AREB: Innovative home safe and security company completes transformative acquisition which sets the stage for rapid profitable growth.

By Thomas Kerr, CFA

NASDAQ:AREB

OVERVIEW

American Rebel Holdings Inc. (NASDAQ:AREB), known informally as America’s Patriotic Brand, is a designer and marketer of branded safes, personal security, and self-defense products. The company also designs and produces branded accessories and apparel including some with concealment pockets. The company’s products are designed to give customers convenient, efficient, and secure home and personal safes.

The safes and personal security products are constructed primarily of U.S. made steel. The safe products are primarily designed to safely store firearms but are also used to store customers’ priceless keepsakes, family heirlooms and other personal treasures. The company markets a variety of safes under different brands and at various price points.

The company believes that safes are becoming a “must-have home appliance” in a significant portion of U.S. households. The company is continually developing new safes with advanced technology such as independent boltworks operation, double-steel door-jamb framing, and a standardized geared locking mechanism. American Rebel also produces vault doors for residential security use as well as cannabis dispensary safes used to protect valuable inventory.

In addition to branded safes, the company offers an assortment of personal security products as well as apparel and accessories for men and women under the American Rebel brand. Backpacks utilize what is believed to be a distinctive sandwich-method concealment pocket which is referred to as Personal Protection Pocket which hold firearms in place securely and safely. The concealment pockets on the Freedom 2.0 Concealed Carry Jackets incorporate a silent operation opening and closing with the use of a magnetic closure.

The company distributes its products through a growing network of dealers including national retail chains, regional retailers, local specialty safe businesses, sporting goods, hunting and firearms stores, as well as online through their own website and other e-commerce platforms such as Amazon.com.

The company has been successful at raising equity in 2022 and made a transformative acquisition of Champion Safe in August. This acquisition will add a substantial revenue base to the company and allow them to be self-funded from internal operations.

American Rebel has created an iconic brand that resonates with a large part of American culture. This brand community shares core ideas and beliefs in America as exemplified by the company’s stated core values of Patriotism, Honesty, Reliability, Loyalty, Service and Innovation.

The company was founded in 2014 and led by experienced entrepreneur and musician Andy Ross. American Rebel was uplisted to the NASDAQ market in February 2022 and has raised additional capital to fund the Champion Safe acquisition. The company does not plan to raise additional capital to fund current operations at this time.

CHAMPION SAFE ACQUISITION

On August 4th, American Rebel announced it had completed its acquisition of Utah-based Champion Safe Company and its related companies in a transaction valued at approximately $9.9 million. Champion is a leading manufacturer of gun safes, with a distinguished reputation for security, fire protection, quality of finish and workmanship. The transaction is expected to add more than $20 million in revenues to American Rebel and be accretive to net income.

The company plans to operate Champion in substantially the same manner as it currently operates. Champion will enter into a three-year employment agreement with founder Ray Crosby to continue in his position as CEO, concurrent with closing of the acquisition. Mr. Crosby is a legendary figure in the safe business with over 40 years of experience in the industry. He co-founded Fort Knox Safe in 1982 and Liberty Safe in 1988 which was eventually sold to a middle market private investment firm for $147.5 million.

CEO of American Rebel Andy Ross commented, “We are delighted to complete the acquisition of Champion. We’ve added a terrific company with an amazing product line. The combined companies will be a leading player in the safe industry and American Rebel takes a large step in becoming America’s life-style brand. Champion’s solid backlog of orders means it will begin contributing on day one, and with Champion’s reputation in the industry, we look forward to adding more dealer accounts over time.”

PRODUCTS

Safes – The company offers a wide range of home, office and personal safe models in a broad assortment of sizes, features and styles which are constructed with U.S. made steel. Demand for safes is relatively strong across all customer segments which includes individuals and families seeking to protect their valuables, businesses seeking to protect documents and irreplaceable items such as artifacts and jewelry, and cannabis dispensaries serving the community that seek to protect their inventory and cash flow.

In addition, the demand for the company’s safes has also been strong among responsible gun owners, sportsmen, competitive shooters and hunters that are seeking a premium and responsible solution to secure their firearms, to prevent theft, and to protect family members. The company expects to benefit from increasing awareness of, and the need for safe storage of firearms as gun safes become a normal home “appliance”. The company’s safe offerings can be separated into four categories.

