TOUGHBUILT INDUSTRIES, INC MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . (form 10-Q) (2025)

The following discussion and analysis are intended to help investors understandour business, financial condition, results of operations, liquidity, and capitalresources. You should read this discussion together with our consolidatedfinancial statements and related notes thereto included elsewhere in this Form10-Q and in conjunction with the Company's Form 10-K for the year ended December31, 2021 filed with the Securities Exchange Commission ("SEC") on April 18,2022. All common share and per common share numbers have been retroactivelyadjusted to reflect the 1-for-10 reverse stock split effected on April 15, 2020and the 1-for-150 reverse stock split effected on April 25, 2022. 23 FORWARD-LOOKING STATEMENTSThis Quarterly Report on Form 10-Q contains "forward-looking statements," whichinclude information relating to future events, future financial performance,financial projections, strategies, expectations, competitive environment andregulation. Words such as "may," "should," "could," "would," "predicts,""potential," "continue," "expects," "anticipates," "future," "intends," "plans,""believes," "estimates," and similar expressions, as well as statements in thefuture tense, identify forward-looking statements. Forward-looking statementsshould not be read as a guarantee of future performance or results and may notbe accurate indications of when such performance or results will be achieved.Forward-looking statements are based on information we have when thosestatements are made or management's good faith belief as of that time withrespect to future events and are subject to significant risks and uncertaintiesthat could cause actual performance or results to differ materially from thoseexpressed in or suggested by the forward-looking statements. Important factorsthat could cause such differences include, but are not limited to:

? the impact of the worldwide COVID-19 pandemic and government actions, on our

 business; ? supply chain disruptions;

? our limited operating history;

? our ability to manufacture, market and sell our products;

? our ability to maintain or protect the validity of our U.S. and other patents

and other intellectual property;

? our ability to launch and penetrate markets;

? our ability to retain key executive members;

? our ability to internally develop new inventions and intellectual property;

? interpretations of current laws and the passages of future laws; and

? acceptance of our business model by investors.

The foregoing does not represent an exhaustive list of matters that may becovered by the forward-looking statements contained herein or risk factors thatwe are faced with that may cause our actual results to differ from thoseanticipated in our forward-looking statements.

Moreover, new risks regularly emerge, and it is not possible for our managementto predict or articulate all risks we face, nor can we assess the impact of allrisks on our business or the extent to which any risk, or combination of risks,may cause actual results to differ from those contained in any forward-lookingstatements. All forward-looking statements included in this Quarterly Report onForm 10-Q are based on information available to us on the date of this QuarterlyReport on Form 10-Q. Except to the extent required by applicable laws or rules,we undertake no obligation to publicly update or revise any forward-lookingstatement, whether as a result of new information, future events or otherwise.All subsequent written and oral forward-looking statements attributable to us orpersons acting on our behalf are expressly qualified in their entirety by thecautionary statements contained above and throughout this Quarterly Report onForm 10-Q.Business OverviewOur Company was formed to design, manufacture, and distribute innovative toolsand accessories to the building industry. The global tool market industry is amultibillion-dollar business.ToughBuilt's business is based on the development of innovative andstate-of-the-art products, primarily in the tools and hardware category, with aparticular focus on the building and construction industry with the ultimategoal of making life easier and more productive for contractors and workersalike.Our three major categories contain a total of 11 product lines, consisting of(i) Soft Goods, which includes kneepads, tool bags, pouches and tool belts, (ii)Metal Goods, which consists of sawhorses, tool stands and workbench and (iii)Utility Products, which includes utility knives, aviation snips, shears, lasersand levels. The Company also has several additional categories and product linesin various stages of development.

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We are continuing to focus our efforts on increased marketing campaigns, anddistribution programs to strengthen the demand for our products globally.Management anticipates that our capital resources will improve and our productsgain wider market recognition and acceptance resulting in increased productsales.As discussed below, while the Company has faced the impacts of COVID-19 andinflation, we have been able to obtain significant revenue growth.Notwithstanding, we have incurred substantial operating losses since ourinception and anticipate incurring additional losses for the foreseeable futureuntil such time, if ever, that we can commercialize our technology currently indevelopment. In their audit report included in the Quarterly Report on Form10-Q, our auditors have expressed that there is substantial doubt as to ourability to continue as a going concern. To fund our operations and grow ourbusiness, we will require to fund our capital requirements through the sale ofdebt or equity securities or other arrangements to fund operations. There can beno assurances that will be able to obtain additional financing on acceptableterms, if at all. If the Company is unable to obtain such additional financing,future operations would need to be scaled back or discontinued. See "Liquidity and Capital Resources; Going Concern" below and Item 1A. Risk Factors "Going Concern" and "We will require additional capital to achieve commercial success and, ifnecessary, to finance future losses from operations as we endeavor to buildrevenue, but we do not have any commitments to obtain such capital and we cannotassure you that we will be able to obtain adequate capital as and when required" in the Company's Annual Report on Form 10-K for the year ended December 31,2021 filed with the SEC on April 18, 2022.

Corporate History

We were incorporated in the State of Nevada on April 9, 2012, as Phalanx, Inc.We changed our name to ToughBuilt Industries, Inc. on December 29, 2015. OnSeptember 18, 2018, we effected a 1-for-2 reverse stock split of our commonstock. We consummated our initial public offering pursuant to a registrationstatement on Form S-1 (File No: 333- 22610) declared effective by the SEC onNovember 8, 2018 and became an Exchange Act reporting company pursuant to a Form8-A (File No. 001-38739) on November 8, 2018. On April 15, 2020, we effected a1-for-10 reverse stock split of our outstanding common stock. On April 25, 2022,we effected a 1-for-150 reverse stock split of our outstanding common stock. Allshare amounts and dollar amounts have been adjusted for the reverse stocksplits.

