TBLT Toughbuilt Industries, Inc - 10-K

Item 1A. Risk Factors.

Our business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances described below occur, our business and financial performance could be adversely affected, our actual results could differ materially from our expectations, and our stock price could decline. The risks and uncertainties discussed below are not the only ones we face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that may adversely affect our business and financial performance. Before making an investment decision, you should carefully consider the risks described below and all other information included in this report, including our financial statements and related notes. The statements in this report that are not historical facts are forward-looking statements and are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occur, our business, financial condition, or results of operations could be harmed. In that case, the trading price of our common stock could decline, and investors in our securities may lose all or part of their investment.

Risks Related to Our Company

There is substantial doubt about our ability to continue as a going concern.

We have incurred substantial operating losses since our inception. As reflected in the consolidated financial statements, we had an accumulated deficit of approximately $191.4 million at December 31, 2023 a net loss of approximately $46.4 million, and approximately $5.1 million of net cash used in operating activities for the year ended December 31, 2023. The accompanying consolidated financial statements in this Annual Report on Form 10-K have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. As such, we believe that we will need additional financing to fund our operations and develop and commercialize our technology. Also, we will seek to obtain additional capital through debt or sale of equity financing or other arrangements to fund operations; however, there can be no assurance that we will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing stockholders, and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we cannot obtain such additional financing, future operations will need to be scaled back or discontinued. Due to these factors, management believes that there is substantial doubt in our ability to continue as a going concern for the twelve months from the issuance of these consolidated financial statements.

We will require additional capital in order to achieve commercial success and , if necessary , to finance future losses from operations as we endeavor to build revenue , but we do not have any commitments to obtain such capital and we cannot assure you that we will be able to obtain adequate capital as and when required .

We may not be able to generate any profit in the foreseeable future. For the year ended December 31, 2023, we reported a net loss of $46.4 million, compared to a net loss of $39.3 million for the year ended December 31, 2022. Accordingly, there is no assurance that we will realize profits in fiscal 2024 or thereafter. If we fail to generate profits from our operations, we will not be able to sustain our business. We may never report profitable operations or generate sufficient revenue to maintain our Company as a going concern. We continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in the short term to invest in revenue growth; however, we cannot give assurance that we can increase our cash balances or limit our cash consumption and thus maintain sufficient cash balances for our planned operations. Future business demands may lead to cash utilization at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure you that we will be able to raise additional capital on acceptable terms or at all. Our inability to generate profits could have an adverse effect on our financial condition, results of operations, and cash flows. See “ Management’s Discussion and Analysis of Financial Condition and Results of Operations; Liquidity and Capital Resources .”

We have limited management and staff and will be dependent upon partnering arrangements .

As of December 31, 2023, we have eight (8) independent contractors and consultants. Our dependence on third-party consultants and service providers creates a number of risks, including but not limited to, the possibility that such third parties may not be available to us as and when needed, and that we may not be able to properly control the timing and quality of work conducted with respect to our projects. If we experience significant delays in obtaining the services of such third parties or poor performance by such parties, our results of operations and stock price will be materially adversely affected.

The loss of any of our executive officers could adversely affect us .

We currently only have four (4) executive officers. We depend on our executive officers’ extensive experience to implement our acquisition and growth strategy, specifically, Michael Panosian, our President and Chief Executive Officer, and Joshua Keeler, our Vice President of Research and Development. The loss of the services of any of our executive officers could negatively impact our operations and our ability to implement our strategy. Although we maintain a “key man” life insurance policy only for Michael Panosian, we do not carry any key man life insurance for any of our other employees, and our key man insurance policy for Mr. Panosian is for $2 million and will be insufficient to recover any losses resulting from Mr. Panosian’s death or disability while serving as our President and Chief Executive Officer.

We may be unable to attract the necessary employees or be able to prevent our current employees from leaving us.

To induce valuable employees to remain with us, in addition to salary and cash incentives, we have provided restricted stock and stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies. Despite our efforts to retain valuable employees, members of our management may terminate their employment with us. Our success also depends on our ability to continue to attract, retain, and motivate employees.

If the hosts of third-party marketplaces limit our access to such marketplaces , our operations and financial results may be adversely affected .

Third-party marketplaces account for a portion of our revenues. Our sales through online third-party marketplaces represented a combined 15% of total sales for the fourth quarter ended December 31, 2023. We anticipate that sales of our products on third-party marketplaces will continue to account for a portion of our revenues. In the future, the loss of access to these third-party marketplaces, or any significant cost increases from operating on the marketplaces, could significantly reduce our revenues, and the success of our business depends partly on continued access to these third-party marketplaces. Our relationships with our third-party marketplace providers could deteriorate due to various factors, such as if they become concerned about our ability to deliver quality products on a timely basis or to protect a third party’s intellectual property. In addition, third-party marketplace providers could prohibit our access to these marketplaces if we are not able to meet the applicable required terms of use. Loss of access to a marketplace channel could result in lower sales, and as a result, our business and financial results may suffer.

We are highly dependent upon manufacturers in China , India, and Philippines, and an interruption in such relationships or our ability to obtain products from them could adversely affect our business and results of operations .

Our products are manufactured by factories in China, India, and Philippines. Our ability to acquire products from our suppliers in amounts and on terms acceptable to us depends on a number of unforeseeable factors and may be beyond our control. For example, financial or operational difficulties that some of our manufacturers may face could result in an increase in the cost of the products we purchase from them. If we do not maintain our relationships with our existing manufacturers or fail to find replacement or additional manufacturers in a timely manner and on acceptable commercial terms, we may not be able to continue to offer our products at competitive prices and any failure to deliver those products to our customers in a timely and accurate manner may damage our reputation and brand and could cause us to lose customers and our sales could decline.

Disruptions in our supply chain and other factors affecting the distribution of our merchandise could adversely impact our business .

A disruption within our logistics or supply chain network could adversely affect our ability to deliver inventory in a timely manner, which could impair our ability to meet customer demand for products and result in lost sales, increased supply chain costs or damage to our reputation. Such disruptions may result from damage or destruction to our distribution centers, weather-related events, natural disasters, international trade disputes or trade policy changes or restrictions, tariffs or import-related taxes, third-party strikes, lock-outs, work stoppages or slowdowns, shortages of supply chain labor, shipping capacity, third-party contract disputes, supply or shipping interruptions or costs, military conflicts, acts of terrorism, public health issues, including pandemics or quarantines (such as the COVID-19 pandemic) and related shutdowns, re-openings or other actions by the government, civil unrest or other factors beyond our control. In recent years, U.S. ports, particularly those located on the West Coast, have been impacted by capacity constraints, port congestion and delays, periodic labor disputes, security issues, weather-related events, and natural disasters, which the pandemic has further exacerbated. Disruptions to our supply chain due to any of the above factors could negatively impact our financial performance or condition.

In addition, a significant percentage of our product production, downstream processing, and sales occur outside the United States or with vendors, suppliers, or customers located outside the United States. If the United States places tariffs or other restrictions on foreign imports from China, India, the Philippines, or other countries, or any related counter-measures are taken, our business, financial condition, results of operations, and growth prospects may be harmed. Tariffs may increase our cost of goods, which could result in lower gross margins on certain of our products. If we raise prices to account for any such increase in costs of goods, the competitiveness of the affected products could potentially be reduced. In either case, increased tariffs on imports from China, India, Philippines, or other countries could materially and adversely affect our business, financial condition and results of operations. Trade restrictions and sanctions implemented by the United States or other countries, including sanctions imposed on Russia by the United States and other countries due to Russia’s recent invasion of Ukraine, could materially and adversely affect our business, financial condition, and results of operations.

We are highly dependent upon manufacturers in China, India, and Philippines , which exposes us to complex regulatory regimes and logistical challenges .

We acquire majority of our products from manufacturers and distributors located in China, India, and Philippines. We do not have any long-term contracts or exclusive agreements with our foreign suppliers that would ensure our ability to acquire the types and quantities of products we desire at acceptable prices and in a timely manner or that would allow us to rely on customary indemnification protection with respect to any third-party claims similar to some of our U.S. suppliers. In addition, because many of our suppliers are outside of the United States, additional factors could interrupt our relationships or affect our ability to acquire the necessary products on acceptable terms, including:

political, social, and economic instability and the risk of war or other international incidents in China, India or the Philippines;

fluctuations in foreign currency exchange rates that may increase our cost of products;

the imposition of duties, taxes, tariffs, or other charges on imports;

difficulties in complying with import and export laws, regulatory requirements, and restrictions;

natural disasters and public health emergencies, such as the recent outbreak of a novel strain of coronavirus identified first in Wuhan, Hubei Province, China, and having turned into a global pandemic that has impacted a number of countries from which we purchase products;

import shipping delays resulting from foreign or domestic labor shortages, slowdowns, or stoppage;

the failure of local laws to provide a sufficient degree of protection against infringement of our intellectual property;

imposition of new legislation relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from countries or regions where we do business;

financial or political instability in any of the countries in which our product is manufactured;

potential recalls or cancellations of orders for any product that does not meet our quality standards;

disruption of imports by labor disputes or strikes and local business practices;

political or military conflict involving the U.S. or any country in which our suppliers are located, which could cause a delay in the transportation of our products, an increase in transportation costs and additional risk to product being damaged and delivered on time;

heightened terrorism security concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries or impoundment of goods for extended periods;

inability of our non-U.S. suppliers to obtain adequate credit or access liquidity to finance their operations; and

our ability to enforce any agreements with our foreign suppliers.

