry forward of $47,914,872 and $45,213,594, respectively, which begins to expire in 2034.

Components of net deferred tax asset, including a valuation allowance, are as follows:

Valuation allowance for deferred tax assets as of March 31, 2024, and December 31, 2023, was $10,061,910 and $9,494,850, respectively. In assessing the recovery of the deferred tax asset, management considers whether it is more likely than not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of the deferred tax asset is dependent upon the generation of future taxable income in the periods in which those temporary differences become deductible. Management considers the scheduled reversals of future deferred tax assets, projected future taxable income, and tax planning strategies in making this assessment. As a result, management determined it was more likely than not deferred tax assets will not be realized as of March 31, 2024, and December 31, 2023, and recognized 100% valuation allowance for each period.

Reconciliation between the statutory rate and the effective tax rate for both periods and as of March 31, 2024 and December 31, 2023:

On August 16, 2022, the Inflation Reduction Act of 2022 (“the 2022 act”) was signed into law. The 2022 act contains numerous provisions, including a 15% corporate alternative minimum income tax on “adjusted financial statement income”, expanded tax credits for clean energy incentives and a 1% excise tax on corporate stock repurchases. The provisions of the 2022 act become effective for tax years beginning after December 31, 2023. On December 27, 2022, the IRS and Department of Treasury issued initial guidance for taxpayers subject to the corporate alternative minimum tax. The guidance addresses several, but not all, issues that needed clarification. The IRS and Department of Treasury intend to release additional guidance in the future. We will continue to evaluate the impact of the 2022 act as more guidance becomes available. We currently do not expect an impact on our consolidated financial statements.

NOTE 10 –SHARE CAPITAL

The Company is authorized to issue 600,000,000 shares of its $0.001 par value common stock and 10,000,000 shares of its $0.001 par value preferred stock.

On June 27, 2023, the Company effectuated a reverse split of its issued and outstanding shares of common stock at a ratio of 1-for-25. The share numbers and pricing information in this report are adjusted to reflect the reverse stock split as of March 31, 2024 and March 31, 2023, and as of December 31, 2023, respectively.

Common stock and preferred stock

For the month of June 2023, the following transactions occurred: On June 27, 2023, we entered into a PIPE transaction with Armistice Capital for the purchase and sale of $2,993,850.63 of securities, consisting of (i)71,499 shares of common stock at $4.37 per share, (ii) prefunded warrants (the “2023 Prefunded Warrants”) that are exercisable into 615,000 shares of common stock (the “ 2023 Prefunded Warrant Shares”) at $4.37 per Prefunded Warrant, and (iii) immediately exercisable warrants to purchase up to 686,499 shares of common stock at an initial exercise price of $4.24 per share and will expire five years from the date of issuance.

For the month of July 2023, the following transactions occurred: Approximately 1,493,272 shares of the Company’s common stock were issued pursuant to the 100-share lot roundup caused by the reverse stock split on June 27, 2023. The Depository Trust and Clearing Corporation (the “DTCC”) which handles the clearing and settlement of virtually all broker-to-broker equity, listed corporate and municipal bond and unit investment trust (UIT) transactions in the U.S. equities markets submitted numerous requests for share allocations. In connection with the Company’s June 27, 2023 1-for-25 reverse split DTCC made these requests. An additional 1.488 million shares of the Company’s common stock were newly issued and added to its post-reverse stock split numbers. As described in the Company’s Information Statement filed on Schedule 14C dated December 14, 2022, shareholders holding at least a “round lot” (100 shares or more) prior to the reverse stock split shall have no less than one round lot (100 shares) after the reverse stock split.

Pursuant to the PIPE transaction 71,499 shares of common stock were issued to Armistice Capital. The 2023 Prefunded Warrants held by Armistice Capital were not exercised for the month of July.

For the month of August 2023, the following transactions occurred: On August 21, 2023 245,000 of the 2023 Prefunded Warrants were exercised. Along with an exercise notice and payment totaling $2,450.00, 245,000 shares of common stock were issued.