Business Developments

The following highlights material business developments in our business duringthe fiscal year ended December 31, 2021 and during the second quarter ended June30, 2022:

· On February 17, 2021, we announced that we have grown our business from four

stock keeping units (SKUs) to 25 SKUs with Toolstation, a Netherlands based

company with over 60 stores in the Netherlands, Belgium and Luxembourg and one

of the highly respected single-source suppliers of tools, accessories, and

building products for professionals and serious do-it-yourselfers. These SKUs

include current ranges of ToughBuilt's steel sawhorse line, soft-sided tool

storage, and kneepads and have been slotted for immediate placement in all

stores and in Toolstation's catalog;

· In November 2021, we launched two new product lines, ToughBuilt lasers and

levels, and fully integrated with our mobile application, ToughBuilt Connect,

allowing professional and DIY builders to quickly measure rooms, seamlessly

upload information to a smartphone, and create shareable information with the

 touch of a button:

· In December 2021, we launched a new product line, the ToughBuilt Workbench,

available for purchase across our strategic global partners and buying groups

servicing over 14,400 stores worldwide:

· In August 2021, we launched a new product line, the ToughBuilt utility knives;

· In September 2021, we launched ToughBuilt Brazil;

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· In 2021, our total revenues, net of allowances, totaled approximately $70.0

million as compared to approximately $39.4 million in 2020, including a 71%

increase in online sales through Amazon.com from $7 million for 2020 to $12

 million for 2021: and

· We have raised a total of approximately

$96.4 million in gross proceeds in registered and unregistered equity offerings. · We received a total of $2.9 million in gross proceeds from warrant exercises.Recent DevelopmentsUnits and Prefunded Public OfferingOn June 22, 2022, we completed a public offering of (i) 772,157 units ("Units"),each Unit consisting of one share of common stock and one warrant to purchaseone share of common stock (each, a "Warrant") for $1.90 per Unit; and(ii) 2,385,738 prefunded units ("Prefunded Units"), each Prefunded Unitconsisting of one prefunded warrant (a "Prefunded Warrant") to purchase oneshare of common stock and one Warrant, for $1.8999 per Prefunded Unit. Subjectto certain ownership limitations described in the Warrants, the Warrants have anexercise price of $1.90 per share of common stock, are exercisable upon issuanceand will expire five years from the date of issuance. The exercise price of theWarrants is subject to adjustment for stock splits, reverse splits, and similarcapital transactions as described in the warrants. In connection with theoffering, the Company issued Warrants to purchase an aggregate of 3,157,895shares of common stock.Subject to certain ownership limitations described in the Prefunded Warrants,the Prefunded Warrants are immediately exercisable and may be exercised at anominal consideration of $0.0001 per share of common stock any time until all ofthe Prefunded Warrants are exercised in full. A holder will not have the rightto exercise any portion of the Warrants or the Prefunded Warrants if the holder(together with its affiliates) would beneficially own in excess of 4.99% (or, atthe election of the holder, 9.99%) of the number of shares of common stockoutstanding immediately after giving effect to the exercise, as such percentageownership is determined in accordance with the terms of the Warrants or thePrefunded Warrants, respectively. However, upon notice from the holder to theCompany, the holder may increase the beneficial ownership limitation, which maynot exceed 9.99% of the number of shares of common stock outstanding immediatelyafter giving effect to the exercise, as such percentage ownership is determinedin accordance with the terms of the Warrants or the Prefunded Warrants,respectively, provided that any increase in the beneficial ownership limitationwill not take effect until 61 days following notice to the Company.As compensation to H.C. Wainwright & Co., LLC ("Wainwright" or the "PlacementAgent"), as the exclusive placement agent in connection with the offering, theCompany paid the Placement Agent a cash fee of 7% of the aggregate grossproceeds raised in the offering, plus a management fee equal to 0.5% of thegross proceeds raised in the offering and reimbursement of certain expenses andlegal fees. The Company also issued to designees of the Wainwright Agentwarrants to purchase up to 189,474 shares of common stock (the "Placement AgentWarrants"). The Placement Agent Warrants have substantially the same terms asthe Warrants, except that the Placement Agent Warrants have an exercise priceequal to $2.375 per share, and expire on the fifth anniversary from the date ofthe commencement of sales in the offering.In connection with the offering, the Company entered into a Securities PurchaseAgreement (the "Purchase Agreement") with certain institutional investors onJune 17, 2022. The Purchase Agreement contained customary representations andwarranties and agreements of the Company and the Purchasers and customaryindemnification rights and obligations of the parties.The shares of common stock and Warrants underlying the Units, the Warrants andPrefunded Warrants underlying the Prefunded Units and the Placement AgentWarrants described above and the underlying shares of common stock were offeredpursuant to the Registration Statement on Form S-1 (File No. 333-264930), asamended, which was declared effective by the Securities and Exchange Commissionon June 17, 2022.The Company received net proceeds of approximately $5.1 million from theoffering, after deducting the estimated offering expenses payable by theCompany, including the Placement Agent fees. The Company intends to use the netproceeds from the offering for general corporate purposes, including workingcapital, and the repurchase of certain existing warrants.