If we were unable to import products from China, India, and Philippines or import them cost-effectively, we could suffer irreparable harm to our business and be required to significantly curtail our operations, file for bankruptcy, or cease operations.

From time to time, we may also have to resort to administrative and court proceedings to enforce our legal rights with foreign suppliers. However, it may be more challenging to evaluate the level of legal protection we enjoy in China, India, and Philippines and the corresponding outcome of any administrative or court proceedings than in comparison to our suppliers in the United States.

Increasing commodity prices such as fuel , plastic, and metal could negatively impact our profit margins .

Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from changes in domestic and international supply and demand, labor costs, competition, market speculation, government regulations, trade restrictions, and tariffs. Increasing prices in the component materials for the parts of our goods may impact the availability, the quality and the price of our products, as suppliers search for alternatives to existing materials and increase the prices they charge. We cannot ensure that we can recover all the increased costs through price increases, and our suppliers may not continue to provide consistent quality products as they may substitute lower-cost materials to maintain pricing levels, all of which may have a negative impact on our business and results of operations. Our cost base also reflects significant elements for freight, including fuel. Rapid and significant changes in commodity prices such as fuel, plastic, and metal may negatively affect our profit margins.

Our results of operations could be negatively impacted by inflationary or deflationary economic conditions, which could affect our ability to obtain goods from our suppliers in a timely and cost-effective manner.

Our profitability may be negatively impacted if we are unable to mitigate any inflationary increases through various customer pricing actions and cost-reduction initiatives. Conversely, in the event there is deflation, we may experience pressure from our customers to reduce prices, and there can be no assurance that we would be able to reduce our cost base (through negotiations with suppliers or other measures) to offset any such price concessions which could adversely impact results of operations and cash flows.

We currently, and may in the future, have assets held at financial institutions that may exceed the insurance coverage offered by the Federal Deposit Insurance Corporation (“FDIC”), the loss of such assets would have a severe negative effect on our operations and liquidity.

We may maintain our cash assets at certain financial institutions in the U.S. in amounts that may be in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. In the event of a failure of any financial institutions where we maintain our deposits or other assets, we may incur a loss to the extent such loss exceeds the FDIC insurance limitation, which could have a material adverse effect on our liquidity, financial condition, and our results of operations.

If we are unable to manage the challenges associated with our international operations , the growth of our business could be limited and our business could suffer .

We maintain international business operations throughout Europe with a majority being in the United Kingdom. Our international operations include sales and back-office support services for our European market. We are subject to a number of risks and challenges that specifically relate to our international operations. Our international operations may not be successful if we are unable to meet and overcome these challenges, which could limit the growth of our business and may have an adverse effect on our business and operating results. These risks and challenges include:

difficulties and costs of staffing and managing foreign operations, including any impairment to our relationship with employees caused by a reduction in force;

restrictions imposed by local labor practices and laws on our business and operations;

exposure to different business practices and legal standards;

unexpected changes in regulatory requirements;

the imposition of government controls and restrictions;

political, social and economic instability and the risk of war, terrorist activities or other international incidents;

the failure of telecommunications and connectivity infrastructure;

natural disasters and public health emergencies;

potentially adverse tax consequences; and

fluctuations in foreign currency exchange rates and relative weakness in the U.S. dollar.

If we fail to offer a broad selection of products at competitive prices or maintain sufficient inventory to meet customer demands , our revenue could decline .

In order to expand our business, we must successfully offer, on a continuous basis, a broad selection of products that meet the needs of our customers, including being the first to market with new SKUs. Consumers use our products for a variety of purposes, including repair, performance, aesthetics, and functionality. In addition, to be successful, our product offerings must be broad and deep in scope, competitively priced, well-made, innovative and attractive to a wide range of consumers. We cannot predict with certainty that we will successfully offer products that meet all these requirements. If our product offerings fail to satisfy our customers’ requirements or respond to changes in customer preferences or we otherwise fail to maintain sufficient in-stock inventory, our revenue could decline.

As a result of our international operations , we have foreign exchange risk .

Our purchases of products from our China, India, and the Philippines suppliers are denominated in U.S. dollars; however, a change in the foreign currency exchange rates could impact our product costs over time. Our financial reporting currency is the U.S. dollar and changes in exchange rates due to functional currencies of respective countries could significantly affect our reported results and consolidated trends. For example, if the U.S. dollar weakens year-over-year relative to currencies in our international locations, our consolidated gross profit and operating expenses would be higher than if currencies had remained constant.

Our products could be recalled .

The Consumer Product Safety Commission or other applicable regulatory bodies may require the recall, repair, or replacement of our products if they are found not to be in compliance with applicable standards or regulations. A recall could increase costs and adversely impact our reputation, thereby negatively impacting our financial condition, results of operations, and cash flows.

Regulatory and Litigation Risks

Product liability claims and other kinds of litigation could affect our business , reputation , financial condition , results of operations and cash flows .

The products we design and/or have manufactured can lead to product liability or other legal claims being filed against us. In the past, and may in the future, we have been subject to legal proceedings other than those relating to product liability claims. To the extent that plaintiffs are successful in showing that a defect in a product’s design, manufacture or warnings led to personal injury or property damage, or that our provision of services resulted in similar injury or damage, we may be subject to claims for damages. Although we are insured for damages above a certain amount, we bear the costs and expenses associated with defending claims, including frivolous lawsuits, and are responsible for damages below the insurance retention amount. In addition to claims concerning individual products, as a manufacturer, we can be subject to costs, potential negative publicity, and lawsuits related to product recalls, which could adversely impact our results and damage our reputation.

Even defending against unsuccessful claims could cause us to incur significant expenses and divert management’s attention. In addition, even if the money damages themselves did not cause substantial harm to our business, the damage to our reputation and the brands offered on our websites could adversely affect our future reputation and our brand, and could result in a decline in our net sales and profitability.

Failure to comply with privacy laws and regulations and adequately protect customer data could harm our business, damage our reputation, and result in a loss of customers .

Federal and state regulations may govern the collection, use, sharing, and security of data that we receive from our customers. Any failure, or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, U.S. Federal Trade Commission requirements or other federal, state or international privacy-related laws and regulations could result in proceedings or actions against us by governmental entities or others, which could potentially harm our business. Further, failure or perceived failure to comply with our policies or applicable requirements related to the collection, use or security of personal information or other privacy-related matters could damage our reputation and result in a loss of customers.

The regulatory framework for data privacy is constantly evolving , and privacy concerns could adversely affect our operating results .

The regulatory framework for privacy issues is evolving and will likely remain uncertain for the foreseeable future. The occurrence of unanticipated events often rapidly drives the adoption of legislation or regulation affecting the use of data and the way we conduct our business; in fact, there are active discussions among U.S. legislators around adopting a new U.S. federal privacy law. Restrictions could be placed upon the collection, management, aggregation and use of information, which could result in a material increase in the cost of collecting and maintaining certain kinds of data. In June 2018, California enacted the California Consumer Privacy Act, which took effect on January 1, 2020, and in November 2020, California voters approved Proposition 24, which amended the California Consumer Privacy Act and added new additional privacy protections that began on January 1, 2023 (the “C.C.P.A.”). The C.C.P.A. gives consumers the right to request disclosure of information collected about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information, the right not to be discriminated against for exercising these rights, the right to correct inaccurate personal information that a business has about them and the right to limit the use and disclosure of sensitive personal information collected about them. We are required to comply with the C.C.P.A. The C.C.P.A. provides for civil penalties for violations and a private right of action for data breaches that are expected to increase data breach litigation. The C.C.P.A. may increase our compliance costs and potential liability. Some observers have noted that the C.C.P.A. could begin a trend toward more stringent privacy legislation in the U.S., which could increase our potential liability and adversely affect our business.

If we are unable to protect our intellectual property rights , our reputation and brand could be impaired, and we could lose customers .