For the month of September 2023, the following transactions occurred: On September 8, 2023, the Company, entered into an inducement offer letter agreement (the “Inducement Letter”) with Armistice Capital the holders of existing common stock purchase warrants to purchase shares of common stock of the Company. The existing common stock purchase warrants were issued on July 8, 2022 and June 28, 2023 and had an exercise price of $4.37 and $4.24, respectively per share.

Pursuant to the Inducement Letter, Armistice Capital agreed to exercise for cash their existing common stock purchase warrants to purchase an aggregate of 2,988,687 shares of the Company’s common stock at a reduced exercise price of $1.10 per share in consideration for the Company’s agreement to issue new common stock purchase warrants (the “New Warrants”), to purchase up to 5,977,374 shares of the Company’s common stock (the “New Warrant Shares”). The Company received aggregate gross proceeds of $3,287,555.70 from the exercise of the existing common stock purchase warrants by Armistice Capital. Armistice Capital received 2 New Warrant for each existing common stock purchase warrant that they exercised. No compensation or expense was recognized as the repricing of the existing common stock purchase warrants was in excess of the current market price of the Company’s common stock, and the New Warrants were not compensatory as well due to the market conditions. The Company issued 2,988,687 shares of the Company’s common stock, of which 2,242,000 shares of common stock are held in reserve by the Company’s transfer agent. Armistice Capital Fund Ltd. is limited to total ownership at one time to be no more than 9.99% of the Company’s issued and outstanding common stock. Armistice Capital took ownership and possession of 356,687 shares of common stock (September 21 st) and 390,000 shares of common stock (September 12 th), representing less than 9.99% ownership interest by Armistice Capital on such dates.

On September 8, 2023,370,000 of the 2023 Prefunded Warrants were exercised. Along with an exercise notice and payment totaling $3,700.00,370,000 shares of common stock were issued. On September 19, 2023, the Company issued 6,391 shares of common stock pursuant to the Company’s 2021 LTIP equity plan. The shares were valued at $4,984.98 with a per share value of $0.78 which was the Company’s common stock closing market price on the grant date and date of issuance. Under the 2021 LTIP equity plan 3,954 shares of common stock were issued to Mr. Ross our Chief Executive Officer and 2,237 shares of common stock were issued to Mr. Grau our President and Interim Principal Accounting Officer. Additionally, on September 19, 2023,3,721 shares of common stock were granted and issued to a vendor associated with our current working capital loan. The shares were valued at $2,902.38 with a per share value of $0.78. On September 20, 2023, the Company issued 24,129 shares of common stock pursuant to the Company’s board compensation plan for its independent directors. The shares were valued at $18,096.75 with a per share value of $0.75 which was the Company’s common stock closing market price on the grant date as well as issuance date. The Company recognized approximately $228,000 in gain on settlement of debt through the issuance of 24,129 shares of common stock to its independent directors on this date.

Shares Reserved for Issuance Pursuant to Certain Executive Employment Agreements

The Company in connection with its employment agreement with Messrs. Ross, Grau and Lambrecht reserved for issuance 62,500,000 shares of its common stock that are convertible under the Series A preferred stock. Per Mr. Lambrecht’s employment agreement entered into on November 20, 2023, the share-award grant is to vest 1/4 th upon the signing of Mr. Lambrecht’s employment, another 1/4 th on January 1, 2024, another 1/4 th on January 1, 2025 and the remaining 1/4 th on January 1, 2026. Mr. Lambrecht’s employment agreement has a term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company for Mr. Lambrecht recognized $4,612,500 as a charge for the share-award grant and recognized $184,500 in compensation expense for the year ending December 31, 2023 for the grants and respective earn-outs of the common stock equivalents under the employment agreement through December 31, 2023. The Company values the shares granted and earned out, as well as the additional shares granted but not earned out in accordance with ASC 718 and employee share-awards. Market value for the Company’s publicly traded stock at the time of grant for Mr. Lambrecht’s shares was $0.369.