Large Safes – The current large model safe collection consists of four distinct brands, each with their own unique market position as well as multiple model offerings. Superior Safe is the company’s premium line and appeals to high-end gun collectors or hunters with expensive firearms. There are five models sold under this brand and are typically priced in the $6,000 to $13,000 range. Champion Safe is the next line of safes and includes both luxury models as well as averaged priced models. Champion also produces and executive style safe more focused on general protection of valuables instead of firearms. There are six models sold under this brandand are typically priced in the $3,000 to $11,000 range. The American Rebel lineup of safes are in the average price point range and appeals to a middle-class consumer with an adventurous and rebellious streak. There are two models sold under this brand lineup and are typically priced in the $2,000-$4,000 range. Safe Guard is the company’s value priced safe offering and sell within the $1,000-$3,000 range.

The vast majority of the large safes are constructed out of 11-gauge U.S. made steel and feature double plate steel doors, double-steel door casements and reinforced door edges. Safe Guard and the American Rebel Freedom Safe line are constructed out of 12-gauge US made steel as these two safe lines are entry-level value-priced models. Most of these safes provide a range of 60 to 120 minutes of fire protection at 1,200 degrees Fahrenheit. The safes typically offer a fully adjustable interior to fit customers’ needs.

Personal Safes – The safes in the 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. These are marketed under the American Rebel brand.

Vault Doors – The company’s U.S made vault doors combine style with what is believed to have superior theft and fire protection for an elegant look that fits any decor. Newly built, higher-end homes often add vault rooms and the company’s lineup of vault doors provides an ideal solution for the protection of valuables and as well as personal shelter from storms or intruders. American Rebel’s in-and-out swinging vault doors provide maximum functionality to facilitate a secure vault room. These doors are constructed of 4 ½” double steel plate thickness, A36 carbon steel panels with sandwiched fire insulation, a unique design that provides greater rigidity, security and fire protection. The doors also feature active bolt works, which is the locking mechanism that bolts the safe door closed so that it cannot be pried open and is considered by some locksmiths among the smoothest and strongest in the industry. For safety and when the door is used for a panic or safe room, a quick release lever is installed inside the door. These doors are marketed under all three major brands – Superior, Champion and American Rebel.

Dispensary Safes – The company’s HG-INV Inventory Safe is specifically made for the cannabis industry and provides cannabis and horticultural plant home growers a reliable and safe solution. The safes are also designed with medical marijuana or recreational cannabis dispensaries in mind in order to meet increasing governmental and insurance industry regulations that require lock-down of inventory after hours. These are marketed under the Homegrown brand.

Personal Security – The company designs and markets concealed carry backpacks in an assortment of sizes, features and styles. The backpacks typically feature a proprietary “Protection Pocket” allowing for easy and quick access to a user’s handgun from either side. They are specifically designed to hold the company’s Level IIIA soft Ballistic Shield as an optional add-on. Model names are consistent with the company’s patriotic branding and include We The People and Freedom.

Apparel and Accessories – The company offers a wide range of concealed carry jackets, vests, coats, t-shirts, hats, and other patriotic apparel for the whole family, typically with the American Rebel imprint. The apparel products serve as the first point of exposure for the now increasingly recognizable American Rebel brand.

E-Bikes – On September 14th, the company significantly diversified its product offerings by entering into an agreement with Sierra E-Life to develop a line of American Rebel branded electric bikes. In collaboration with Sierra E-Life, the company has designed three distinct E-Bike models: the Patriot 500, the Freedom 750, and the Rebel 1000. According to industry experts, the global e-bike market is expected to exceed $100 billion by 2030. These products are expected to be brought to market in the 1st quarter of 2023.

OPPORTUNITY AND ADDRESSABLE MARKET

American Rebel has multiple growth opportunities across a variety of end markets. The company’s core safe and concealed carry products are part of a large and growing market segment due to the growth and general interest in firearms by the American public. The FBI’s National Instant Criminal Background Check System (NICS) serves as a general proxy for gun sales since a background check is typically needed to purchase a firearm. A record number of background checks occurred in 2020 at 39,695,315 which was a substantial increase from the 28,369,750 recorded in 2019. Last year in 2021, background checks were also near record levels at 38,876,673. These high levels of background checks don’t necessarily indicate the purchase of a safe will be made in those numbers, but it does reflect the high current interest in firearms and the growing potential market size. However, certain states such as Massachusetts, California, New York and Connecticut are beginning to legislate new storage requirements related to firearm ownership which could have a direct positive impact on gun safe sales.