Private Placement of Shares of Common Stock and Warrants

On July 27, 2022, we consummated the closing of a private placement pursuant toSection 4(a)(2) and/or Regulation 506(b) of the Securities Act (the "PrivatePlacement"). Pursuant to the terms and conditions of the Securities PurchaseAgreement, dated as of July 25, 2022 (the "Purchase Agreement"), by and amongthe Company and certain institutional investors named on the signature pagesthereto (the "Purchasers"). At the closing of the Private Placement, the Companyissued (i) 700,000 shares of common stock (the "Placement Shares"),(ii) 3,300,000 prefunded warrants (the "Prefunded Warrants"); (iii) 4,000,000Series A preferred investment options (the "Series A Preferred InvestmentOptions"); and (iv) 4,000,000 Series B preferred investment options (the "SeriesB Preferred Investment Option, and together with the "Series A PreferredInvestment Options, the "Preferred Investment Options" and collectively with thePrefunded Warrants, the "Warrants"). The purchase price of each Placement Shareand associated Preferred Investment Options was $5.00 and the purchase price ofeach Prefunded Warrant and associated Preferred Investment Options was $4.9999.Each Prefunded Warrant is exercisable for $0.0001 per share of common stockuntil all of the Prefunded Warrants are exercised in full. Each Series APreferred Investment Option is exercisable for one share of common stock for$5.00 per share until the third anniversary date of the issuance date. EachSeries B Preferred Investment Option is exercisable for one share of commonstock for $5.00 per share until the second anniversary date of the issuancedate. The exercise price and the number of our shares of common stock issuableupon the exercise of each of the Warrants are subject to adjustment for stocksplits, reverse splits, and similar capital transactions, as described in theWarrants. The Preferred Warrants are exercisable on a "cashless" basis. ThePreferred Investment Options may be exercised on a "cashless basis" if there isno effective registration for the underlying shares of common stock.A holder of the Warrants will not have the right to exercise any portion of thePrefunded Warrants, Series A Preferred Investment Option or Series B PreferredOptions, as the case may be if the holder (together with its affiliates) wouldbeneficially own more than 4.99% or 9.99% of the number of shares of commonstock outstanding immediately after giving effect to the exercise, as suchpercentage ownership is determined in accordance with the terms of the Warrants.However, upon notice from the holder to the Company, the holder may increase thebeneficial ownership limitation, which may not exceed 9.99% of the number ofshares of common stock outstanding immediately after giving effect to theexercise, as such percentage ownership is determined in accordance with theterms of the Warrants, provided that any increase in the beneficial ownershiplimitation will not take effect until 61 days following notice to the Company(the "Beneficial Ownership Limitation").If a fundamental transaction occurs, then the successor entity will succeed to,and be substituted for us, and may exercise every right and power that we mayexercise and will assume all of our obligations under the Warrants with the sameeffect as if such successor entity had been named in such security itself. Ifour stockholders are given a choice as to the securities, cash or property to bereceived in a fundamental transaction, then the holders of the Warrants shall begiven the same choice as to the consideration it receives upon any exercise ofthe Warrants following such fundamental transaction. In addition, holders of thePreferred Investment Options will have the right to require us to repurchase itsPreferred Investment Options for cash in an amount equal to the value of theremaining unexercised portion of the Warrants based on the Black-Scholes optionpricing formula. However, if the fundamental transaction is not within ourcontrol, including not approved by our board of directors, then the holder ofPreferred Investment Options will only be entitled to receive the same type orform of consideration (and in the same proportion), at the value per share ofcommon stock in the fundamental transaction for each share of common stockunderlying the unexercised portion of the pre-funded warrants or preferredinvestment options, that is being offered and paid to our stockholder inconnection with the fundamental transaction.In addition, if at any time the Company grants, issues or sells any common stockequivalents or rights to purchase stock, warrants, securities or other propertypro rata to the record holders of any class of shares of common stock (the"Purchase Rights"), then the holder will be entitled to acquire, upon the termsapplicable to such Purchase Rights, the aggregate Purchase Rights which theholder could have acquired if the holder had held the number of shares of commonstock acquirable upon complete exercise of its Warrants (without regard to anylimitations on exercise hereof, including without limitation, the BeneficialOwnership Limitation) immediately before the date on which a record is taken forthe grant, issuance or sale of such Purchase Rights, or, if no such record istaken, the date as of which the record holders of shares of common stock are tobe determined for the grant, issue or sale of such Purchase Rights (provided,however, that, to the extent that the holder's right to participate in any suchPurchase Right would result in the holder exceeding the Beneficial OwnershipLimitation, then the holder shall not be entitled to participate in suchPurchase Right to such extent (or beneficial ownership of such shares of commonstock as a result of such Purchase Right to such extent) and such Purchase Rightto such extent shall be held in abeyance for the holder until such time, ifever, as its right thereto would not result in the holder exceeding theBeneficial Ownership Limitation).During such time as the Warrants are outstanding, if the Company shall declareor make any dividend or other distribution of its assets (or rights to acquireits assets) to holders of shares of common stock, by way of return of capital orotherwise (including, without limitation, any distribution of cash, stock orother securities, property or options by way of a dividend, spin-off,reclassification, corporate rearrangement, scheme of arrangement or othersimilar transaction) (a "Distribution"), then, in each such case, the holders ofthe Warrants shall be entitled to participate in such Distribution to the sameextent that the holders would have participated therein if the holders had heldthe number of shares of common stock acquirable upon complete exercise of theWarrants (without regard to any limitations on exercise hereof, includingwithout limitation, the Beneficial Ownership Limitation).All of the Purchasers were "accredited investors" as such term is defined inRule 501(a) under the Securities Act. The Placement Shares and Warrants wereoffered pursuant to the exemptions provided in Section 4(a)(2) under theSecurities Act and/or Rule 506(b) of Regulation D promulgated thereunder, andthey were not offered pursuant to this prospectus or another prospectus.Accordingly, the Selling Stockholders may sell the Placement Shares and, uponthe exercise of the Warrants, the underlying shares of common stock (the"Warrant Shares") only pursuant to an effective registration statement under theSecurities Act covering the resale of those shares, an exemption under Rule 144under the Securities Act or another applicable exemption under the SecuritiesAct.In connection with the Private Placement, we entered into a Registration RightsAgreement with the Purchasers, dated July 25, 2022 (the "Registration RightsAgreement"). The Registration Rights Agreement provides that we shall file aregistration statement covering the resale of all of the Registrable Securities(as defined in the Registration Rights Agreement) with the SEC no later thanAugust 4, 2022 and have the registration statement declared effective by the SECas promptly as possible after the filing thereof, but in any event no later thanSeptember 8, 2022, or, in the event of a "full review" by the SEC, October 10,2022.Upon the occurrence of any Event (as defined in the Registration RightsAgreement), which, among others, prohibits the Purchasers from reselling theSecurities for more than ten (10) consecutive calendar days or more than anaggregate of fifteen (15) calendar days during any 12-month period, we areobligated to pay to each Purchaser, on each monthly anniversary of each suchEvent, an amount in cash, as partial liquidated damages and not as a penalty,equal to the product of 2.0% multiplied by the aggregate subscription amountpaid by such Purchaser pursuant to the Purchase Agreement. If the Company failsto pay any partial liquidated damages in full within seven days after the datepayable, the Company will pay interest thereon at a rate of 12% per annum (orsuch lesser maximum amount that is permitted to be paid by applicable law) tothe holder, accruing daily from the date such partial liquidated damages are dueuntil such amounts, plus all such interest thereon, are paid in full.Subject to certain exceptions, neither we nor any of our security holders (otherthan the Purchasers in such capacity pursuant thereto) may include thesecurities of the Company in any registration statements other than theSecurities. We may not file any other registration statements until allSecurities are registered pursuant to a registration statement that is declaredeffective by the SEC, provided that we may file amendments to registrationstatements filed prior to the date of the Registration Rights Agreement so longas no new securities are registered on any such existing registrationstatements.Our ProductsTOUGHBUILT® manufactures and distributes an array of high-quality and ruggedtoolbelts, tool bags, and other personal tool organizer products. We alsomanufacture and distribute a complete line of knee pads for various constructionapplications, and a variety of metal goods, including utility knives, aviationsnips, shears, and digital measures such as lasers and levels. Our line of jobsite tools and material support products consists of a full line of miter sawand table saw stands, sawhorses/job site tables, roller stands, and workbench.All our products are designed and engineered in the United States andmanufactured in China, India, and the Philippines under our quality controlsupervision. We do not need government approval for any of our products.