Per Mr. Ross’s amended employment agreement with an effective date of November 20, 2023, the already issued or existing share-award grant is to vest 1/5 th on January 1, 2024, another 1/5 th on January 1, 2025, 1/5 th on January 1, 2026, 1/5 th on January 1, 2027 and the remaining 1/5 th on January 1, 2028. Mr. Ross’s amended employment agreement has an effective term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company for Mr. Ross recognized $8,752,500 as a charge for the share-award grant on October 31, 2023 (the modification date) and recognized $466,800 in compensation expense for the year ending December 31, 2023 for the grants and respective earn-outs of the common stock equivalents under the employment agreement through December 31, 2023. The Company values the shares granted and earned out, as well as the additional shares granted but not earned out in accordance with ASC 718 and employee share-awards. Market value for the Company’s publicly traded stock at the time of modification of the terms of the Series A preferred stock for Mr. Ross’s shares was $0.3501.

Per Mr. Grau’s amended employment agreement with an effective date of November 20, 2023, the already issued or existing share-award grant is to vest 1/5 th on January 1, 2024, another 1/5 th on January 1, 2025, 1/5 th on January 1, 2026, 1/5 th on January 1, 2027 and the remaining 1/5 th on January 1, 2028. Mr. Grau’s amended employment agreement has an effective term running from November 20, 2023 through December 31, 2026, a term of 37 and ½ months. The Company for Mr. Grau recognized $8,752,500 as a charge for the share-award grant on October 31, 2023 (the modification date) and recognized $466,800 in compensation expense for the year ending December 31, 2023 for the grants and respective earn-outs of the common stock equivalents under the employment agreement through December 31, 2023. The Company values the shares granted and earned out, as well as the additional shares granted but not earned out in accordance with ASC 718 and employee share-awards. Market value for the Company’s publicly traded stock at the time of modification of the terms of the Series A preferred stock for Mr. Grau’s shares was $0.3501.

Shares Issued as Compensation

The Company in connection with various consulting and advisory agreements is required to issue shares of its common stock. The value of the shares issued is determined by the fair value of the Company’s common stock that trades on the Nasdaq Capital Market. This value on the date of grant is afforded to the Company for the recording of stock compensation to non-employees and the recognition of this expense over the period in which the services were incurred or performed. Most of the Company’s agreement for stock compensation provide for services to have been satisfied upon the initial grant, thereby incurring the cost immediately from the grant.

Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, the Company is required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations. Where the stock-based compensation is not an award, option, warrant or other common stock equivalent, the Company values the shares based on fair value with respect to its grant date and the price that investors may have been paying for the Company’s common stock on that date in its various exempt private placement offerings.

Modified Terms of Series A Preferred Stock

On October 31, 2023, the Company board of directors approved amending and restating the certificate of designation of the Company’s Series A Convertible Preferred Stock to increase the number of shares from 100,000 to 150,000 and to allow for the conversion of the Series A Preferred Stock under certain circumstances and vesting requirements. On November 20, 2023 the Company issued 25,000 shares of its Series A Preferred Stock to Mr. Lambrecht, pursuant to his employment agreement as Chief Operating Officer. Mr. Lambrecht’s shares of Series A Preferred Stock will vest in the following manner, 25% upon signing of the employment agreement, 25% on the 1 st of January 2024, and 25% for the following two anniversaries. Messrs. Ross and Grau who are holders of the Series A Preferred Stock will also enjoy the vesting of their shares of Series A Preferred Stock in the following manner; 20% on the 1 st of January 2024 and 20% thereafter for the following 4 anniversaries. The Company has determined, and appropriately recorded in its statement of operations a compensation expense associated with the conversion or convertibility of the Series A Preferred Stock into common stock of the Company on a 500:1 basis. Based on the vesting schedule afforded to the holders of the Series A Preferred Stock,3,125,000 shares of common stock could be issued upon the conversion of 6,250 shares of Series A Preferred Stock as of December 31, 2023, and immediately subsequent to December 31, 2023, another 13,125,000 shares of common stock could be issued upon the conversion of 26,250 shares of Series A Preferred Stock on January 1, 2024. The conversion of the Series A Preferred Stock is at the discretion of the holder unless there are special circumstances. The Company will recognize the fair value of the modified share awards over the employment agreement period and will record any changes to that fair value in accordance with ASC 718 on a period-by-period basis as part of that compensation expense, attributable to the employee.