We regard our trademarks, trade secrets, and similar intellectual property rights as critical to our success. We rely on trademark and copyright law, trade secret protection, and confidentiality and license agreements with employees, customers, partners, and others to protect our proprietary rights. We cannot be sure that we have taken adequate steps to protect our proprietary rights, especially in countries where the laws may not protect our rights as fully as in the United States. In addition, our proprietary rights may be infringed or misappropriated, and we could incur significant expenses to preserve them. The outcome of such litigation can be uncertain, and the cost of prosecuting such litigation may adversely impact our earnings. We have common law trademarks, as well as pending federal trademark registrations for several marks and several registered marks. However, any registrations may not adequately cover our intellectual property or protect us against infringement by others. Effective trademarks, service marks, copyrights, patents, and trade secrets protection may not be available in every country where our products and services are available online. We also currently own or control a number of Internet domain names, including www.toughbuilt.com , and have invested time and money in purchasing domain names and other intellectual property, which may be impaired if we cannot protect such intellectual property. We may be unable to protect these domain names or acquire or maintain relevant domain names in the United States and other countries. If we cannot protect our trademarks, domain names, or other intellectual property, we may experience difficulties achieving and maintaining brand recognition and customer loyalty.

If we are unable to protect our intellectual property , our business may be adversely affected .

We must protect the proprietary nature of the intellectual property used in our business. There can be no assurance that trade secrets and other intellectual property will not be challenged, invalidated, misappropriated, or circumvented by third parties. Our intellectual property includes issued patents, patent applications, trademarks, trademark applications, and know-how related to business, product, and technology development. We plan on taking the necessary steps, including but not limited to filing additional patents as appropriate. There is no assurance any additional patents will be issued or that when they are issued, they will include all of the claims currently included in the applications. Even if they do issue, those new patents and our existing patents must be protected against possible infringement. Nonetheless, we currently rely on contractual obligations of our employees and contractors to maintain the confidentiality of our products. To compete effectively, we need to develop and continue to maintain a proprietary position concerning our technologies, and business. The risks and uncertainties that we face concerning intellectual property rights principally include the following:

patent applications that we file may not result in issued patents or may take longer than expected to result in issued patents;

we may be subject to interference proceedings;

other companies may claim that patents applied for by, assigned, or licensed to, us infringe upon their own intellectual property rights;

we may be subject to opposition proceedings in the U.S. and in foreign countries;

any patents that are issued to us may not provide meaningful protection;

we may not be able to develop additional proprietary technologies that are patentable;

other companies may challenge patents licensed or issued to us;

other companies may independently develop similar or alternative technologies, or duplicate our technologies;

other companies may design around technologies that we have licensed or developed;

any patents issued to us may expire and competitors may utilize the technology found in such patents to commercialize their own products; and

enforcement of patents is complex, uncertain, and expensive.

It is also possible that others may obtain issued patents that could prevent us from commercializing certain aspects of our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. If we license patents, our rights will depend on maintaining its obligations to the licensor under the applicable license agreement, and we may be unable to do so. Furthermore, there can be no assurance that the work-for-hire, intellectual property assignment, and confidentiality agreements entered into by our employees and consultants, advisors, and collaborators will provide meaningful protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use or disclosure of such trade secrets, know-how or other proprietary information. As all of our products are manufactured in China, India, and the Philippines, we may not have the same strength of intellectual property protection and enforcement in such countries as in North America or Europe. The scope and enforceability of patent claims are not systematically predictable with absolute accuracy. The strength of our patent rights depends, in part, upon the breadth and scope of protection provided by the patent and the validity of our patents, if any.

We may not be able to enforce our intellectual property rights worldwide .

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property. If we are unable to enforce our intellectual property rights throughout the world adequately, our business, financial condition, and results of operations could be adversely impacted.

Because we are involved in litigation from time to time and are subject to numerous laws and governmental regulations , we could incur substantial judgments , fines , legal fees, other costs, and reputational harm .

We are sometimes the subject of complaints or litigation from customers, employees, or other third parties for various reasons. The damages sought against us in some of these litigation proceedings could be substantial. Although we maintain liability insurance for some litigation claims, if one or more of the claims were to exceed our insurance coverage limits greatly or if our insurance policies do not cover a claim, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business , cash flow , financial condition, or results of operations .

New income, sales, use, or other tax laws, statutes, rules, regulations, or ordinances could be enacted at any time, which could adversely affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted, changed, modified, or applied adversely to us. For example, legislation enacted in 2017, informally titled the Tax Cuts and Jobs Act (the “Tax Act”), enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or modified in future legislation. In addition, it is uncertain if and to what extent various states will conform to the Tax Act or any newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax expense.

Existing or future government regulation could expose us to liabilities and costly changes in our business operations and could reduce customer demand for our products and services .

We are subject to federal and state consumer protection laws and regulations, including laws protecting the privacy of customer nonpublic information and regulations prohibiting unfair and deceptive trade practices, as well as laws and regulations governing businesses in general and the Internet and e-commerce and certain environmental laws. Additional laws and regulations may be adopted with respect to the Internet, the effect of which on e-commerce is uncertain. These laws may cover issues such as user privacy, spyware and the tracking of consumer activities, marketing emails and communications, other advertising and promotional practices, money transfers, pricing, content and quality of products and services, taxation, electronic contracts, and other communications, intellectual property rights, and information security. Furthermore, it is unclear how existing laws governing issues such as property ownership, sales and other taxes, trespass, data mining and collection, and personal privacy apply to the Internet and e-commerce. To the extent we expand into international markets, we will be faced with complying with local laws and regulations, some of which may be materially different than U.S. laws and regulations. Any such foreign law or regulation, any new U.S. law or regulation, or the interpretation or application of existing laws and regulations to the Internet or other online services or our business, in general, may have a material adverse effect on our business, prospects, financial condition and results of operations by, among other things, impeding the growth of the Internet, subjecting us to fines, penalties, damages or other liabilities, requiring costly changes in our business operations and practices, and reducing customer demand for our products and services. We may not maintain sufficient or any insurance coverage to cover the types of claims or liabilities that could arise due to such regulations.

Possible new tariffs that the United States government might impose could have a material adverse effect on our results of operations .

Changes in U.S. and foreign governments’ trade policies have resulted in and may continue to result in, tariffs on imports into and exports from the U.S., among other restrictions. Throughout from 2018 to 2023, the U.S. imposed tariffs on imports from several countries, including China. If further tariffs are imposed on imports of our products or retaliatory trade measures are taken by China or other countries in response to existing or future tariffs, we could be forced to raise prices on all of our imported products or make changes to our operations, any of which could materially harm our revenue or operating results. Any additional future tariffs or quotas imposed on our products or related materials may impact our sales, gross margin, and profitability if we are unable to pass increased prices onto our customers.

We operate in an industry with the risk of intellectual property litigation . Claims of infringement against us may hurt our business .

Our success depends, in part, upon the non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual property infringement without major financial expenditures or adverse consequences. Participants that own, or claim to own, intellectual property may aggressively assert their rights. From time to time, we may be subject to legal proceedings and claims relating to the intellectual property rights of others. Future litigation may be necessary to defend us or our clients by determining the scope, enforceability, and validity of third-party proprietary rights or to establish its proprietary rights. Some competitors have substantially greater resources and are able to sustain the costs of complex intellectual property litigation to a greater degree and for extended time periods. In addition, patent-holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us. Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, these claims are time-consuming and costly to evaluate and defend and could:

adversely affect relationships with future clients;

cause delays or stoppages in providing products;

divert management’s attention and resources;

subject us to significant liabilities; and

require us to cease some or all of its activities.

In addition to liability for monetary damages, which may be tripled and may include attorneys’ fees or, in some circumstances, damages against clients, we may be prohibited from developing, commercializing, or continuing to provide some or all of our products unless we obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available on commercially favorable terms, or at all.

Geopolitical conditions, including trade disputes and direct or indirect acts of war or terrorism, could adversely affect our operations and financial results.

Since we operate globally, our operations could be disrupted by geopolitical conditions, trade disputes, international boycotts and sanctions, political and social instability, acts of war, terrorist activity, or other similar events. From time to time, we could have a significant investment in a particular asset type, a large revenue stream associated with a specific customer or industry, or a large number of customers located in a certain geographic region. Decreased demand from a discrete event impacting a specific asset type, customer, industry, or region in which we have a concentrated exposure could negatively impact our results of operations.

