TOUGHBUILT INDUSTRIES, INC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS . (Form 10-Q)

The following discussion and analysis are intended to help investors understand
our business, financial condition, results of operations, liquidity, and capital
resources. You should read this discussion together with our consolidated
financial statements and related notes thereto included elsewhere in this Form
10-Q and in conjunction with the Company's Form 10-K for the year ended December
31, 2021 filed with the Securities Exchange Commission ("SEC") on April 18,
2022. All common share and per common share numbers have been retroactively
adjusted to reflect the 1-for-10 reverse stock split effected on April 15, 2020
and the 1-for-150 reverse stock split effected on April 25, 2022.

 23




                           FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements," which
include information relating to future events, future financial performance,
financial projections, strategies, expectations, competitive environment and
regulation. 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 the
future tense, identify forward-looking statements. Forward-looking statements
should not be read as a guarantee of future performance or results and may not
be accurate indications of when such performance or results will be achieved.
Forward-looking statements are based on information we have when those
statements are made or management's good faith belief as of that time with
respect to future events and are subject to significant risks and uncertainties
that could cause actual performance or results to differ materially from those
expressed in or suggested by the forward-looking statements. Important factors
that could cause such differences include, but are not limited to:

? the impact of the global 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 WE and other patents

and other intellectual property;

? our ability to launch and enter markets;

? our ability to retain key members of management;

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

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

? investor acceptance of our business model.

The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or of the risk factors that we face that could cause our actual results to differ from those anticipated in our forward-looking statements. .

Moreover, new risks regularly emerge, and it is not possible for our management
to predict or articulate all risks we face, nor can we assess the impact of all
risks 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-looking
statements. All forward-looking statements included in this Quarterly Report on
Form 10-Q are based on information available to us on the date of this Quarterly
Report 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-looking
statement, whether as a result of new information, future events or otherwise.
All subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by the
cautionary statements contained above and throughout this Quarterly Report on
Form 10-Q.

Business Overview

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

ToughBuilt's business is based on the development of innovative and
state-of-the-art products, primarily in the tools and hardware category, with a
particular 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 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, lasers
and levels. The Company also has several additional categories and product lines
in various stages of development.

24



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
gain wider market recognition and acceptance resulting in increased product
sales.

As discussed below, while the Company has faced the impacts of COVID-19 and
inflation, we have been able to obtain significant revenue growth.
Notwithstanding, 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. In their audit report included in the Quarterly Report on Form
10-Q, our auditors have expressed that there is substantial doubt as to our
ability to continue as a going concern. To fund our operations and grow our
business, we will require 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 will be able to obtain additional financing on acceptable
terms, 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, 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
" 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.

Company 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. On
September 18, 2018, we effected a 1-for-2 reverse stock split of our common
stock. We consummated our initial public offering pursuant to a registration
statement on Form S-1 (File No: 333- 22610) declared effective by the SEC on
November 8, 2018 and became an Exchange Act reporting company pursuant to a Form
8-A (File No. 001-38739) on November 8, 2018. On April 15, 2020, we effected a
1-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. All
share amounts and dollar amounts have been adjusted for the reverse stock
splits.

Business developments

The following highlights material business developments in our business during
the fiscal year ended December 31, 2021 and during the second quarter ended June
30, 2022:

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

Stock-Keeping Units (SKUs) to 25 SKUs with Toolstation, a Netherlands based

company with more than 60 stores in the Netherlands, Belgium and Luxembourg and a

highly respected one-stop suppliers of tools, accessories and

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

include current ranges of ToughBuilt’s range of steel trestles, soft sided tool

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

stores and in the Toolstation catalog;

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

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

allowing professional builders and do-it-yourselfers to measure parts quickly, seamlessly

upload information to smartphone and create information shareable with the

   touch of a button:



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

available for purchase from our strategic global partners and buying groups

serving more than 14,400 stores worldwide:

· In August 2021we launched a new product line, ToughBuilt Utility Knives;

· In September 2021we launched ToughBuilt Brazil;