New Preferred Stock Series Designation and Reg. A+ Offering

On November 3, 2023, the Company’s board of directors approved the designation of a new Series C Convertible Cumulative Preferred Stock (the “Series C Designation”).

The Company filed a registration statement on Form 1-A offering up to 2,666,666 shares of Series C Preferred Stock, at an offering price of $7.50 per share, for a maximum offering amount of $19,999,995. There is a minimum initial investment amount per investor of $300.00 for the Series C Preferred Stock and any additional purchases must be made in increments of at least $7.50.

At March 31, 2024 and December 31, 2023, there were 9,004,920 shares of common stock issued (which includes reserved for) and outstanding, respectively; and 75,143 and 75,143 shares of Series B preferred stock issued and outstanding, respectively, and 125,000 and 125,000 shares of its Series A preferred stock issued and outstanding, respectively. No Series C preferred stock was issued or outstanding at March 31, 2024 or December 31, 2023.

NOTE 11 –WARRANTS AND OPTIONS

As of March 31, 2024, no Prefunded Warrants remained issued and outstanding with respect to the July PIPE transaction. The Prefunded Warrants were purchased in their entirety by the holders of the warrants for $27.50 per warrant. The Prefunded Warrants required the payment of an additional $0.25 per warrant and the written notice of exercise to the Company to convert the Prefunded Warrant into one share of common stock of the Company. During the period from July 12, 2022 through December 31, 2023, the Company received notice on 448,096 Prefunded Warrants converting into 448,096 shares of common stock.

Calvary Fund exercised all of its Calvary Warrants by November 30, 2022 requiring the payment of an additional $0.25 per warrant and the written notice of exercise to the Company to convert the Calvary Warrant into one share of common stock of the Company. Calvary Fund continues to hold the 15,099 warrants exercisable at a price of $129.6875 per warrant.

Along with the Prefunded Warrants the PIPE investors were issued immediately exercisable warrants to purchase up to 936,937 shares of the Company’s common stock with an exercise price of $21.50 per share expiring five years from the date of issuance, or July 11, 2027. Each Prefunded Warrant and share of common stock issued in the PIPE transaction received two warrants that were exercisable at $21.50 per share with a five-year expiry. None of these warrants have been exercised by the holders.

On June 27, 2023, we entered into a PIPE transaction with Armistice Capital for the purchase and sale of $2,993,850.63 of securities, consisting of (i)71,499 shares of common stock at $4.37 per share, (ii) prefunded warrants (the “2023 Prefunded Warrants”) that are exercisable into 615,000 shares of common stock (the “2023 Prefunded Warrant Shares”) at $4.37 per Prefunded Warrant, and (iii) immediately exercisable warrants to purchase up to 686,499 shares of common stock at an initial exercise price of $4.24 per share and will expire five years from the date of issuance. The 686,499 warrants were repriced to $1.10 per share as part of the Inducement Letter and exercise terms with Armistice Capital.

On September 8, 2023, the Company, entered into an inducement offer letter agreement with Armistice Capital the holders of existing common stock purchase warrants to purchase shares of common stock of the Company. The existing common stock purchase warrants were issued on July 8, 2022 and June 28, 2023 and had an exercise price of $4.37 and $4.24, respectively per share.