In February 2022, Russia initiated significant military action against Ukraine. In response, the U.S. and certain other countries imposed significant sanctions and export controls against Russia, Belarus, and certain individuals and entities connected to Russian or Belarusian political, business, and financial organizations, and the U.S. and certain other countries could impose further sanctions, trade restrictions, and other retaliatory actions should the conflict continue or worsen. It is not possible to predict the broader consequences of the conflict, including related geopolitical tensions, and the measures and retaliatory actions taken by the U.S. and other countries in respect thereof, as well as any counter-measures or retaliatory actions by Russia or Belarus in response, including, for example, potential cyber-attacks or the disruption of energy exports, is likely to cause regional instability, geopolitical shifts, and could materially adversely affect global trade, currency exchange rates, regional economies and the global economy. The situation remains uncertain, and while it is difficult to predict the impact of any of the preceding, the conflict and actions taken in response to the conflict could increase our costs, disrupt our supply chain, reduce our sales and earnings, impair our ability to raise additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.

Risks Related to Information Technology

The Company’s lack of formalized cybersecurity measures and protocols exposes it to significant risks that could materially and adversely affect its business operations, financial condition, and reputation. In particular:

Increased Vulnerability to Cyber Attacks : Without robust cybersecurity measures in place, the Company is at an elevated risk of falling victim to cyber-attacks, including, but not limited to, malware, ransomware, phishing, and denial-of-service attacks. Such incidents could disrupt business operations, cause the loss of critical data, and allow unauthorized access to sensitive information.

Data Breach and Loss of Confidential Information : The absence of comprehensive cybersecurity protocols increases the likelihood of a data breach. A breach could result in the loss or theft of proprietary business information, intellectual property, or personal data of employees, customers, and other stakeholders. This could expose the Company to legal liabilities, regulatory fines, and loss of trust among customers and partners.

Financial Impact : Cybersecurity incidents could impose significant financial burdens on the Company, including costs associated with investigation, remediation, legal fees, and potential settlements or penalties arising from litigation and regulatory actions. Additionally, the Company may incur substantial costs to implement remedial measures and enhance its cybersecurity infrastructure post-incident.

Regulatory Compliance Risks : The Company operates in an environment that is increasingly regulated regarding data protection and cybersecurity. Failure to establish and maintain adequate cybersecurity measures could result in non-compliance with applicable laws and regulations, leading to legal penalties, sanctions, and reputational damage.

Reputational Damage : Cybersecurity incidents can significantly damage the Company’s reputation and brand image. A loss of customer confidence could result in decreased demand for the Company’s products and services, affecting its market position and long-term profitability.

Operational Disruptions : Cyber attacks can disrupt the Company’s operational capabilities, impacting its ability to deliver products and services, manage supply chains, and maintain financial reporting systems. Prolonged disruptions could have a material adverse effect on the Company’s operational performance and financial results.

The Company acknowledges the importance of cybersecurity and is evaluating its needs to develop and implement appropriate measures to enhance its cybersecurity posture. However, there can be no assurance that these initiatives will sufficiently mitigate the risks associated with cybersecurity threats. The landscape of cybersecurity risks is constantly evolving, and the Company will need to continuously assess and update its cybersecurity measures in response to emerging threats.

General Risk Factors

An investment in our securities is speculative, and there can be no assurance of a return on such an investment .

An investment in our securities is speculative, and there can be no assurance that investors will obtain any return on their investment. Investors may be subject to substantial risks involved in an investment in our securities, including losing their entire investment.

Certain provisions of our Articles of Incorporation could allow the concentration of voting power in one individual, which may, among other things, delay or frustrate the removal of incumbent directors or a takeover attempt, even if such events may benefit our stockholders .

Provisions of our Articles of Incorporation, such as our ability to designate and issue a class of preferred stock without stockholder approval, may delay or frustrate the removal of incumbent directors and may prevent or delay a merger, tender offer, or proxy contest involving our Company that is not approved by our board of directors (“Board”), even if those events may be perceived to be in the best interests of our stockholders. For example, one or more of our affiliates could theoretically be issued a newly authorized and designated class of shares of our preferred stock. Such shares could have significant voting power, which may dilute the voting power of our common stock, among other terms. Consequently, anyone to whom these shares of preferred stock were issued could have sufficient voting power to significantly influence, if not control, the outcome of all corporate matters submitted to the vote of our common stockholders, subject to the rules promulgated by Nasdaq. Those matters could include the election of directors, changes in the size and composition of the Board, and mergers and other business combinations involving our Company. In addition, through any such person’s control of the Board and voting power, the affiliate may be able to control certain decisions, including decisions regarding the qualification and appointment of officers, dividend policy, access to capital (including borrowing from third-party lenders and the issuance of additional equity securities), and the acquisition or disposition of assets by our Company. In addition, the concentration of voting power in the hands of an affiliate could have the effect of delaying or preventing a change in control of our Company, even if the change in control would benefit our stockholders and may adversely affect the future market price of our common stock should a trading market therefore develop.

If you purchase shares of our common stock , you may experience immediate and substantial dilution in your shares’ net tangible book value . In addition , we may issue shares of common stock under our equity incentive plans and additional equity or convertible debt securities in the future , which may dilute investors further .

We are currently authorized to issue up to 200,000,000 shares of common stock. In the future, we may issue previously authorized and unissued shares of common stock, which would dilute current stockholders’ ownership interests. Additional shares are subject to issuance through various equity compensation plans or the exercise of currently outstanding equity awards. The potential issuance of additional shares of common stock may create downward pressure on the trading price of our common stock. In the future, we may issue additional shares of common stock or other securities that are convertible into or exercisable for common stock to raise capital or effectuate other business purposes. Purchasers of the shares we sell and our existing stockholders will experience significant dilution if we sell shares at prices significantly below the price at which they invested. In addition, to the extent we need to raise additional capital in the future and we issue additional shares of common stock or securities convertible or exchangeable for our common stock, our then existing stockholders may experience dilution, and the new securities may have rights senior to those of our common stock offered in this offering. Any of the above events could significantly harm our business, prospects, financial condition and results of operations, as well as cause the price of our common stock to decline.

Our stock price has been and may continue to be volatile.

The market price of our common stock has been and may continue to be subject to material volatility. Such fluctuations could be in response to, among other things, the factors described in this “ Risk Factors ” section or other factors, some of which are beyond our control, such as:

the ongoing impacts of the COVID-19 pandemic and the resulting impact on stock market performance;

fluctuations in our financial results or outlook or those of companies perceived to be similar to us;

changes in the prices of commodities associated with our business;

changes in our capital structure, such as future issuances of securities or the incurrence of debt;

announcements by us or our competitors of significant contracts, acquisitions, or strategic partnerships;

regulatory developments;

litigation involving us or our general industry;

additions or departures of key personnel; and

changes in general economic, industry, and market conditions.

In the past, many companies that have experienced volatility and sustained declines in the market price of their stock have become subject to securities class action and derivative action litigation. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could materially harm our business. Any insurance we maintain may not provide adequate coverage against potential losses from such securities litigation, and if claims or losses exceed our liability insurance coverage, our business would be adversely impacted. In addition, insurance coverage may become more expensive, which could harm our financial condition and results of operations.

Other international and geopolitical events could also have a severe adverse impact on our business. For instance, in February 2022, Russia initiated military action against Ukraine. In October 2023, Israel initiated a military action against and Hamas in Gaza. In response, the United States and certain other countries imposed significant sanctions and trade actions against Russia and could impose further sanctions, trade restrictions, and other retaliatory actions. While we cannot predict the broader consequences, the conflict, and retaliatory and counter-retaliatory actions could materially adversely affect global trade, currency exchange rates, inflation, regional economies, and the global economy, which in turn may increase our costs, disrupt our supply chain, impair our ability to raise or access additional capital when needed on acceptable terms, if at all, or otherwise adversely affect our business, financial condition, and results of operations.

We may need but be unable to obtain additional funding on satisfactory terms, which could dilute our stockholders or impose burdensome financial restrictions on our business.

We have relied upon cash from financing activities, and in the future, we hope to rely on revenues generated from operations to fund our activities’ cash requirements. However, there can be no assurance that we will be able to generate any significant cash from our operating activities in the future. Future financing may not be available on a timely basis, in sufficient amounts, or on terms acceptable to us, if at all. Any debt financing or other financing of securities senior to the common stock will likely include financial and other covenants that will restrict our flexibility. Any failure to comply with these covenants would have a material adverse effect on our business, prospects, financial condition, and results of operations because we could lose our existing funding sources and impair our ability to secure new funding sources.

Being a public company is expensive and administratively burdensome.

As a public reporting company, we are subject to the information and reporting requirements of the Securities Act, the Exchange Act, and other federal securities laws, rules, and regulations related thereto, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). Complying with these laws and regulations requires the time and attention of our Board and management and increases our expenses. Among other things, we are required to:

maintain and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

maintain policies relating to disclosure controls and procedures;

prepare and distribute periodic reports in compliance with our obligations under federal securities laws;

institute a more comprehensive compliance function, including with respect to corporate governance; and

involve, to a greater degree, our outside legal counsel and accountants in the above activities.