The cannabis dispensary industry is also poised to be a material growth segment for the company. Cannabis dispensaries have various insurance requirements and local regulations requiring them to secure their inventory when the dispensary is closed. Dispensary operators have been purchasing gun safes and independently customizing the interiors themselves to allow them to store cannabis inventory. American Rebel has designed a safe that is tailor-made for the cannabis industry. The legal cannabis market is expected to exceed $43 billion by 2025 with an increasing number of states having legalized the growth and cultivation of cannabis including California, Colorado, Hawaii, Maine, Maryland, Michigan, Montana, New Mexico, Oregon, Rhode Island, Vermont and Washington. The company has a large list of prospects in this area including dispensary operators, growers, and processors that are interested in their safe related inventory control solutions. In addition, some dispensary operators, growers, and processors have shown interest in the company’s vault door products as many of these industry participants have chosen to install entire vault rooms instead of individual inventory control safes.

In addition, American Rebel has significant potential for marketing branded products and creating a dynamic lifestyle and work brand. As the company’s brand continues to grow in popularity, additional revenues could be generated from licensing fees earned from third parties who wish to engage the American Rebel community. Although the company does not earn significant licensing fees currently, future opportunities could include non-safe household items, tools, or consumer electronics in which manufacturers of those items could license the American Rebel brand. Conversely, the company could also benefit as a licensee of external products if they find a quality item that fits the American Rebel mission statement. Those products would be sold by the company under the American Rebel brand.

FINANCIAL REVIEW

American Rebel is a developmental stage company with limited revenue generation in recent years, largely due to lack of capital to develop inventory for sale. Revenues were $986.8 thousand for the 2021 fiscal year and $1.26 million for 2020. For the first six months of 2022, revenues were $492.8 thousand. The company has been generating operating and net losses during these time frames and has an accumulated deficit of $32.1 million as of the end of the 2nd quarter.

In 2022, the company has been successful at raising capital in order to fund ongoing operations as well as to make targeted acquisitions. In February 2022, American Rebel raised $10.5 million in connection with its uplisting to the NASDAQ market with net proceeds to the company of $9.0 million. In July 2022, the company raised on additional $13.0 million from a private placement offering of which the proceeds were primarily used to fund the Champion Safe acquisition.

The company’s operating financial picture will materially change due to the successful acquisition of Champion Safe in August 2022 which already had an established revenue base. Projected revenues for the new combined entity are approximately $20 million along with $2 million in projected net operating profits. We believe the company is self-funded now and will be able to generate positive free cash flow next year with no need to raise additional capital.

We believe the company’s current pro forma cash position is in the $2 to $3 million range after the successful private placement offering and purchase of Champion Safe. The company carries only $600,000 in total debt which is due in March of 2023.

MANAGEMENT

Andy Ross has served as Chief Executive Officer and Chairman of the Board of Directors since December 2014. Previously, Mr. Ross founded Digital Ally, Inc. (NASDAQ:DGLY) and possesses an extensive business career including success in broadcasting, endorsements, music, and television. A music artist and songwriter, Mr. Ross has released three CDs and his song “American Rebel” has become the inspiration for the American Rebel brand. Mr. Ross’ television and performing experience provide opportunities for him to speak about American Rebel in media interviews on radio and TV and in print and online. Mr. Ross’ father, Bud Ross, founded Kustom Electronics and Birdview Satellites and served as a mentor and guiding force behind the founding of American Rebel.

Doug Grau has served as President from January 2021, and as a director since February 2020. Prior to that, Mr. Grau served as the company’s business operations director. Mr. Grau currently serves as a financial advisor with Infinity Securities, a national wealth management and brokerage firm. Mr. Grau holds B.B.A. in Music Business from Belmont University. Following the passing of the former company CFO, Mr. Grau has been appointed as interim principal accounting officer.

Ronald Smith has served as Chief Operating Officer since April 2021. Previously, Mr. Smith served as the Chief Executive Officer and President of LADS Pets Supplies, a pet supplies wholesale distributor in the Northeastern U.S.

SUMMARY

We believe American Rebel is well positioned for growth after its transformative acquisition of Champion Safe. The addressable market for its safes and other products is large and growing as it relates to firearm ownership and firearm general interest. New product opportunities related to cannabis inventory storage and vault doors could provide additional avenues of rapid growth that has not been exploited by the company. Further, the company is in the development phase of additional products such as biometric safes, wall safes, personal security devices, and youth protection backpacks. The company has the potential to create loyal, multi-product customers as these new areas of growth are developed. American Rebel has developed an iconic brand that resonates with many Americans.

We do not believe the company’s current market capitalization of $3.5 million reflects the shareholder value that can be created with profitable growth going forward. 2023 should be a breakthrough year in terms of revenue growth and new product offerings.

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