Pursuant to the Inducement Letter, Armistice Capital agreed to exercise for cash their existing common stock purchase warrants to purchase an aggregate of 2,988,687 shares of the Company’s common stock at a reduced exercise price of $1.10 per share in consideration for the Company’s agreement to issue new common stock purchase warrants (the “New Warrants”), to purchase up to 5,977,374 shares of the Company’s common stock (the “New Warrant Shares”). The Company received aggregate gross proceeds of approximately $3,287,555.70 from the exercise of the existing common stock purchase warrants by Armistice Capital. Armistice Capital received 2 New Warrant for each existing common stock purchase warrant that they exercised. No compensation or expense was recognized as the repricing of the existing common stock purchase warrants was in excess of the current market price of the Company’s common stock, and the New Warrants were not compensatory as well due to the market conditions. The Company issued 2,988,687 shares of the Company’s common stock, of which 2,242,000 shares of common stock are held in reserve by the Company’s transfer agent. Armistice Capital Fund Ltd. is limited to total ownership at one time to be no more than 9.99% of the Company’s issued and outstanding common stock. Armistice Capital took ownership and possession of 356,687 shares of common stock (September 21 st) and 390,000 shares of common stock (September 12 th), representing less than 9.99% ownership interest by Armistice Capital on such dates. The common stock purchase warrants that were induced into being exercised were all held by Armistice Capital and consisted of the July 12, 2022 immediately exercisable warrants with an exercise price of $21.50, the additional issuance of warrants to Armistice Capital that contractually were part of the July 12, 2022 issuance but were triggered by the June 27, 2023 offering that occurred with Armistice Capital and resulting in an additional 1,365,251 immediately exercisable warrants with an exercise price of $21.50, along with 686,499 immediately exercisable warrants with an exercise price of $4.24 that were issued on June 27, 2023.

On August 21, 2023, 245,000 of the 2023 Prefunded Warrants were exercised. Along with an exercise notice and payment totaling $2,450.00, 245,000 shares of common stock were issued. On September 8, 2023370,000 of the 2023 Prefunded Warrants were exercised. Along with an exercise notice and payment totaling $3,700.00,370,000 shares of common stock were issued. A total of 615,000 2023 Prefunded Warrants were exercised along with 746,687 warrants per the Inducement Letter.

Along with the Prefunded Warrants the previous year’s PIPE investors were issued immediately exercisable warrants to purchase up to 936,937 shares of the Company’s common stock with an exercise price of $21.50 per share expiring five years from the date of issuance, or July 11, 2027. Each Prefunded Warrant and share of common stock issued in the PIPE transaction received two warrants that were exercisable at $21.50 per share with a five-year expiry. None of these warrants have been exercised by the holders. These warrants were repriced to $1.10 per share as part of the Inducement Letter and exercise agreement by and between Armistice Capital and the Company.

As of March 31, 2024 and December 31, 2023, there were 6,136,892 warrants issued and outstanding to acquire additional shares of common stock.

The Company evaluates outstanding warrants as derivative liabilities and will recognize any changes in the fair value through earnings. The Company determined that the warrants have an immaterial fair value at December 31, 2023 and March 31, 2024. The warrants do not trade in a highly active securities market, and as such, the Company estimated the fair value of these common stock equivalents using Black-Scholes and the following assumptions:

Expected volatility was based primarily on historical volatility. Historical volatility was computed using daily pricing observations for recent periods. The Company believes this method produced an estimate that was representative of the Company’s expectations of future volatility over the expected term which due to their maturity period as expiry, it was three years. The Company had no reason to believe future volatility over the expected remaining life of these common stock equivalents was likely to differ materially from historical volatility. Expected life was based on three years due to the expiry of maturity. The risk-free rate was based on the U.S. Treasury rate that corresponded to the expected term of the common stock equivalents.

Stock Purchase Warrants

The following table summarizes all warrant activity for the year ended December 31, 2023, and for the three months ended March 31, 2024.

NOTE 12 –LEASES AND LEASED PREMISES

Rental Payments under Non-cancellable Operating Leases and Equipment Leases

The Company through its purchase of Champion acquired several long-term (more than month-to-month) leases for two manufacturing facilities, three office spaces, five distribution centers and five retail spaces. Four of its distribution centers also have retail operations for which it leases its facilities. Lease terms on the various spaces’ expiry from a month-to-month lease (30 days) to a long-term lease expiring in September of 2028.