 25


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

million against approximately $39.4 million in 2020, of which 71%

increased online sales through Amazon.com $7 million for 2020 to $12

   million for 2021: and



· We have collected 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 Developments
Units and Prefunded Public Offering

On 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 purchase
one share of common stock (each, a "Warrant") for $1.90 per Unit; and
(ii) 2,385,738 prefunded units ("Prefunded Units"), each Prefunded Unit
consisting of one prefunded warrant (a "Prefunded Warrant") to purchase one
share of common stock and one Warrant, for $1.8999 per Prefunded Unit.  Subject
to certain ownership limitations described in the Warrants, the Warrants have an
exercise price of $1.90 per share of common stock, are exercisable upon issuance
and will expire five years from the date of issuance. The exercise price of the
Warrants is subject to adjustment for stock splits, reverse splits, and similar
capital transactions as described in the warrants. In connection with the
offering, the Company issued Warrants to purchase an aggregate of 3,157,895
shares of common stock.


Subject to certain ownership limitations described in the Prefunded Warrants,
the Prefunded Warrants are immediately exercisable and may be exercised at a
nominal consideration of $0.0001 per share of common stock any time until all of
the Prefunded Warrants are exercised in full. A holder will not have the right
to 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, at
the election of the holder, 9.99%) of the number of shares of common stock
outstanding immediately after giving effect to the exercise, as such percentage
ownership is determined in accordance with the terms of the Warrants or the
Prefunded Warrants, respectively. However, upon notice from the holder to the
Company, the holder may increase the beneficial ownership limitation, which may
not exceed 9.99% of the number of shares of common stock outstanding immediately
after giving effect to the exercise, as such percentage ownership is determined
in accordance with the terms of the Warrants or the Prefunded Warrants,
respectively, provided that any increase in the beneficial ownership limitation
will not take effect until 61 days following notice to the Company.


As compensation to H.C. Wainwright & Co., LLC ("Wainwright" or the "Placement
Agent"), as the exclusive placement agent in connection with the offering, the
Company paid the Placement Agent a cash fee of 7% of the aggregate gross
proceeds raised in the offering, plus a management fee equal to 0.5% of the
gross proceeds raised in the offering and reimbursement of certain expenses and
legal fees. The Company also issued to designees of the Wainwright Agent
warrants to purchase up to 189,474 shares of common stock (the "Placement Agent
Warrants"). The Placement Agent Warrants have substantially the same terms as
the Warrants, except that the Placement Agent Warrants have an exercise price
equal to $2.375 per share, and expire on the fifth anniversary from the date of
the commencement of sales in the offering.

In connection with the offering, the Company entered into a Securities Purchase
Agreement (the "Purchase Agreement") with certain institutional investors on
June 17, 2022. The Purchase Agreement contained customary representations and
warranties and agreements of the Company and the Purchasers and customary
indemnification rights and obligations of the parties.

The shares of common stock and Warrants underlying the Units, the Warrants and
Prefunded Warrants underlying the Prefunded Units and the Placement Agent
Warrants described above and the underlying shares of common stock were offered
pursuant to the Registration Statement on Form S-1 (File No. 333-264930), as
amended, which was declared effective by the Securities and Exchange Commission
on June 17, 2022.

The Company received net proceeds of approximately $5.1 million from the
offering, after deducting the estimated offering expenses payable by the
Company, including the Placement Agent fees. The Company intends to use the net
proceeds from the offering for general corporate purposes, including working
capital, and the repurchase of certain existing warrants.

Private Placement of Common Shares and Warrants

On July 27, 2022, we consummated the closing of a private placement pursuant to
Section 4(a)(2) and/or Regulation 506(b) of the Securities Act (the "Private
Placement").  Pursuant to the terms and conditions of the Securities Purchase
Agreement, dated as of July 25, 2022 (the "Purchase Agreement"), by and among
the Company and certain institutional investors named on the signature pages
thereto (the "Purchasers"). At the closing of the Private Placement, the Company
issued (i) 700,000 shares of common stock (the "Placement Shares"),
(ii) 3,300,000 prefunded warrants (the "Prefunded Warrants"); (iii) 4,000,000
Series A preferred investment options (the "Series A Preferred Investment
Options"); and (iv) 4,000,000 Series B preferred investment options (the "Series
B Preferred Investment Option, and together with the "Series A Preferred
Investment Options, the "Preferred Investment Options" and collectively with the
Prefunded Warrants, the "Warrants"). The purchase price of each Placement Share
and associated Preferred Investment Options was $5.00 and the purchase price of
each Prefunded Warrant and associated Preferred Investment Options was $4.9999.