Soft Goods

The flagship of the product line is the soft goods line that consists of over100 variations of tool pouches, tool rigs, toolbelts and accessories, tool bags,totes, a variety of storage solutions, and office organizers/bags forlaptop/tablet/cellphones, etc. Management believes that the breadth of the lineis one of the deepest in the industry and has specialized designs to suitprofessionals from all sectors of the industry including plumbers, electricians,framers, builders, and more.We have a selection of over 10 models of kneepads, some with unique patenteddesign features that allow the users to interchange components to suitconditions of use. Management believes that these kneepads are among the bestperforming kneepads in the industry. Our "all terrain" knee pad protection withsnapshell technology is part of our interchangeable kneepad system which helpsto customize the job site needs. They are made with superior quality usingmultilevel layered construction, heavy-duty webbing, and abrasion-resistant PVCrubber.Metal Goods

Sawhorses and Work Support Products

The second major category consists of Sawhorses and Work Support products withunique designs targeted at the most discerning users in the industry. Theinnovative designs and construction of the more than 15 products in thiscategory have led to the sawhorses becoming among the best sellers of thecategory everywhere they are sold. The newest additions in this category includeseveral stands and work support products that are quickly gaining recognition inthe industry and are expected to position themselves in the top tier products ina short time. Our sawhorse line, miter saw, table saw & roller stands andworkbench are built to very high standards. Our sawhorse/job site table is fastto set up, holds 2,400 pounds, has adjustable heights, is made of all-metalconstruction, and has a compact design. We believe that these lines of productswill become the standard in the construction industry.

Electronic Goods

Digital measures and levels

TOUGHBUILT's third major product line is the digital measure and levels. Thesedigital measures are targeted toward the PROs for accurate job site measuring,to make sure the job is done right and in time. These digital measures helpcalculate what amount of construction product is needed to finish the job, suchas measures for floors, tile, and paint.

Our Business Strategy

Our product strategy is to develop product lines in several categories ratherthan focus on a single line of goods. We believe that this approach allows forrapid growth,andwider brand recognition, and may ultimately result in increased sales andprofits within an accelerated time period. We believe that building brandawareness of our current ToughBuilt lines of products will expand our share ofthe pertinent markets. Our business strategy includes the following keyelements:

· A commitment to technological innovation achieved through consumer insight,

creativity, and speed to market;

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· A broad selection of products in both brand and private labels;

· Prompt response;

· Superior customer service; and

 · Value pricing.

We will continue to consider other market opportunities while focusing on ourcustomers' specific requirements to increase sales.