The costs of preparing and filing annual and quarterly reports, proxy statements, when required, and other information with the SEC and furnishing audited reports to stockholders is expensive and much greater than that of a privately-held company, and compliance with these rules and regulations may require us to hire additional financial reporting, internal controls, and other finance personnel, and involve a material increase in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage.

Additionally, the expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. These increased costs will require us to divert a significant amount of money that we could otherwise use to develop our business. If we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions, and other regulatory action, as well as potentially civil litigation.

We have identified material weaknesses in our internal control over financial reporting. These material weaknesses could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is likewise required, every quarter, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation in those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, so there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

As described in this Annual Report on Form 10-K, we identified several material weaknesses in our internal control over financial reporting. As a result, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023.

Any failure to maintain such internal control could adversely impact on our ability to report our financial position and results from operations on a timely and accurate basis, which could result in a material adverse effect on our business. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Since our financial statements are not filed on time, we are subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities. In addition, we would likely incur additional accounting, legal, and other costs in connection with any remediation steps. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could negatively affect our stock’s trading price.

To respond to these material weaknesses, we have devoted significant efforts and resources committed to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to evaluate our research better and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include investing in information technology (“IT”) systems to enhance our operational and financial reporting and internal controls, enhancing our organizational structure to support financial reporting processes and internal controls, further developing and documenting detailed policies and procedures regarding business processes for significant accounts, critical accounting policies and critical accounting estimates, establishing effective general controls over IT systems to ensure that information produced can be relied upon by process level controls is relevant and reliable, providing guidance, education and training to employees relating to our accounting policies and procedures. Additionally, we have hired and plan to continue to hire, as resources permit, qualified accounting personnel to manage our functional controls better and segregate responsibilities. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

We can give no assurance that the measures we have taken and plan to take in the future, will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we successfully strengthen our controls and procedures, in the future, those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

New laws , regulations , and standards relating to corporate governance and public disclosure may create uncertainty for public companies , increasing legal and financial compliance costs and making some activities more time-consuming .

These laws, regulations, and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, may evolve as the courts and other bodies provide new guidance. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing disclosure and governance practice revisions. If our efforts to comply with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

As a public company subject to these rules and regulations, we may find it more expensive to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our Board, particularly to serve on its Audit Committee and Compensation Committee, and qualified executive officers.

If research analysts do not publish research about our business or if they issue unfavorable commentary or downgrade our common stock , our stock price and trading volume could decline .

The trading market for our securities may depend partly on the research and reports that research analysts publish about us and our business. If we do not maintain adequate research coverage, or if any of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, the price of our common stock could decline. If one or more of our research analysts ceases to cover our company or fails to publish reports on us regularly, demand for our securities could decrease, which could cause the price of our common stock and warrants or trading volume to decline.

We do not intend to pay dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return on your investment will depend on its appreciation .

We have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.

Anti-takeover provisions in our charter documents and Nevada law could discourage, delay or prevent a change of control of our Company and may affect the trading price of our common stock .

We are a Nevada corporation, and the anti-takeover provisions of the Nevada Control Shares Acquisition Act may discourage, delay, or prevent a change of control by limiting the voting rights of control shares acquired in a control share acquisition. In addition, our Articles of Incorporation and the A&R Bylaws may discourage, delay, or prevent a change in our management or control over us that stockholders may consider favorable. Among other things, our Articles of Incorporation and A&R Bylaws:

authorize the issuance of “blank check” preferred stock that our Board could issue in response to a takeover attempt;

provide that vacancies on our Board, including newly created directorships, may be filled only by a majority vote of directors then in office, except a vacancy occurring because of the removal of a director without cause shall be filled by vote of the stockholders; and

limit who may call special meetings of stockholders.

These provisions could delay or prevent a change of control, whether desired by or beneficial to our stockholders.

The security of our IT systems may be compromised in the event of system failures, unauthorized access, cyber-attacks, or a deficiency in our cybersecurity, and confidential information, including nonpublic personal information that we maintain, could be improperly disclosed.

We rely extensively on IT and systems, including internet sites, data hosting, physical security, and software applications and platforms. Despite our security measures, our IT systems, some of which are managed by third parties, may be susceptible to damage, disruptions, or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, power outages, user errors or catastrophic events. A significant breakdown, invasion, corruption, destruction, or interruption of critical IT systems by our employees, others with authorized access to our systems, or unauthorized persons could negatively impact or interrupt operations. Technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or third-party systems. We could also experience a business interruption, theft of confidential information, or reputational damage from malware or other cyber-attacks, which may compromise our systems or lead to data leakage, internally or at our third-party providers.

As part of our business, we maintain large amounts of confidential information, including nonpublic personal information on customers and our employees. Breaches in security, either internally or at our third-party providers, could result in the loss or misuse of this information, which could, in turn, result in potential regulatory actions or litigation, including material claims for damages, interruption to our operations, damage to our reputation or otherwise have a material adverse effect on our business, financial condition, and operating results. Although we maintain information security policies and systems designed to prevent unauthorized use or disclosure of confidential information, including nonpublic personal information, there can be no assurance that such use or disclosure will not occur.

Any such business interruption, theft of confidential information, reputational damage from malware or other cyber-attacks, or violation of personal information laws could have a material adverse effect on our business, financial condition, and results of operations.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Prospective investors should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and the related notes and other financial information included in this annual report. Some of the information contained in this discussion and analysis or set forth elsewhere in this annual report, including information concerning our plans and strategy for our business, includes forward-looking statements involving risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements . ” This discussion should be read in conjunction with our audited consolidated financial statements and the notes thereto included elsewhere in this report. We may use certain non-generally accepted accounting principles (GAAP) financial measures in this discussion. An explanation of these non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measures are included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Investors should not consider non-GAAP financial measures in isolation or substitutes for financial information presented in compliance with GAAP.

Business Overview

We were formed to design, manufacture, and distribute innovative tools and accessories to the building industry. The global tool market industry is a multibillion-dollar business.

Our business is based on the development of innovative and state-of-the-art products, primarily in the tools and hardware category. We particularly focus on the building and construction industry, with the ultimate goal of making life easier and more productive for contractors and workers alike.

Our three major categories contain a total of 22 product lines, consisting of (i) Soft Goods, which include kneepads, tool bags, pouches, and tool belts; (ii) Metal Goods, which consists of sawhorses, tool stands, utility knives, aviation snips, shears, tape measures and chalk reels; and (iii) Electronic Goods, which includes lasers and levels. We also have several additional categories and product lines in various stages of development.

We are continuing to focus our efforts on increased marketing campaigns and distribution programs to strengthen the demand for our products globally. Management anticipates that our capital resources will improve, and our products will gain wider market recognition and acceptance, resulting in increased product sales.

As discussed below, we have faced the impacts of COVID-19 and inflation and experienced a revenue decline between fiscal 2022 and 2023 of 19.9%. We have incurred substantial operating losses since our inception and anticipate incurring additional losses for the foreseeable future until such time, if ever, that we can commercialize our technology currently in development. Our auditors have expressed substantial doubt about our ability to continue as a going concern in their audit report included in this Annual Report on Form 10-K. To fund our operations and grow our business, we will be required to fund our capital requirements through the sale of debt or equity securities or other arrangements to fund operations. There can be no assurances that we will be able to obtain additional financing on acceptable terms, if at all. If we cannot obtain such additional financing, future operations will need to be scaled back or discontinued. See “ Liquidity and Capital Resources; Going Concern ” below and Part I Item 1A. Risk Factors “ Going Concern ” and “ We will require additional capital in order to achieve commercial success and, if necessary, to finance future losses from operations as we endeavor to build revenue, but we do not have any commitments to obtain such capital, and we cannot assure you that we will be able to obtain adequate capital as and when required.”

Business Developments

The following highlights recent material developments in our business:

In January 2023, we launched over 40 SKUs in the Handheld Screwdrivers segment, including ratcheting bit drivers, insulated screwdrivers, precision, slotted, Phillips, Torx cabinet screwdrivers, and demolition drivers.

In January 2023, we expanded our distribution agreement with Sodimac, South America’s largest home improvement and construction supplier. In this extended agreement, stores in Chile, Peru, Argentina, Colombia, Brazil, and Uruguay will initially begin with 15 SKUs in-store and bring 23 SKUs to Sodimac’s online marketplace.

In January 2023, we launched more than 20 new SKUs in the Handheld Wrench segment, including adjustable wrenches, construction wrenches, and pipe wrenches.