Each Prefunded Warrant is exercisable for $0.0001 per share of common stock
until all of the Prefunded Warrants are exercised in full.  Each Series A
Preferred Investment Option is exercisable for one share of common stock for
$5.00 per share until the third anniversary date of the issuance date.  Each
Series B Preferred Investment Option is exercisable for one share of common
stock for $5.00 per share until the second anniversary date of the issuance
date.  The exercise price and the number of our shares of common stock issuable
upon the exercise of each of the Warrants are subject to adjustment for stock
splits, reverse splits, and similar capital transactions, as described in the
Warrants. The Preferred Warrants are exercisable on a "cashless" basis. The
Preferred Investment Options may be exercised on a "cashless basis" if there is
no effective registration for the underlying shares of common stock.


A holder of the Warrants will not have the right to exercise any portion of the
Prefunded Warrants, Series A Preferred Investment Option or Series B Preferred
Options, as the case may be if the holder (together with its affiliates) would
beneficially own more than 4.99% or 9.99% of the number of shares of common
stock outstanding immediately after giving effect to the exercise, as such
percentage ownership is determined in accordance with the terms of the Warrants.
However, upon notice from the holder to the Company, the holder may increase the
beneficial ownership limitation, which may not exceed 9.99% of the number of
shares of common stock outstanding immediately after giving effect to the
exercise, as such percentage ownership is determined in accordance with the
terms of the Warrants, provided that any increase in the beneficial ownership
limitation 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 may
exercise and will assume all of our obligations under the Warrants with the same
effect as if such successor entity had been named in such security itself. If
our stockholders are given a choice as to the securities, cash or property to be
received in a fundamental transaction, then the holders of the Warrants shall be
given the same choice as to the consideration it receives upon any exercise of
the Warrants following such fundamental transaction. In addition, holders of the
Preferred Investment Options will have the right to require us to repurchase its
Preferred Investment Options for cash in an amount equal to the value of the
remaining unexercised portion of the Warrants based on the Black-Scholes option
pricing formula. However, if the fundamental transaction is not within our
control, including not approved by our board of directors, then the holder of
Preferred Investment Options will only be entitled to receive the same type or
form of consideration (and in the same proportion), at the value per share of
common stock in the fundamental transaction for each share of common stock
underlying the unexercised portion of the pre-funded warrants or preferred
investment options, that is being offered and paid to our stockholder in
connection with the fundamental transaction.

In addition, if at any time the Company grants, issues or sells any common stock
equivalents or rights to purchase stock, warrants, securities or other property
pro 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 terms
applicable to such Purchase Rights, the aggregate Purchase Rights which the
holder could have acquired if the holder had held the number of shares of common
stock acquirable upon complete exercise of its Warrants (without regard to any
limitations on exercise hereof, including without limitation, the Beneficial
Ownership Limitation) immediately before the date on which a record is taken for
the grant, issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of shares of common stock are to
be 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 such
Purchase Right would result in the holder exceeding the Beneficial Ownership
Limitation, then the holder shall not be entitled to participate in such
Purchase Right to such extent (or beneficial ownership of such shares of common
stock as a result of such Purchase Right to such extent) and such Purchase Right
to such extent shall be held in abeyance for the holder until such time, if
ever, as its right thereto would not result in the holder exceeding the
Beneficial Ownership Limitation).