Market

In addition to the construction market, our products are marketed to the"Do-It-Yourself" and home improvement marketplace. The U.S. housing stock ofmore than 130 million homes requires regular investment merely to offset normaldepreciation. According to Statista.com1, in recent years, the U.S. home improvement industry has witnessed steadygrowth, and the trend is expected to continue in the near future. A significantincrease occurred in 2020, mostly due to the outbreak of the coronavirus(COVID-19) pandemic and the lockdowns which ensued, leading people to stay homemore often than before and take up hobbies and projects such as DIY homeimprovement. According to a Joint Center for Housing Studies forecast, homeownerimprovements and repair expenditures were expected to reach roughly 370 billionU.S. dollars in the first quarter of 2022. Aside from the COVID pandemic2, the rising real estate prices in many Western countries were a likelycontributing factor to the increase in home improvement projects. With realestate price changes outperforming wage increases, homeowners may have opted forupgrading their homes instead of purchasing a new house.TOUGHBUILT® products are available worldwide in many major retailers rangingfrom home improvement and construction products and services stores to majoronline outlets. Currently, we have placements in Lowes, Home Depot, Menards,Bunnings (Australia), Princess Auto (Canada), Dong Shin Tool PIA (S. Korea) aswell as seeking to grow our sales in global markets such as Western and CentralEurope, Eastern Europe, South America, and the Middle East.1"Home Depot and Lowe's: average amount spent by consumers 2011-2021"; publishedby C. Simionato (April 26, 2022);https://www.statista.com/statistics/240861/average-amount-spent-by-consumers-at-the-home-depot-and-lowes/2"Home improvement projects - statistics & facts"; published by C. Simionato;(Jan 12, 2022);https://www.statista.com/topics/7899/home-improvement-projects/#topicHeader__wrapper 27Retailers by region include:

• United States: Lowe's, Home Depot, Menards, GM products, Fire Safety, Hartville

Hardware, ORR, Pooley, Wesco, Buzzi, and Western Pacific Building Materials.

 • Canada: Princess Auto.

• United Kingdom distribution throughout the UK and online selling for Europe.

• Australia: Kincrome, and Bunnings.

• New Zealand: Kincrome, and Bunnings.

• South Korea: Dong Shin Tool PIA Co., Ltd.

We are actively expanding into markets in Mexico and other Latin Americancountries, the Middle East, and South Africa.

We are currently in product line reviews and discussions with Home Depot Canada,Do It Best, True Value, and other major retailers both domestically andinternationally. A product line review requires the supplier to submit acomprehensive proposal that includes product offerings, prices, competitivemarket studies, relevant industry trends, and other information. Managementanticipates, within the near term, adding to its customer base up to three majorretailers, along with several distributors and private retailers within sixsectors and among fifty-six targeted countries.

New Products

Tools

In 2021, we launched the following product lines:

 • Lasers; • Levels; • Utility knives; and • Workbench.Mobile Device ProductsSince 2013, we have been planning, designing, engineering, and sourcing thedevelopment of a new line of ToughBuilt mobile devices and accessories to beused in the construction industry and by building enthusiasts. We are planningto have our mobile device products ready to market in 2024 at which time weintend to commence marketing and sell our mobile device products to our currentglobal customer base. We believe that an increasing number of companies in theconstruction industry are requiring their employees to utilize mobile devicesnot just to communicate with others but to utilize the special apps that willallow the construction workers to do their job better and more efficiently. Allof our mobile devices are designed and built-in accordance with IP-68 and to amilitary standard level of durability.Our ruggedized mobile line of products was created to place customizedtechnology and wide varieties of data in the palm of building professionals andenthusiasts such as contractors, subcontractors, foremen, general laborers, andothers. We are designing the devices, accessories, and custom apps to allow theusers to plan with confidence, organize faster, find labor and products faster,estimate accurately, purchase wisely, protect themselves, workers, and theirbusiness, create and track invoicing faster and easier.Commencing in 2024, we intend to launch the following accessories: car charger,QI charger, car mounts, and earbud pack, and we will focus on sales in thefollowing industries: construction, industrial, military, and law enforcementand "dotcoms." In late 2024, we intend to launch our T.55 rugged mobile phonesand earbud headphones, as well as a "T-Dock," attachable battery, tri lenscamera, and tough shield cover and accessories.

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In late 2024, we also intend to launch applications for our mobile phonesrelating to the following topics:

 1. National building codes 2. Inspection booking 3. Labor ready

4. Estimating apps & programs

 5. Structural engineers 6. Architects 7. Building plans 8. Workers' comp 9. Equipment insurance

10. Project insurance & bonds

 11. Vehicle insurance 12. Liability insurance 13. Umbrella insurance 14. Collection agencies 15. Construction loans 16. Small business loans 17. Job listings 18. Tool exchangeIntellectual PropertyWe hold several patents and trademarks of various durations and believe that wehold or have applied for, or license all the patent, trademark, and otherintellectual property rights necessary to conduct our business. We utilizetrademarks (licensed and owned) on nearly all our products and believe havingdistinctive marks that are readily identifiable is an important factor increating a market for our goods, in identifying our brands and our Company, andin distinguishing our goods from the goods of others. We consider our ToughBuilt®, Cliptech®, and Fearless®trademarks to be among our most valuable intangible assets. Trademarksregistered both in and outside the U.S. are generally valid for 10 years,depending on the jurisdiction, and are generally subject to an indefinite numberof renewals for a like period on appropriate application.In 2019, the United States Patent and Trademark Office (USPTO) granted two newdesign patents (U.S. D840,961 S and US D841,635 S) that cover ToughBuilt'sruggedized mobile devices, which are valid for a period of 15 years. We alsohave several patents pending with the USPTO and anticipate three or four of themto be granted in the near future.

Competition

The tool equipment and accessories industry is highly competitive on a worldwidebasis. We compete with a significant number of other tool equipment andaccessories manufacturers and suppliers to the construction, home improvementand Do-It-Yourself industry, many of which have the following:

? Significantly greater financial resources than we have;

? More comprehensive product lines;

? Longer-standing relationships with suppliers, manufacturers, and retailers;

? Broader distribution capabilities;

? Stronger brand recognition and loyalty; and

? The ability to invest substantially more in product advertising and sales.