Rent expense for operating leases totaled approximately $630,000 and $226,000 for the three months ended March 31, 2024, and 2023, respectively. These amounts are included in our condensed consolidated statement of operations in Rental expense, warehousing, outlet expense and Administrative and other. Rental expense, warehousing, outlet expense is specific to warehousing and final manufacturing of our products.

The Company does not have any equipment leases whereby we finance this equipment needed for operations at competitive finance rates. New equipment to be financed in the near term, if necessary, may not be obtainable at competitive pricing with increasing interest rates.

Right of Use Assets and Lease Liabilities

Lease expense for operating leases consists of the lease payments plus any initial direct costs, net of lease incentives, and is recognized on a straight-line basis over the lease term.

The Company’s operating leases are comprised primarily of facility leases and as such we have no finance leases for our vehicles or equipment currently at this time. The Company added approximately $1,000,000 in right-of-use lease assets offset by right-of-use lease liabilities during the 4 th quarter for the year ended December 31, 2023, this included multiple leases that were increased in size and as well as several leases that were extended or options to extend were added in the lease terms.

Balance sheet information related to our leases is presented below:

The following provides details of the Company’s lease expense:

Other information related to leases is presented below:

The minimum future annual payments under non-cancellable leases during the next five years and thereafter, at rates now in force, are as follows:

Rental expense totaled approximately $374,017 and $226,660 for the three months ended March 31, 2024 and 2023, respectively. The Company extended several leases and increased the payments on several more in connection with its expansion, while closing several facility leases in streamlining operations and inventory storage and warehousing.

NOTE 13 –COMMITMENTS AND CONTINGENCIES

Legal Proceedings

Various claims and lawsuits, incidental to the ordinary course of our business, may be brought against the Company from time-to-time. In the opinion of management, and after consultation with legal counsel, resolution of any of these matters (of which there are none) is not expected to have a material effect on the condensed consolidated financial statements.

Contractual Obligations

The Company does not believe there are any off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the condensed consolidated financial statements. As of March 31, 2024 and December 31, 2023 there wereno outstanding letters of credit issued during the normal course of business. These letters of credit could reduce our available borrowings. During the three months ended March 31, 2024 the Company entered into a line of credit with a major financial institution. The amount due on the line of credit as of March 31, 2024 was $1,818,441. The Company is in compliance with its terms and covenants.

Executive Employment Agreements and Independent Contractor Agreements

The Company has written employment agreements with various other executive officers. All payments made to its executive officers and significant outside service providers are analyzed and determined by the board of directors’ compensation committee; some payments made to independent contractors (or officer payments characterized as non-employee compensation) may be subject to backup withholding or general withholding of payroll taxes, may make the Company responsible for the withholding and remittance of those taxes. Generally outside service providers are responsible for their own withholding and payment of taxes. Certain state taxing authorities may otherwise disagree with that analysis and Company policy.

**NOTE 14 –OTHER INCOME – EMPLOYEE RETENTION CREDIT **

The Company retained the services of a tax service professional to provide the Company with the specialized tax services. The services included identifying various tax initiatives as well as specifically tasking the tax service professional in applying for and the preparation of tax filings for (tax) credits available under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). During the year ended December 31, 2023, the Company received approximately $1,291,000 in tax credits under the CARES Act from the US Department of Treasury and paid approximately $178,000 to the service provider, netting the Company approximately $1,113,000 in credits for the retaining of its employees during COVID.

NOTE 15 –SUBSEQUENT EVENTS

The Company evaluated all events that occurred after the balance sheet date of March 31, 2024, through the date the financial statements were issued and determined that there were the following subsequent events:

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

On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an individual accredited investor, pursuant to which the investor purchased a revenue interest from the Company for $100,000. As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Purchase Agreement, the investor has a right to receive $10,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Purchase Agreement, the Company has an option to repurchase the Revenue Interest at any time upon two days advance written notice. Additionally, the investor has an option to terminate the Revenue Interest Purchase Agreement and to require the Company to repurchase future Revenue Interest upon the Company consummating a public offering pursuant to Regulation A. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $140,000 if repurchased on or before May 31, 2024; and (ii) $154,000 after June 1, 2024; in each case of (i) or (ii), minus all Revenue Interest or other payments made by the Company to the investor prior to such date. The foregoing description of the material terms of the Revenue Interest Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Revenue Interest Purchase Agreement, a copy of which is attached to this Annual Report on Form 10-K as Exhibit 10.21.