During such time as the Warrants are outstanding, if the Company shall declare
or make any dividend or other distribution of its assets (or rights to acquire
its assets) to holders of shares of common stock, by way of return of capital or
otherwise (including, without limitation, any distribution of cash, stock or
other securities, property or options by way of a dividend, spin-off,
reclassification, corporate rearrangement, scheme of arrangement or other
similar transaction) (a "Distribution"), then, in each such case, the holders of
the Warrants shall be entitled to participate in such Distribution to the same
extent that the holders would have participated therein if the holders had held
the number of shares of common stock acquirable upon complete exercise of the
Warrants (without regard to any limitations on exercise hereof, including
without limitation, the Beneficial Ownership Limitation).

All of the Purchasers were "accredited investors" as such term is defined in
Rule 501(a) under the Securities Act. The Placement Shares and Warrants were
offered pursuant to the exemptions provided in Section 4(a)(2) under the
Securities Act and/or Rule 506(b) of Regulation D promulgated thereunder, and
they were not offered pursuant to this prospectus or another prospectus.
Accordingly, the Selling Stockholders may sell the Placement Shares and, upon
the exercise of the Warrants, the underlying shares of common stock (the
"Warrant Shares") only pursuant to an effective registration statement under the
Securities Act covering the resale of those shares, an exemption under Rule 144
under the Securities Act or another applicable exemption under the Securities
Act.

In connection with the Private Placement, we entered into a Registration Rights
Agreement with the Purchasers, dated July 25, 2022 (the "Registration Rights
Agreement"). The Registration Rights Agreement provides that we shall file a
registration statement covering the resale of all of the Registrable Securities
(as defined in the Registration Rights Agreement) with the SEC no later than
August 4, 2022 and have the registration statement declared effective by the SEC
as promptly as possible after the filing thereof, but in any event no later than
September 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 Rights
Agreement), which, among others, prohibits the Purchasers from reselling the
Securities for more than ten (10) consecutive calendar days or more than an
aggregate of fifteen (15) calendar days during any 12-month period, we are
obligated to pay to each Purchaser, on each monthly anniversary of each such
Event, 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 amount
paid by such Purchaser pursuant to the Purchase Agreement. If the Company fails
to pay any partial liquidated damages in full within seven days after the date
payable, the Company will pay interest thereon at a rate of 12% per annum (or
such lesser maximum amount that is permitted to be paid by applicable law) to
the holder, accruing daily from the date such partial liquidated damages are due
until such amounts, plus all such interest thereon, are paid in full.

Subject to certain exceptions, neither we nor any of our security holders (other
than the Purchasers in such capacity pursuant thereto) may include the
securities of the Company in any registration statements other than the
Securities. We may not file any other registration statements until all
Securities are registered pursuant to a registration statement that is declared
effective by the SEC, provided that we may file amendments to registration
statements filed prior to the date of the Registration Rights Agreement so long
as no new securities are registered on any such existing registration
statements.


Our Products

TOUGHBUILT® manufactures and distributes an array of high-quality and rugged
toolbelts, tool bags, and other personal tool organizer products. We also
manufacture and distribute a complete line of knee pads for various construction
applications, and a variety of metal goods, including utility knives, aviation
snips, shears, and digital measures such as lasers and levels. Our line of job
site tools and material support products consists of a full line of miter saw
and table saw stands, sawhorses/job site tables, roller stands, and workbench.
All our products are designed and engineered in the United States and
manufactured in China, India, and the Philippines under our quality control
supervision. We do not need government approval for any of our products.

Flexible products

The flagship of the product line is the soft goods line that consists of over
100 variations of tool pouches, tool rigs, toolbelts and accessories, tool bags,
totes, a variety of storage solutions, and office organizers/bags for
laptop/tablet/cellphones, etc. Management believes that the breadth of the line
is one of the deepest in the industry and has specialized designs to suit
professionals 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 patented
design features that allow the users to interchange components to suit
conditions of use. Management believes that these kneepads are among the best
performing kneepads in the industry. Our "all terrain" knee pad protection with
snapshell technology is part of our interchangeable kneepad system which helps
to customize the job site needs. They are made with superior quality using
multilevel layered construction, heavy-duty webbing, and abrasion-resistant PVC
rubber.