 29Our competitors' greater capabilities in the above areas enable them to betterdifferentiate their products from ours, gain stronger brand loyalty, withstandperiodic downturns in the construction and home improvement equipment andproduct industries, and compete effectively based on price and production, andmore quickly develop new products. These competitors include DeWalt,Caterpillar, and Samsung Active.The markets for our mobile products and services are also highly competitive andwe are confronted by aggressive competition in all areas of our business. Thesemarkets are characterized by frequent product introductions and rapidtechnological advances that have substantially increased the capabilities anduse of mobile communication and media devices, personal computers and otherdigital electronic devices. Our competitors who sell mobile devices and personalcomputers based on other operating systems have aggressively cut prices andlowered their product margins to gain or maintain market share. Our financialcondition and operating results can be adversely affected by these and otherindustry-wide downward pressures on gross margins. Principal competitive factorsimportant to us include price, product features, relative price/performance,product quality and reliability, design innovation, a strong third-partysoftware and peripherals ecosystem, marketing and distribution capability,service and support, and corporate reputation.We are focused on expanding its market opportunities related to mobilecommunication and media devices. These industries are highly competitive andinclude several large, well-funded and experienced participants. We expectcompetition in these industries to intensify significantly as competitorsattempt to imitate some of the features of the Company's products andapplications within their products or collaborate to offer solutions that aremore competitive than those they currently offer. These industries arecharacterized by aggressive pricing practices, frequent product introductions,evolving design approaches and technologies, rapid adoption of technological andproduct advancements by competitors, and price sensitivity on the part ofconsumers and businesses. Competitors include Apple, Samsung, and Qualcomm,among others.

Key factors affecting our performance

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

Known Trends and Uncertainties

Seasonality

Our business is seasonal as a result of our China-based production. For thefirst calendar quarter, we are not able to ship our products from China due tothe hiatus as a result of their New Year holidays. We typically make up the lostsales from the first calendar quarter in the subsequent quarters.

COVID-19

In March 2020, the World Health Organization declared the outbreak of a novelcoronavirus (COVID-19) as a pandemic that continues to spread throughout theUnited States and the world. We are currently monitoring the outbreak ofCOVID-19 and the related business and travel restrictions and changes tobehavior intended to reduce its spread. All of our Chinese facilities weretemporarily closed for a period of time. All of these facilities have beenreopened. Depending on the progression of the outbreak, our ability to obtainnecessary supplies and ship finished products to customers may be partly orcompletely disrupted globally. To date, we have been able to obtain supplies andproducts needed. Also, our ability to maintain appropriate labor levels could bedisrupted. If the coronavirus continues to progress, it could have a materialnegative impact on our results of operations and cash flow, in addition to theimpact on its employees.Due to the speed and fluidity with which the COVID-19 pandemic continues toevolve, and the emergence of highly contagious variants, we do not yet know thefull extent of the impact of COVID-19 on our business operations. The ultimateextent of the impact of any epidemic, pandemic, outbreak, or other public healthcrisis on our business, financial condition and results of operations willdepend on future developments, which are highly uncertain and cannot bepredicted, including new information that may emerge concerning the severity ofsuch epidemic, pandemic, outbreak, or other public health crisis and actionstaken to contain or prevent the further spread, including the effectiveness ofvaccination and booster vaccination campaigns, among others. Accordingly, wecannot predict the extent to which our business, financial condition and resultsof operations will be affected. We have concluded that while it is reasonablypossible that the virus could negatively impact our results of operations, thespecific impact is not readily determinable as of the date of these financialstatements. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty. 30InflationPrices of certain commodity products, including raw materials, are historicallyvolatile and are subject to fluctuations arising from changes in domestic andinternational supply and demand, labor costs, competition, market speculation,government regulations, trade restrictions and tariffs. Increasing prices in thecomponent materials for the parts of our goods may impact the availability, thequality and the price of our products, as suppliers search for alternatives toexisting materials and increase the prices they charge. Our suppliers may alsofail to provide consistent quality products as they may substitute lower-costmaterials to maintain pricing levels. Rapid and significant changes in commodityprices may negatively affect our profit margins if the Company is unable tomitigate any inflationary increases through various customer pricing actions andcost reduction initiatives. To offset increased prices charged by ourmanufacturers and increased shipping rates, we increased the prices of ourproducts in 2021.

Supply Chain

We acquire a majority of our products from manufacturers and distributorslocated in China, India, and the Philippines. We do not have any long-termcontracts or exclusive agreements with our foreign suppliers that would ensureour ability to acquire the types and quantities of products we desire atacceptable prices and in a timely manner. We utilize a number of techniques toaddress potential disruption in and other risks relating to our supply chain,including in certain cases the use of other qualified suppliers. We increasedour inventory from $38,432,012 at December 31, 2021 to $40,156,305at June 30, 2022. Due to our increased inventory levels in 2021 and the sixmonths ended June 30, 2022, the ongoing supply chain disruptions have not had amaterial adverse effect on our operations and we do not currently anticipatethat any continued supply chain disruptions will have a material adverse effecton our operations for the fiscal year 2022.

Reverse Stock Split

On April 25, 2022, we effected a 1-for-150 reverse stock split of our issued andoutstanding common stock as part of our plan to regain compliance with NasdaqListing Rule 5550(a)(2) (the "Minimum Bid Price Requirement"). On May 9, 2022,we were notified by Nasdaq that we regained compliance with Nasdaq's Minimum BidPrice Requirement and that the matter was closed.

Results of Operations

The three months ended June 30, 2022 compared to the three months ended June 30,2021.