In February 2023, we launched our new line of pliers and clamps. The new line, comprised of more than 40 SKUs, will be made available for purchase through leading U.S. home improvement retailers and across ToughBuilt’s growing strategic networks of North American and global trade partners and buying groups, servicing over 18,900 storefronts and online portals worldwide.

In August 2023, the Company expanded its distribution in the European Union with two major retail groups, La Platforme Du Batiment and Prolians, servicing professional customers in France and Spain.

In August 2023, the Company expanded its product distribution to customers in the United Kingdom through new business with Howdens UK and City Electrical Factors UK (“CEF”), marking entry into a combined network of more than 1,200 retail locations nationwide.

In October 2023, the Company launched its StackTech product line, initially rolling out more than 25 SKUs. StackTech is an intuitive modular storage toolbox system, and StackTech™ is the world’s first auto-locking stacking tool storage solution with 14 unique features.

Key Factors Affecting Our Performance

As a result of a number of factors, our historical results of operations may not be comparable to our results of operations in future periods, and our results of operations may not be directly comparable from period to period. Below is a brief discussion of the key factors impacting our results of operations.

Seasonality

Our revenues are not seasonal. However, we usually experience a spike in sales when introducing new products.

Inflation

Prices of certain commodity products, including raw materials, are historically volatile and are subject to fluctuations arising from domestic and international supply and demand changes, labor costs, competition, market speculation, government regulations, trade restrictions, and tariffs. Increasing prices in the component materials for the parts of our goods may impact on our products’ availability, quality, and price as suppliers search for alternatives to existing materials and increase the prices they charge. Our suppliers may also fail to provide consistent quality products as they may substitute materials at lower costs to maintain pricing levels. Rapid and significant changes in commodity prices may negatively affect our profit margins. We may be unable to mitigate any inflationary increases through various customer pricing actions and cost-reduction initiatives. To offset increased prices charged by our manufacturers and shipping rates, we increased the prices of our products in 2023 and 2024, respectively.

Supply Chain

We acquire most of our products from manufacturers and distributors in China, India, and the Philippines. We do not have any long-term contracts or exclusive agreements with our foreign suppliers that would ensure our ability to acquire the types and quantities of products we desire at acceptable prices and in a timely manner. We utilize a number of techniques to address potential disruption and other risks relating to our supply chain, including, in certain cases, the use of other qualified suppliers. We reduced our inventory from $40.4 million at December 31, 2022 to $21.3 million at December 31, 2023. Due to our inventory levels in 2023, the supply chain disruptions in 2023 have not had a material adverse effect on our operations. We do not anticipate that any continued supply chain disruptions that will have a material adverse effect on our operations for the fiscal year 2024. See Part I Item 1A. Risk Factors: “ Disruptions in our supply chain and other factors affecting the distribution of our merchandise could adversely impact our business. ”

Results of Operations

The Fiscal Year Ended December 31, 2023, compared to the Fiscal Year Ended December 31, 2022

Revenues

Revenues, net of returns and allowances, for the years ended December 31, 2023, and 2022 were $76.3 million and $95.3 million, respectively, and consisted of metal goods, soft goods, and electronic goods sold to customers. Revenues decreased in 2023 over 2022 by $19.0 million or 19.9%, primarily due to the Company not being able to fulfill the open orders due to lack of inventory on hand and working capital.

Cost of Goods Sold

Cost of goods sold for the years ended December 31, 2023, and 2022 was $59.9 million and $70.0 million, respectively. Cost of goods sold decreased in 2023 over 2022 by $10.2 million, or 14.5%, primarily due to lack of fulfilling and shipping the open orders on hand. Cost of goods sold as a percentage of revenues in 2023 increased to 78.5%, as compared to the cost of goods sold as a percentage of revenues in 2022 of 73.5% primarily due to the manufacturing facilities increasing the products prices in 2023 compared to 2022.

Operating Expenses

Operating expenses consist of selling, general and administrative expenses, and research and development costs.

Selling, general and administrative expenses (the “SG&A Expenses”) for the years ended December 31, 2023 and 2022 were $56.0 million and $66.2 million, respectively. SG&A Expenses decreased in 2023 over 2022 by $10.1 million, or 15.3%, primarily due to decrease in salaries and headcount, and better management of expenses. SG&A Expenses in 2023 as a percentage of revenues increased to 73.5 %, as compared to 69.5% in 2022.

Impairment of property and equipment totaled $5,583,290 or 7.3% of revenues, consisting of impairment of App development of mobile devices of $4,093,533 and website design of $1,489,757 for the year ended December 31, 2023, compared to $0 for the year ended December 31, 2022. Management performed an analysis of property and equipment and decided to impair the assets that were deemed non-producing.

Research and development costs (the “R&D”) for the years ended December 31, 2023, and 2022 were $12.0 million and $11.3 million, respectively. R&D costs increased in 2023 over 2022 by $0.7 million or 6.2% primarily due to the development costs of new tools for the construction industry.

Other income (expense)

Other income for the year ended December 31, 2023, was $10.8 million, consisted of interest expense of $1.7 million, warrant expense of $0.5 million, inducement expense of $6.4 million, and change in fair value of warrant derivative liability of $19.4 million. Other income for the year ended December 31, 2022, was $13.0 million, consisted of interest expense of $1.9 million, warrant expense of $1.9 million, and change in the fair value of warrant derivative liability of $16.8 million.

Net loss

Due to the factors set forth above, we recorded a net loss of $46.4 million and $39.3 million for the years ended December 31, 2023, and 2022, respectively. The increase in net loss is mainly attributable to the $19.0 million reduction in revenues, increase in cost of goods sold as a percentage of revenues, offset by reduction in operating expenses of $3.9 million, and reduction in other income by $2.2 million.

Liquidity and Capital Resources; Going Concern

At December 31, 2023, we reported approximately $1.2 million cash on hand, $10.2 million in accounts receivable, and $52.2 million in accounts payable and accrued expenses. We reported a working capital deficit of $26.6 million as of December 31, 2023. Our sales decreased by 19.9% for the year ended December 31, 2023, compared to the same period in 2022. We are continuing to focus our efforts on increased marketing campaigns and distribution programs to strengthen the demand for our products globally. Management anticipates that our capital resources will improve, and our products will gain wider market recognition and acceptance, resulting in increased product sales.

We have incurred substantial operating losses since our inception. As reflected in the consolidated financial statements included in this Annual Report on Form 10-K, we had an accumulated deficit of approximately $191.4 million at December 31, 2023, a net loss of approximately $46.4 million, and net cash used in operating activities for the year ended December 31, 2023 was approximately $5.1 million. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. We anticipate incurring additional losses until we will be able to effectively market our products and technology currently in development. We will need additional financing to fund our operations and to develop and commercialize our technology. These factors raise substantial doubt about our ability to continue as a going concern. We do not have sufficient capital to fund our operations for the next 12 months. To date, we have funded our operations primarily by selling equity securities. As reported on a Form 8-K filed with the SEC on February 16, 2024, we closed a public offering of common stock, pre-funded warrants, and warrants with net proceeds of $3.1 million after deducting private placement agent fees and commissions and other expenses. We believe that such net proceeds will fund to settle some of our accounts payable.

For the 12 months from issuance of this Annual Report on Form 10-K and the subsequent 12 months, we intend to fund our capital requirements by selling debt or equity securities or other arrangements to fund operations. However, there is no assurance that we will be able to raise the capital needed under acceptable terms. The sale of additional equity may dilute existing stockholders, and newly issued shares may contain senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional financing, future operations would need to be scaled back or discontinued. Due to the uncertainty in our ability to raise capital, management believes that there is substantial doubt about our ability to continue as a going concern for twelve months from the issuance of these consolidated financial statements.

Cash Flows

Net cash flows used in operating activities for the year ended December 31, 2023 was $5.1 million, attributable to a net loss of $46.4 million, offset by depreciation expense of $5.8 million, allowance for credit losses of $4.5 million, inducement expense of $6.4 million, stock compensation expense of $0.5 million, loss on sale of property and equipment of $0.02 million, impairment of property and equipment of $5.6 million, amortization of right-of-use assets of $1.3 million, amortization of patents of $0.1 million, write-down of patents of $0.2 million, gain on abandonment of a lease of $0.1 million, change in fair value of warrant and preferred investment option liability of $19.4 million, interest paid on short-term loan of $0.1 million; warrant issuance cost of $0.5 million, and net change in operating assets and liabilities of $35.9 million. Net cash flows used in operating activities for the year ended December 31, 2022 was $37.3 million, attributable primarily to a net loss of $39.3 million, offset by depreciation expense of $4.2 million, bad debt expense of $2.9 million, stock-based compensation expense of $0.8 million, amortization of right-of-use asset of $0.7 million, change in fair value of warrant derivatives of $16.8 million, warrant issuance costs of $1.9 million, and net change in operating assets and liabilities of $8.3 million. We offered cash discounts to our customers and factors to accelerate accounts receivable payments. In addition, we negotiated extended payment terms with suppliers, vendors, and related parties to conserve cash.