Metal Goods

Sawhorses and Work Assist Products

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

Electronic products

Digital measurements and levels

TOUGHBUILT's third major product line is the digital measure and levels. These
digital 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 help
calculate what amount of construction product is needed to finish the job, such
as measures for floors, tile, and paint.

Our business strategy

Our product strategy is to develop product lines in several categories rather
than focus on a single line of goods. We believe that this approach allows for
rapid growth,
and
wider brand recognition, and may ultimately result in increased sales and
profits within an accelerated time period. We believe that building brand
awareness of our current ToughBuilt lines of products will expand our share of
the pertinent markets. Our business strategy includes the following key
elements:

A commitment to technological innovation achieved through consumer insight,

creativity and speed to market;


 26


· A wide selection of branded and private label products;

· Quick response;

· Superior customer service; and

 · Value pricing.


We will continue to consider other market opportunities while focusing on specific customer 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 of
more than 130 million homes requires regular investment merely to offset normal
depreciation. According to Statista.com
1
, in recent years, the U.S. home improvement industry has witnessed steady
growth, and the trend is expected to continue in the near future. A significant
increase occurred in 2020, mostly due to the outbreak of the coronavirus
(COVID-19) pandemic and the lockdowns which ensued, leading people to stay home
more often than before and take up hobbies and projects such as DIY home
improvement. According to a Joint Center for Housing Studies forecast, homeowner
improvements and repair expenditures were expected to reach roughly 370 billion
U.S. dollars in the first quarter of 2022. Aside from the COVID pandemic
2
, the rising real estate prices in many Western countries were a likely
contributing factor to the increase in home improvement projects. With real
estate price changes outperforming wage increases, homeowners may have opted for
upgrading their homes instead of purchasing a new house.

TOUGHBUILT® products are available worldwide in many major retailers ranging
from home improvement and construction products and services stores to major
online outlets. Currently, we have placements in Lowes, Home Depot, Menards,
Bunnings (Australia), Princess Auto (Canada), Dong Shin Tool PIA (S. Korea) as
well as seeking to grow our sales in global markets such as Western and Central
Europe, Eastern Europe, South America, and the Middle East.

1
"Home Depot and Lowe's: average amount spent by consumers 2011-2021"; published
by 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


 27



Retailers by region include:

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

Hardware, ORR, Pooley, Wescobuzzy and Western Pacific Building Materials.

Canada: Princess Auto.


UK distribution throughout the UK and online sales for Europe.

Australia: Kincrome and Bunnings.

New Zealand: Kincrome and Bunnings.

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

We are actively developing in the markets of Mexico and other Latin American countries, Middle Eastand 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 and
internationally. A product line review requires the supplier to submit a
comprehensive proposal that includes product offerings, prices, competitive
market studies, relevant industry trends, and other information. Management
anticipates, within the near term, adding to its customer base up to three major
retailers, along with several distributors and private retailers within six
sectors 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 Products

Since 2013, we have been planning, designing, engineering, and sourcing the
development of a new line of ToughBuilt mobile devices and accessories to be
used in the construction industry and by building enthusiasts. We are planning
to have our mobile device products ready to market in 2024 at which time we
intend to commence marketing and sell our mobile device products to our current
global customer base. We believe that an increasing number of companies in the
construction industry are requiring their employees to utilize mobile devices
not just to communicate with others but to utilize the special apps that will
allow the construction workers to do their job better and more efficiently. All
of our mobile devices are designed and built-in accordance with IP-68 and to a
military standard level of durability.

Our ruggedized mobile line of products was created to place customized
technology and wide varieties of data in the palm of building professionals and
enthusiasts such as contractors, subcontractors, foremen, general laborers, and
others. We are designing the devices, accessories, and custom apps to allow the
users to plan with confidence, organize faster, find labor and products faster,
estimate accurately, purchase wisely, protect themselves, workers, and their
business, 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 the
following industries: construction, industrial, military, and law enforcement
and "dotcoms." In late 2024, we intend to launch our T.55 rugged mobile phones
and earbud headphones, as well as a "T-Dock," attachable battery, tri lens
camera, and tough shield cover and accessories.