RevenuesRevenues for the three months ended June 30, 2022 and 2021 were $17,887,655 and$15,853,368, respectively, which consisted of metal goods, soft goods andelectronic goods sold to customers. Revenues increased in 2022 over 2021 by$2,034,287, or 12.83%, primarily due to wide acceptance of our products in thetools industry and receipt of recurring sales orders for metal goods and softgoods from our existing and new customers, and introduction and sale of new softgoods products to our customers. An increase in sales through Amazon was a majorfactor of the increase.Cost of Goods SoldCost of goods sold for the three months ended June 30, 2022 and 2021 was$12,939,239 and $12,500,092, respectively. Cost of goods sold increased in 2022over 2021 by $439,147, or 3.51%, primarily due to our increased sales as well asincreases in materials (e.g., steel and plastics polyester) to manufacture metalgoods and soft goods and increase in labor cost in China. Cost of goods sold asa percentage of revenues in 2022 was 72.34% as compared to cost of goods sold asa percentage of revenues in 2021 of 78.85%. 31Operating ExpensesOperating expenses consist of selling, general and administrative expenses andresearch and development costs. Selling, general and administrative expenses(the "SG&A Expenses") for the three months ended June 30, 2022 and 2021 were$14,496,942 and $9,242,946, respectively. SG&A Expenses increased in 2022 over2021 by $5,253,996, or 56.84%, primarily due to an increase in shipping costs,marketing and advertising expenses for product launches and the hiring ofadditional employees. SG&A Expense for the quarter ended June 30, 2022 as apercentage of revenues was 81.04%, compared to 58.3% for the quarter ended June30, 2021. We expect our SG&A Expenses will start to increase at a lower rate asour business matures, and we develop economies of scale.Research and development costs ("R&D") for the three months ended June 30, 2022and 2021 were $2,754,351 and$1,429,819, respectively. R&D costs increased by $1,324,532. or 92.64%. Thisincrease was primarily due to the Company developing new tools for theconstruction industry.

Other Expense

Other expense for the three months ended June 30, 2022 consisted of warrantissuance costs in the amount of $170,308, interest expense of $92,438 and changein fair value of warrant liabilities in the amount of $429,572. Other expensefor the three months ended June 30, 2021 consisted of interest expense of$102,937.

Net Income (Loss)

Due to factors set forth above, we recorded a net loss of $12,136,051

for the three months ended June 30, 2022 as compared to a net loss of $7,422,426for the three months ended June 30, 2021.

The six months ended June 30, 2022 compared to the six months ended June 30,2021.

RevenuesRevenues for the six months ended June 30, 2022 and 2021 were $35,108,400 and$28,135,621, respectively, which consisted of metal goods, soft goods andelectronic goods sold to customers. Revenues increased in 2022 over 2021 by$6,972,779 or 24.78%, primarily due to wide acceptance of our products in thetools industry and receipt of recurring sales orders for metal goods and softgoods from our existing and new customers, and introduction and sale of new softgoods products to our customers. An increase in sales through Amazon was a majorfactor of the increase.Cost of Goods SoldCost of goods sold for the six months ended June 30, 2022 and 2021 was$27,156,857 and $21,319,219 respectively. Cost of goods sold increased in 2022over 2021 by $5,837,638, or 27.38%, primarily due to our increased sales as wellas increases in materials (e.g., steel and plastics polyester) to manufacturemetal goods and soft goods and increase in labor cost in China. Cost of goodssold as a percentage of revenues in 2022 was 77.35% as compared to cost of goodssold as a percentage of revenues in 2021 of 75.77%. 32Operating ExpensesOperating expenses consist of selling, general and administrative expenses andresearch and development costs. Selling, general and administrative expenses(the "SG&A Expenses") for the six months ended June 30, 2022 and 2021 were$30,430,841 and $17,192,727, respectively. SG&A Expenses increased in 2022 over2021 by $13,238,114, or 77%, primarily due to an increase in shipping costs,marketing and advertising expenses for product launches and the hiring ofadditional employees. SG&A Expense for the six months ended June 30, 2022 as apercentage of revenues was 86.68% compared to 61.11% for the six months endedJune 30, 2021. We expect our SG&A Expenses will start to increase at a lowerrate as our business matures, and we develop economies of scale.Research and development costs ("R&D") for the six months ended June 30, 2022and 2021 were $5,268,805 and$2,836,204, respectively. R&D costs increased by $2,432,601, or 85.77%. Thisincrease was primarily due to the Company developing new tools for theconstruction industry.

Other Expense

Other expense for the six months ended June 30, 2022 consisted of warrantissuance costs in the amount of $445,438, interest expense of $92,181 and changein fair value of warrant liabilities in the amount of $4,045,732. Other expense for the six months ended June 30, 2021 consisted of interestexpense of $263,556.Net Income (Loss)Due to factors set forth above, we recorded a net loss of$24,239,990for the six months ended June 30, 2022 as compared to a net loss of $13,476,085for the six months ended June 30, 2021.