On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an individual accredited investor, pursuant to which the investor purchased a revenue interest from the Company for $300,000. As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Purchase Agreement, the investor has a right to receive $30,000 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Purchase Agreement, the Company has an option to repurchase the Revenue Interest at any time upon two days advance written notice. Additionally, the investor has an option to terminate the Revenue Interest Purchase Agreement and to require the Company to repurchase future Revenue Interest upon the Company consummating a public offering pursuant to Regulation A. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $420,000 if repurchased on or before May 31, 2024; and (ii) $462,000 after June 1, 2024; in each case of (i) or (ii), minus all Revenue Interest or other payments made by the Company to the investor prior to such date. The foregoing description of the material terms of the Revenue Interest Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Revenue Interest Purchase Agreement, a copy of which is attached to this Annual Report on Form 10-K as Exhibit 10.22.

On April 9, 2024, the Company entered into a Revenue Interest Purchase Agreement with an individual accredited investor, pursuant to which the investor purchased a revenue interest from the Company for $75,000. As consideration for such payment, commencing on June 1, 2024 and continuing thereafter until all amounts are repurchased by the Company pursuant to the terms of the Revenue Interest Purchase Agreement, the investor has a right to receive $7,500 per month from the Company generated from its operating subsidiaries. Under the Revenue Interest Purchase Agreement, the Company has an option to repurchase the Revenue Interest at any time upon two days advance written notice. Additionally, the investor has an option to terminate the Revenue Interest Purchase Agreement and to require the Company to repurchase future Revenue Interest upon the Company consummating a public offering pursuant to Regulation A. The repurchase price to be paid by the Company will be, if the Call Option or the Put Option is exercised (i) $105,000 if repurchased on or before May 31, 2024; and (ii) $115,500 after June 1, 2024; in each case of (i) or (ii), minus all Revenue Interest or other payments made by the Company to the investor prior to such date. The foregoing description of the material terms of the Revenue Interest Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Revenue Interest Purchase Agreement, a copy of which is attached to this Annual Report on Form 10-K as Exhibit 10.23.

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

On April 23, 2024, the Registrant received notice from Nasdaq indicating that, while the Registrant has not regained compliance with the Bid Price Requirement, Nasdaq has determined that the Registrant is eligible for an additional 180-day period, or until October 21, 2024, to regain compliance. According to the notification from Nasdaq, the staff’s determination was based on (i) the Registrant meeting the continued listing requirement for market value of its publicly held shares and all other applicable Nasdaq initial listing standards, with the exception of the minimum bid price requirement, and (ii) the Registrant’s written notice to Nasdaq of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary. If at any time during this second 180-day compliance period, the closing bid price of the common stock is at least $1 per share for a minimum of 10 consecutive business days, Nasdaq will provide the Registrant with written confirmation of compliance. If compliance cannot be demonstrated by October 21, 2024, Nasdaq will provide written notification that the common stock will be delisted. At that time, the Registrant may appeal Nasdaq’s determination to a Hearings Panel.

On April 24, 2024, the Registrant received notice from Nasdaq indicating that Staff determined to grant the Registrant an extension until June 15, 2024 to regain compliance with the rule by holding an annual meeting of shareholders. At the annual meeting, shareholders must be afforded the opportunity to discuss company affairs with management and, if required by the company’s governing documents, to elect directors. The Registrant expects to hold an annual meeting within such timeframe. While the compliance plan is pending, the Registrant’s securities will continue to trade on NASDAQ.