28

At the end of 2024, we also plan to launch applications for our mobile phones on the following themes:

 1. National building codes


 2. Inspection booking


 3. Labor ready

4. Estimation of applications and 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 exchange



Intellectual Property

We hold several patents and trademarks of various durations and believe that we
hold or have applied for, or license all the patent, trademark, and other
intellectual property rights necessary to conduct our business. We utilize
trademarks (licensed and owned) on nearly all our products and believe having
distinctive marks that are readily identifiable is an important factor in
creating a market for our goods, in identifying our brands and our Company, and
in distinguishing our goods from the goods of others. We consider our ToughBuilt
®
, Cliptech
®
, and Fearless
®
trademarks to be among our most valuable intangible assets. Trademarks
registered both in and outside the U.S. are generally valid for 10 years,
depending on the jurisdiction, and are generally subject to an indefinite number
of renewals for a like period on appropriate application.

In 2019, the United States Patent and Trademark Office (USPTO) granted two new
design patents (U.S. D840,961 S and US D841,635 S) that cover ToughBuilt's
ruggedized mobile devices, which are valid for a period of 15 years. We also
have several patents pending with the USPTO and anticipate three or four of them
to be granted in the near future.

Competition

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

? Financial resources significantly greater than those at our disposal;

? More complete product lines;

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

? Wider distribution capabilities;

? Stronger brand recognition and loyalty; and

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


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Our competitors' greater capabilities in the above areas enable them to better
differentiate their products from ours, gain stronger brand loyalty, withstand
periodic downturns in the construction and home improvement equipment and
product industries, and compete effectively based on price and production, and
more quickly develop new products. These competitors include DeWalt,
Caterpillar, and Samsung Active.

The markets for our mobile products and services are also highly competitive and
we are confronted by aggressive competition in all areas of our business. These
markets are characterized by frequent product introductions and rapid
technological advances that have substantially increased the capabilities and
use of mobile communication and media devices, personal computers and other
digital electronic devices. Our competitors who sell mobile devices and personal
computers based on other operating systems have aggressively cut prices and
lowered their product margins to gain or maintain market share. Our financial
condition and operating results can be adversely affected by these and other
industry-wide downward pressures on gross margins. Principal competitive factors
important to us include price, product features, relative price/performance,
product quality and reliability, design innovation, a strong third-party
software and peripherals ecosystem, marketing and distribution capability,
service and support, and corporate reputation.

We are focused on expanding its market opportunities related to mobile
communication and media devices. These industries are highly competitive and
include several large, well-funded and experienced participants. We expect
competition in these industries to intensify significantly as competitors
attempt to imitate some of the features of the Company's products and
applications within their products or collaborate to offer solutions that are
more competitive than those they currently offer. These industries are
characterized by aggressive pricing practices, frequent product introductions,
evolving design approaches and technologies, rapid adoption of technological and
product advancements by competitors, and price sensitivity on the part of
consumers and businesses. Competitors include Apple, Samsung, and Qualcomm,
among others.

Main 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. Set forth below
is 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 the
first calendar quarter, we are not able to ship our products from China due to
the hiatus as a result of their New Year holidays. We typically make up the lost
sales from the first calendar quarter in the subsequent quarters.

COVID-19[feminine]

In March 2020, the World Health Organization declared the outbreak of a novel
coronavirus (COVID-19) as a pandemic that continues to spread throughout the
United States and the world. We are currently monitoring the outbreak of
COVID-19 and the related business and travel restrictions and changes to
behavior intended to reduce its spread. All of our Chinese facilities were
temporarily closed for a period of time. All of these facilities have been
reopened. Depending on the progression of the outbreak, our ability to obtain
necessary supplies and ship finished products to customers may be partly or
completely disrupted globally. To date, we have been able to obtain supplies and
products needed. Also, our ability to maintain appropriate labor levels could be
disrupted. If the coronavirus continues to progress, it could have a material
negative impact on our results of operations and cash flow, in addition to the
impact on its employees.