Liquidity and Capital Resources; Going Concern

We had $2.1 million in cash at June 30, 2022 compared to $7.5 million atDecember 31, 2021. The Company has incurred substantial operating losses sinceits inception. As reflected in the consolidated financial statements, theCompany had an accumulated deficit of approximately $120.9 million at June 30,2022, a net loss of approximately $24.2 million, and approximately $12.9 millionof net cash used in operating activities for the six months ended June 30, 2022.The accompanying consolidated financial statements have been prepared on a goingconcern basis, which contemplates the realization of assets and satisfaction ofliabilities in the normal course of business. The financial statements do notinclude any adjustments relating to the recoverability and classification ofrecorded asset amounts or the amounts and classification of liabilities thatmight result from the outcome of this uncertainty. The Company anticipatesincurring additional losses until such time, if ever, that it can obtainmarketing approval to sell, and then generate significant sales, of itstechnology that is currently in development. As such it is likely thatadditional financing will be needed by the Company to fund its operations and todevelop and commercialize its technology.We will seek to obtain additional capital through the sale of debt or equityfinancings or other arrangements to fund operations; however, there can be noassurance that the Company will be able to raise needed capital under acceptableterms, if at all. The sale of additional equity may dilute existing stockholdersand newly issued shares may contain senior rights and preferences compared tocurrently outstanding shares of common stock. Issued debt securities may containcovenants and limit the Company's ability to pay dividends or make otherdistributions to stockholders. If the Company is unable to obtain suchadditional financing, future operations would need to be scaled back ordiscontinued. Due to the uncertainty in the Company's ability to raise capital,management believes that there is substantial doubt in the Company's ability tocontinue as a going concern for the next twelve months from the issuance ofthese consolidated financial statements.

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On January 19, 2021, the Company filed a prospectus supplement dated January 15,2021 to the Company's shelf registration statement on Form S-3 (File No.333-251185) (the "First Form S-3") declared effective by the SEC on December 13,2020 for the offer and sale of shares of common stock having an aggregate valueof $8,721,746 through H.C. Wainwright & Co., LLC, as sales agent ("Wainwright"),pursuant to that certain At The Market Offering Agreement, dated December 7,2020 (the "ATM Agreement"), between the Company and Wainwright. Pursuant to theprospectus supplement, the Company sold an aggregate of 99,748 shares of commonstock for net proceeds of $16,242,904 after deducting underwriting discounts andexpenses.On February 2, 2021, the Company filed a second registration statement on FormS-3 (File No. 333-252630) (the "Second Form S-3") containing a base prospectuscovering the offering, issuance and sale by the Company of up to $100,000,000 ofthe Company's common stock, preferred stock, warrants and units; and a salesagreement prospectus covering the offering, issuance and sale by the Company ofup to a maximum aggregate offering price of $100,000,000 (which amount wasincluded in the aggregate offering price set forth in the base prospectus) ofthe Company's common stock that may be issued and sold under that certain At TheMarket Offering Agreement, dated February 1, 2021, between the Company andWainwright, as sales agent. The Second S-3 was declared effective by the SEC onFebruary 8, 2021. The Company terminated the First S-3 simultaneously with thefiling of the Second S-3. From February 2021 to July 2021, the Company sold anaggregate of 125,508 shares of common stock through Wainwright with net proceedsof $24,602,110, after deducting underwriting discounts and expenses.On July 14, 2021, the Company sold an aggregate of 306,855 shares of commonstock to several institutional and accredited investors in a registered directoffering pursuant to the Second Form S-3 for net proceeds of $36,259,050, afterdeducting underwriting discounts and expenses.On February 15, 2022, the Company entered into a Securities Purchase Agreement(the "Purchase Agreement") with certain institutional investors, pursuant towhich the Company issued, in a registered direct offering, an aggregate of$5,000,000 of Preferred Stock (split evenly among 2,500 shares Series FConvertible Preferred Stock, par value $0.0001 per share ("Series F PreferredStock"), and 2,500 shares of Series G Convertible Preferred Stock, par value$0.0001 per share ("Series G Preferred Stock"). The Series F Preferred Stock andSeries G Preferred Stock have a stated value of $1,000 per share and areconvertible into common stock at any time after the date of issuance. Theconversion rate, subject to adjustment as set forth in the Certificate ofDesignation, is determined by dividing the stated value of the Series FPreferred Stock and Series G Preferred Stock by $30 (the "Conversion Price").The Conversion Price can be adjusted as set forth in the Certificate ofDesignation for stock dividends and stock splits or the occurrence of afundamental transaction. The 2,500 shares of Series F Preferred Stock and 2,500shares of Series G Preferred Stock are each convertible into 83,334 shares ofcommon stock. The Series F Preferred Stock and Series G Preferred Stock and theunderlying shares of common stock were offered pursuant to the Second Form S-3(as defined above).In a concurrent private placement, the Company also issued to such investorsunregistered warrants to purchase up to an aggregate of 125,000 shares of theCompany's common stock for $37.65 per share from April 15, 2022 until the fifthyear from the date of issuance.We received net proceeds of approximately $5.1 million from the offering, afterdeducting the estimated offering expenses payable by the Company, including theplacement agent fees.On July 27, 2022, we consummated the closing of a private placement pursuant toSection 4(a)(2) and/or Regulation 506(b) of the Securities Act (the "PrivatePlacement"). Pursuant to the terms and conditions of the Securities PurchaseAgreement, dated as of July 25, 2022 (the "Purchase Agreement"), by and amongthe Company and certain institutional investors named on the signature pagesthereto (the "Purchasers"). At the closing of the Private Placement, the Companyissued (i) 700,000 shares of common stock (the "Placement Shares"),(ii) 3,300,000 prefunded warrants (the "Prefunded Warrants"); (iii) 4,000,000Series A preferred investment options (the "Series A Preferred InvestmentOptions"); and (iv) 4,000,000 Series B preferred investment options (the "SeriesB Preferred Investment Option, and together with the "Series A PreferredInvestment Options, the "Preferred Investment Options" and collectively with thePrefunded Warrants, the "Warrants"). The purchase price of each Placement Shareand associated Preferred Investment Options was $5.00 and the purchase price ofeach Prefunded Warrant and associated Preferred Investment Options was $4.9999.The net proceeds to the Company from the Private Placement were approximately$18.4 million, after deducting placement agent fees and other offering expenses.

The Company plans to use its cash within the twelve months from June 30, 2022and beyond for working capital and research and development.

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