The maturity date on the Champion line of credit was extended by Bank of America to April 30, 2024. The balance at the maturity date was approximately $1.81 M and access to the line of credit was terminated. Champion and Bank of America have continued dialogue and the company is working with our assigned representatives regarding term loan repayment options.

On May 3, 2024, the Securities and Exchange Commission (the “Commission”) entered an order instituting settled administrative and cease-and-desist proceedings against BF Borgers CPA PC (“Borgers”) and its sole audit partner, Benjamin F. Borgers CPA, permanently barring Mr. Borgers and Borgers (collectively, “BF Borgers”) from appearing or practicing before the Commission as an accountant (the “Order”). As a result of the Order, BF Borgers may no longer serve as the Registrant’s independent registered public accounting firm, nor can BF Borgers issue any audit reports included in Commission filings or provide consents with respect to audit reports.

On May 3, 2024, the Registrant dismissed BF Borgers CPA PC (“BF Borgers”) as its independent registered public accounting firm. The Registrant’s audit committee unanimously approved the decision to dismiss BF Borgers.

As reported in the Current Report on Form 8-K filed with the Commission on May 6, 2024, in light of the Order, the Audit Committee (the “Committee”) of the Board of Directors of the Registrant on May 6, 2024, unanimously approved to dismiss, and dismissed BF Borgers as the Registrant’s independent registered public accounting firm.

On May 10, 2024, the Registrant’s board of directors approved the designation of a new Series D Convertible Preferred Stock (the “Series D Designation”). The rights, preferences, restrictions and other matters relating to the Series D Convertible Preferred Stock (the “Series D Preferred Stock”) are described in greater detail in Exhibit 4.15.

On May 13, 2024, the Committee approved the engagement of GBQ as the Registrant’s independent registered public accounting firm for the fiscal year ending December 31, 2024 and the reaudits of the years ended December 31, 2023 and 2022.

On May 28, 2024, the Company entered into a Securities Purchase Agreement with 1800 Diagonal Lending, LLC, an accredited investor (“the Lender”), pursuant to which the Lender made a loan to the Company, evidenced by a promissory note in the principal amount of $111,550 (the “Note”). An original issue discount of $14,550 and fees of $7,000 were applied on the issuance date, resulting in net loan proceeds to the Company of $90,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in nine payments in the amount of $13,881.78, with the first payment due on June 30, 2024, and remaining eight payments due on the last day of each month thereafter (a total payback to the Lender of $124,936.00).

On June 14, 2024, the Company entered into a Securities Purchase Agreement with Coventry Enterprises, LLC, an accredited investor (“the Lender”), pursuant to which the Lender made a loan to the Company, evidenced by a promissory note in the principal amount of $111,550 (the “Note”). An original issue discount of $14,550 and fees of $7,000 were applied on the issuance date, resulting in net loan proceeds to the Company of $90,000. Accrued, unpaid interest and outstanding principal, subject to adjustment, is required to be paid in nine payments in the amount of $13,881.78, with the first payment due on June 30, 2024, and remaining eight payments due on the last day of each month thereafter (a total payback to the Lender of $124,936.00).

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “may,” “could,” “should,” “anticipate,” “expect,” “project,” “position,” “intend,” “target,” “plan,” “seek,” “believe,” “foresee,” “outlook,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include, but are not limited to, the following:

Because the factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made by us, you should not place undue reliance on any such forward-looking statements. New factors emerge from time to time, and their emergence is impossible for us to predict. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

This Quarterly Report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this Quarterly Report are made as of the date of this Quarterly Report and should be evaluated with consideration of any changes occurring after the date of this Quarterly Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Except as otherwise indicated by the context, references in this report to “Company,” “American Rebel Holdings,” “American Rebel,” “we,” “us” and “our” are references to American Rebel Holdings, Inc. and its operating subsidiaries, American Rebel, Inc., American Rebel Beverages, LLC, Champion Safe Co., Inc., Superior Safe, LLC, Safe Guard Security Products, LLC and Champion Safe De Mexico, S.A. de C.V. All references to “USD” or United States Dollar refer to the legal currency of the United States of America.