Due to the speed and fluidity with which the COVID-19 pandemic continues to
evolve, and the emergence of highly contagious variants, we do not yet know the
full extent of the impact of COVID-19 on our business operations. The ultimate
extent of the impact of any epidemic, pandemic, outbreak, or other public health
crisis on our business, financial condition and results of operations will
depend on future developments, which are highly uncertain and cannot be
predicted, including new information that may emerge concerning the severity of
such epidemic, pandemic, outbreak, or other public health crisis and actions
taken to contain or prevent the further spread, including the effectiveness of
vaccination and booster vaccination campaigns, among others. Accordingly, we
cannot predict the extent to which our business, financial condition and results
of operations will be affected. We have concluded that while it is reasonably
possible that the virus could negatively impact our results of operations, the
specific impact is not readily determinable as of the date of these financial
statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

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Inflation

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. Our suppliers may also
fail to provide consistent quality products as they may substitute lower-cost
materials to maintain pricing levels. Rapid and significant changes in commodity
prices may negatively affect our profit margins if the Company is unable to
mitigate any inflationary increases through various customer pricing actions and
cost reduction initiatives. To offset increased prices charged by our
manufacturers and increased shipping rates, we increased the prices of our
products in 2021.

Supply Chain

We acquire a majority of our products from manufacturers and distributors
located 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 in and other risks relating to our supply chain,
including in certain cases the use of other qualified suppliers. We increased
our inventory from $38,432,012 at December 31, 2021 to $40,
156,305
at June 30, 2022. Due to our increased inventory levels in 2021 and the six
months ended June 30, 2022, the ongoing supply chain disruptions have not had a
material adverse effect on our operations and we do not currently anticipate
that any continued supply chain disruptions will have a material adverse effect
on 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 and
outstanding common stock as part of our plan to regain compliance with Nasdaq
Listing 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 Bid
Price Requirement and that the matter was closed.

Operating results

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

Revenues

Revenues 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 and
electronic 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 the
tools industry and receipt of recurring sales orders for metal goods and soft
goods from our existing and new customers, and introduction and sale of new soft
goods products to our customers. An increase in sales through Amazon was a major
factor of the increase.

Cost of Goods Sold

Cost 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 2022
over 2021 by $439,147, or 3.51%, primarily due to our increased sales as well as
increases in materials (e.g., steel and plastics polyester) to manufacture metal
goods and soft goods and increase in labor cost in China. Cost of goods sold as
a percentage of revenues in 2022 was 72.34% as compared to cost of goods sold as
a percentage of revenues in 2021 of 78.85%.

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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 three months ended June 30, 2022 and 2021 were
$14,496,942 and $9,242,946, respectively. SG&A Expenses increased in 2022 over
2021 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 of
additional employees. SG&A Expense for the quarter ended June 30, 2022 as a
percentage of revenues was 81.04%, compared to 58.3% for the quarter ended June
30, 2021. We expect our SG&A Expenses will start to increase at a lower rate as
our business matures, and we develop economies of scale.

Research and development costs ("R&D") for the three months ended June 30, 2022
and 2021 were $2,754,351 and
$1,429,819, respectively. R&D costs increased by $1,324,532. or 92.64%. This
increase was primarily due to the Company developing new tools for the
construction industry.

Other expenses

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

Net profit (net loss)

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

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

The six months have ended June 30, 2022 compared to the half-year ended June 30, 2021.

Revenues

Revenues 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 and
electronic 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 the
tools industry and receipt of recurring sales orders for metal goods and soft
goods from our existing and new customers, and introduction and sale of new soft
goods products to our customers. An increase in sales through Amazon was a major
factor of the increase.

Cost of Goods Sold

Cost 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 2022
over 2021 by $5,837,638, or 27.38%, primarily due to our increased sales as well
as increases in materials (e.g., steel and plastics polyester) to manufacture
metal goods and soft goods and increase in labor cost in China. Cost of goods
sold as a percentage of revenues in 2022 was 77.35% as compared to cost of goods
sold as a percentage of revenues in 2021 of 75.77%.