Net cash used in investing activities for the year ended December 31, 2023 was $2.6 million due to cash paid for the purchase of other assets of $0.1 million and purchase of property and equipment of $2.5 million. Net cash used in investing activities for the year ended December 31, 2022 was $5.0 million, attributable to net cash paid for purchase of property and equipment of $5.0 million and from the proceeds from the sale of property and equipment.

Net cash provided by financing activities for the year ended December 31, 2023 was $6.2 million, primarily attributable to the net cash received from exercise and conversion of warrants of $3.1 million and cash received from sale of common stock and warrants of $3.9 million, cash proceeds of $0.7 million received from loans payable, and cash paid of $1.5 million in repayments on loans payable. Net cash provided by financing activities for the year ended December 31, 2022 was $37.4 million, primarily attributable to the net cash proceeds of $6.0 million from exercise of warrants, repurchase of common stock warrants of $2.5 million, cash proceeds from issuance of common stock of $33.0 million, net proceeds from loan payable of $1.7 million, and repayment of loans payable of $0.7 million.

We recorded a net decrease in cash of $1.4 million for the year ended December 31, 2023.

Material Cash Requirements from Known Contractual and Other Obligations

The following table summarizes our operating lease contractual obligations for the year ending December 31, 2024 and thereafter:

For the years ending December 31,

Total lease payments

Less: imputed interest

Present value of lease liabilities

The Company had recorded a short-term loan payable to a third party totaling $288,588 as of December 31, 2023. Such loan and accrued interest was paid in full to the third party as of March 28, 2024.

We intend to fund our contractual obligations with working capital.

Critical Accounting Estimates

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to recognition of revenue including rebates, returns and allowances, valuation of accounts receivable, valuation of long-lived assets, fair value of financial instruments and fair value measurements. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities, and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

The Company’s financial position, results of operations and cash flows are impacted by the accounting policies the Company has adopted. In order to get a full understanding of the Company’s financial statements, one must have a clear understanding of the accounting policies employed.

Restatement of Previously Filed Quarterly Statements – 2023 Form 10-Qs

Management determined that our financial statements which were included in Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023, and September 30, 2023 as filed with the Securities and Exchange Commission, should no longer be relied upon due to errors relating to the recording and reporting of transactions in operating assts and liabilities accounts on the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations. The errors occurred primarily due to an incorrect interface and mapping of our chart of accounts during the implementation of a new financial reporting application and due to ineffective controls relating to information technology, particularly in reviewing system implementations, user provisioning, user rights, and service organization control reports.. Management identified the errors during the Company’s year end audit of its fiscal year 2023 and restated its quarterly statements (See Part II - Item 9A).

As a result of the restatement included herein, we reported net loss for the quarter ended March 31, 2023 of $8,228,431, which was $46,731 less than the net loss previously reported in the March 31, 2023 Original Form 10-Q, net loss for the quarter ended June 30, 2023 of $6,974,485 and six months ended June 30, 2023 of $15,202,916, which was $1,249,115 more for the quarter ended June 30, 2023, and $1,202,384 for the six months ended June 30, 2023 than the net loss reported in the previously reported in the June 30, 2023 Original Form 10-Q, and net loss for the quarter ended September 30, 2023 of $14,516,988 and nine months ended September 30, 2023 of $29,719,904, which was $268,414 more for the quarter ended September 30, 2023, and $1,470,799 than the net loss reported in the September 30, 2023 Original Forms 10-Q.

Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 - Restated

March 31, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Current Assets

Cash

Accounts Receivables, net

Inventory

Prepaid and other current assets

Total Current Assets

Property & equipment

Right of use assets

Other assets

Total Assets

Current Liabilities

Accounts payable

Accrued expenses

Lease liability, current maturities

Short term loan payable

Warrant and preferred investment option liability

Total Current Liabilities

Lease liability, net of current maturities

Total Liabilities

Stockholders’ Equity

Common stock

Additional paid-in capital

Accumulated other comprehensive income

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Unaudited Condensed Statements of Operations - Restated

Three Months Ended

March 31, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Revenues, Net of Allowances

Metal goods

Soft goods

Electronic goods

Total Revenues, Net of Allowances

Cost of Goods Sold

Metal goods

Soft goods

Electronic goods

Total Cost of Goods Sold

Gross Profit

Operating Expenses

Selling, general and administrative

Research and development

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expense)

Change in the fair value of warrant and preferred investment option liabilities

Interest expense

Total Other Income (Expense)

Net Income (Loss) Before Income Tax Provision

Income tax

Net Income (Loss)

Redemption of Series D Preferred Stock deemed dividend

Common Stock deemed dividend

Net Income (Loss) attributable to common stockholders

Basic and diluted net loss per share attributable to common stockholders

Basic and diluted weighted average common shares outstanding

Unaudited Condensed Consolidated Statements of Cash Flows - Restated

March 31, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Net loss

Adjustments to reconcile from net loss to net cash provided by operating activities:

Depreciation

Amortization of right of use assets

Change in fair value of warrant and preferred investment option liabilities

Stock-based compensation expense

Changes in operating assets and liabilities

Accounts receivable, net

Inventory

Prepaid assets

Other assets

Accounts payable

Accrued expenses

Lease liability

Net cash provided by operating activities

Cash flows from investing activities:

Purchases of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from loan payable

Repayments of loan payable

Net cash provided by financing activities

Effect of exchange rate on cash

Net decrease in cash

Cash, beginning of period

Cash, end of period

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest

Income taxes

Supplemental disclosures of non-cash investing and financing activities:

Purchase of property and equipment in accounts payable

Repayment of short-term loan payable in exchange of new short-term loan payable

Unaudited Condensed Consolidated Balance Sheets - Restated

June 30, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Current Assets

Cash

Accounts Receivables, net

Inventory

Prepaid and other current assets

Total Current Assets

Property & equipment

Right of use assets

Other assets

Total Assets

Current Liabilities

Accounts payable

Accrued expenses

Lease liability, current maturities

Short term loan payable

Warrant and preferred investment option liability

Total Current Liabilities

Lease liability, net of current maturities

Total Liabilities

Stockholders’ Equity

Common stock

Additional paid in capital

Accumulated other comprehensive income

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Unaudited Condensed Consolidated Statements of Operations - Restated

For the Three Months Ended

June 30, 2023

For the Six Months Ended

June 30, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Revenues, Net of Allowances

Metal goods

Soft goods

Electronic goods

Total Revenues, Net of Allowances

Cost of Goods Sold

Metal goods

Soft goods

Electronic goods

Total Cost of Goods Sold

Gross Profit

Operating Expenses

Selling, general and administrative

Research and development

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expense)

Warrant issuance cost

Change in the fair value of warrant and preferred investment option liabilities

Interest expense

Total Other Income (Expense)

Net Income (Loss) Before Income Tax Provision

Income tax

Net Income (Loss)

Redemption of Series D Preferred Stock deemed dividend

Common Stock deemed dividend

Net Income (Loss) attributable to common stockholders

Basic and diluted net loss per share attributable to common stockholders

Basic and diluted weighted average common shares outstanding

Unaudited Condensed Consolidated Statements of Cash Flows - Restated

June 30, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Cash flows from operating activities:

Net loss

Adjustments to reconcile from net loss to net cash used in operating activities:

Depreciation

Provision for credit losses

Amortization of right of use of assets

Warrant issuance cost

Loss on sale of property and equipment

Change in fair value of warrant and preferred investment option liabilities

Stock-based compensation expense

Changes in operating assets and liabilities

Accounts receivable, net

Inventory

Prepaid assets

Other assets

Accounts payable

Accrued expenses

Lease liability

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from short term loan payable

Repayments of short-term loan payable

Proceeds from issuance of common stock, net of costs

Net cash provided by financing activities

Effect of exchange rate on cash

Net decrease in cash

Cash, beginning of period

Cash, end of period

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest

Income taxes

Supplemental disclosure of non-cash investing and financing activities:

Initial fair value of warrants and preferred investment option liability

Initial value of lease liability

Purchase of property and equipment in accounts payable

Repayment of short-term loan payable in exchange of new short-term loan payable

Unaudited Condensed Consolidated Balance Sheets - Restated

September 30, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Current Assets

Cash

Accounts Receivables, net

Inventory

Prepaid and other current assets

Total Current Assets

Property & equipment

Right of use assets

Other assets

Total Assets

Current Liabilities

Accounts payable

Accrued expenses

Lease Liability, current maturities

Short term loan payable

Warrant and preferred investment option liability

Total Current Liabilities

Lease liability, net of current maturities

Total Liabilities

Stockholders’ Equity

Common stock

Additional paid in capital

Accumulated other comprehensive income

Accumulated deficit

Total Stockholders’ Equity

Total Liabilities and Stockholders’ Equity

Unaudited Condensed Consolidated Statements of Operations - Restated

For the Three Months Ended

September 30, 2023

For the Nine Months Ended

September 30, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Previously

Reported

Restatement

Impact

Increase

(Decrease)

Restated

Revenues, Net of Allowances

Metal goods

Soft goods

Electronic goods

Total Revenues, Net of Allowances

Cost of Goods Sold

Metal goods

Soft goods

Electronic goods

Total Cost of Goods Sold

Gross Profit

Operating Expenses

Selling, general and administrative

Research and development

Total Operating Expenses

Income (Loss) from Operations

Other Income (Expense)

Warrant issuance cost

Change in the fair value of warrant and preferred investment option liabilities

Inducement expense

Interest expense

Total Other Income (Expense)

Net Income (Loss) Before Income Tax Provision

Income tax

Net Income (Loss)

Redemption of Series D Preferred Stock deemed dividend

Common Stock deemed dividend

Net Income (Loss) attributable to common stockholders

Basic and diluted net loss per share attributable to common stockholders

Basic and diluted weighted average common shares outstanding

Unaudited Condensed Consolidated Statements of Cash Flows - Restated

For the Nine Months Ended

September 30, 2023

Previously

Reported

Restatement

Impact

Increase

(Decrease)

As Restated

Cash flows from operating activities:

Net loss

Adjustments to reconcile from net loss to net cash used in operating activities:

Depreciation

Provision for credit losses

Loss on sale of property and equipment

Inducement expense

Amortization of right of use assets

Change in fair value of warrant and preferred investment option liabilities

Warrant issuance cost

Stock-based compensation expense

Changes in operating assets and liabilities

Accounts receivable, net

Inventory

Prepaid assets

Other assets

Accounts payable

Accrued expenses

Lease liability

Net cash used in operating activities

Cash flows from investing activities:

Purchases of property and equipment

Net cash used in investing activities

Cash flows from financing activities:

Proceeds from issuance of stock, net of costs

Proceeds from short term loan payable

Repayments of short-term loan payable

Net cash provided by financing activities

Effect of currency fluctuation on cash

Net (decrease) in cash

Cash, beginning of period

Cash, end of period

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest

Income taxes

Supplemental disclosure of non-cash investing and financing activities:

Initial fair value of warrant and preferred investment option liability

Initial value of lease liability

Repayment of short-term loan payable in exchange for new short-term loan payable

Purchase of property and equipment in accounts payable

Fractional Shares

On January 2, 2024, the C ompany issued 66,571 shares of common stock as fractional shares that resulted from the Reverse Stock Split that was effective January 1, 2024.

February 2024 Public Offering

On February 13, 2024, we completed a public offering (the “Offering”) of (i) 140,000 shares (the “Common Shares”) of our common stock, par value $0.0001 per share (the “Common Stock”); (ii) 632,628 prefunded warrants (the “Prefunded Warrants”) exercisable for an aggregate of 632,628 shares of Common Stock (the “Prefunded Warrant Shares”); and (iii) 772,628 Series F Warrants (the “Series F Warrants”) exercisable for an aggregate of 772,628 shares of Common Stock (the “Series F Warrant Shares”) issued pursuant to the securities purchase agreement, dated February 13, 2024 (the “Securities Purchase Agreement”), between the Company and certain institutional investors (the “Investors”).

The offering price of each Common Share and accompanying Series F Warrant was $4.529. The Offering price of each Prefunded Warrant and accompanying Series F Warrant was $4.529. The Common Shares, Prefunded Warrants, Prefunded Warrant Shares, Series F Warrants and Series F Warrant Shares are collectively referred to herein as the “Securities.” The Series F Warrants have an exercise price of $4.405 per share of Common Stock, are exercisable upon issuance and expire five years from the date of issuance. The exercise price of the Series F Warrants is subject to adjustment for stock splits, reorganizations, recapitalizations and similar capital transactions as described in the Series F Warrants. The Prefunded Warrants are immediately exercisable and may be exercised at a nominal consideration of $0.0001 per share of Common Stock at any time until all of the Prefunded Warrants are exercised in full.

In consideration for consummating this Offering, we paid the placement agent a cash fee equal to 7% of the aggregate gross proceeds of the Offering, a management fee equal to 0.5% of the gross proceeds of the Offering and reimbursed the placement agent for certain expenses and legal fees. We also issued warrants to the designees of the placement agent (the “Placement Agent Warrants”) exercisable for an aggregate of 46,358 shares of Common Stock (the “Placement Agent Warrant Shares”). The Placement Agent Warrants have substantially the same terms as the Series F Warrants, except that the Placement Agent Warrants have an exercise price equal to $5.6625 per share (125% of the $4.53 offering price of the Common Share and accompanying Series F Warrant),and expire on the fifth anniversary from the date of the commencement of sales in the Offering, February 13, 2029.

We received net proceeds of approximately $3.1 million from the Offering, after deducting the Offering expenses payable by us, including the placement agent’s commissions and fees.

February 2024 Warrant Amendments – Investors Warrants

In connection with the Offering, on February 13, 2024, we entered into a warrant amendment agreement with an Investor in the Offering pursuant to which the Company agreed to lower the exercise price of the Investor’s warrants (the “Common Warrants”) from $20.80 per share (as adjusted for the 1-for-65 reverse stock split of the Company’s Common Stock on January 2, 2024) to $4.405, the closing price of the Company’s common stock on February 13, 2024, in consideration for a cash payment of an aggregate of $25,529. The Common Warrants are exercisable for an aggregate of 204,230 shares of common stock and were issued to the Investor in connection with a private transaction of the Company on August 14, 2023. The amended exercise price of the investor’s Common Warrants was effective on February 16, 2024.

February 2024 Warrant Amendments - Series D Warrants

In connection with the Offering, on February 13, 2024, we entered into a warrant amendment agreement with the Investors, pursuant to which the Company agreed to lower the exercise price of the Investors’ Series D Warrants  from $18.85 per share (as adjusted for the 1-for-65 reverse stock split of the Company’s common stock on January 2, 2024) to $4.405, the closing price of the Company’s common stock on February 13, 2024, in consideration for a cash payment in aggregate of $9,381.  The Series D Warrants are exercisable for an aggregate of 75,048 shares of common stock and were issued to the Investors on June 23, 2023. The amended exercise price of the Series D Warrants was effective on February 16, 2024.

The shares of common stock underlying the Series D Warrants sold in the private transaction on June 23, 2023 were registered on behalf of the purchasers thereof on a registration statement on Form S-1 (File No: 333-271181) declared effective by the SEC on June 21, 2023.

Warrant Conversion

On July 31, 2024, the Company received cash consideration of $70,480 and issued 16,000 shares of common stock on conversion of 16,000 warrants at $4.405 per warrant.

On August 2, 2024, the Company received cash consideration of $88,100 and issued 20,000 shares of common stock on conversion of 16,000 warrants at $4.405 per warrant.

Series I Preferred Stock

On August 13, 2024, the board of directors of ToughBuilt Industries, Inc., declared the formation of and approved the issuance of an aggregate of 100 shares of Series I Preferred Stock, par value $0.0001 per share (the “Series I”). On August 26, 2024, we filed a certificate of designation (the “Certificate of Designation”) with the Nevada Secretary of State therein establishing the Series I Preferred Stock and describing the rights, obligations and privileges of the Series I Preferred Stock. Concurrently, we issued the 100 shares of Series I on the same date, in book-entry form to Michael Panosian, our Chief Executive Officer.

The Series I consist of 100 shares. Each share of Series I has a par value of $0.0001 per share. The Series I is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series I has no stated maturity and is not subject to any sinking fund. The holders of Series I will not be entitled to receive dividends of any kind. Each holder of Series I has full voting rights and powers equal to the voting rights and powers of holders of common stock, and for so long as Series I is issued and outstanding, the holders of the Series I shall vote together as a single class with the holders of the Company’s common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Series I being entitled to 51% of the total votes on all such matters regardless of the actual number of shares of the Series I then outstanding, and the holders of common stock and any other shares entitled to vote being entitled to their proportional share of the remaining 49% of the total votes based on their respective voting power. The holders of Series I shall not be entitled to receive any distributions in the event of any liquidation, dissolution or winding up of the Company.