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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 six months ended June 30, 2022 and 2021 were
$30,430,841 and $17,192,727, respectively. SG&A Expenses increased in 2022 over
2021 by $13,238,114, or 77%, primarily due to an increase in shipping costs,
marketing and advertising expenses for product launches and the hiring of
additional employees. SG&A Expense for the six months ended June 30, 2022 as a
percentage of revenues was 86.68% compared to 61.11% for the six months ended
June 30, 2021. We expect our SG&A Expenses will start to increase at a lower
rate as our business matures, and we develop economies of scale.

Research and development costs ("R&D") for the six months ended June 30, 2022
and 2021 were $5,268,805 and
$2,836,204, respectively. R&D costs increased by $2,432,601, or 85.77%. This
increase was primarily due to the Company developing new tools for the
construction industry.

Other expenses

Other expense for the six months ended June 30, 2022 consisted of warrant
issuance costs in the amount of $445,438, interest expense of $92,181 and change
in fair value of warrant liabilities in the amount of $
4,045,732
. Other expense for the six months ended June 30, 2021 consisted of interest
expense of $263,556.

Net Income (Loss)

Due to factors set forth above, we recorded a net loss of
$24,239,990
for the six months ended June 30, 2022 as compared to a net loss of $13,476,085
for the six months ended June 30, 2021.

liquidity and capital resources; Continuity of exploitation

We had $2.1 million in cash at June 30, 2022 compared to $7.5 million at
December 31, 2021. The Company has incurred substantial operating losses since
its inception. As reflected in the consolidated financial statements, the
Company 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 million
of net cash used in operating activities for the six months ended June 30, 2022.
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. The Company anticipates
incurring additional losses until such time, if ever, that it can obtain
marketing approval to sell, and then generate significant sales, of its
technology that is currently in development. As such it is likely that
additional financing will be needed by the Company to fund its operations and to
develop and commercialize its technology.

We will seek to obtain additional capital through the sale of debt or equity
financings or other arrangements to fund operations; however, there can be no
assurance that the Company 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 the Company's ability to pay dividends or make other
distributions to stockholders. If the Company is unable to obtain such
additional financing, future operations would need to be scaled back or
discontinued. Due to the uncertainty in the Company's ability to raise capital,
management believes that there is substantial doubt in the Company's ability to
continue as a going concern for the next twelve months from the issuance of
these 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 value
of $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 the
prospectus supplement, the Company sold an aggregate of 99,748 shares of common
stock for net proceeds of $16,242,904 after deducting underwriting discounts and
expenses.

On February 2, 2021, the Company filed a second registration statement on Form
S-3 (File No. 333-252630) (the "Second Form S-3") containing a base prospectus
covering the offering, issuance and sale by the Company of up to $100,000,000 of
the Company's common stock, preferred stock, warrants and units; and a sales
agreement prospectus covering the offering, issuance and sale by the Company of
up to a maximum aggregate offering price of $100,000,000 (which amount was
included in the aggregate offering price set forth in the base prospectus) of
the Company's common stock that may be issued and sold under that certain At The
Market Offering Agreement, dated February 1, 2021, between the Company and
Wainwright, as sales agent. The Second S-3 was declared effective by the SEC on
February 8, 2021. The Company terminated the First S-3 simultaneously with the
filing of the Second S-3. From February 2021 to July 2021, the Company sold an
aggregate of 125,508 shares of common stock through Wainwright with net proceeds
of $24,602,110, after deducting underwriting discounts and expenses.

On July 14, 2021, the Company sold an aggregate of 306,855 shares of common
stock to several institutional and accredited investors in a registered direct
offering pursuant to the Second Form S-3 for net proceeds of $36,259,050, after
deducting underwriting discounts and expenses.

On February 15, 2022, the Company entered into a Securities Purchase Agreement
(the "Purchase Agreement") with certain institutional investors, pursuant to
which the Company issued, in a registered direct offering, an aggregate of
$5,000,000 of Preferred Stock (split evenly among 2,500 shares Series F
Convertible Preferred Stock, par value $0.0001 per share ("Series F Preferred
Stock"), 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 and
Series G Preferred Stock have a stated value of $1,000 per share and are
convertible into common stock at any time after the date of issuance. The
conversion rate, subject to adjustment as set forth in the Certificate of
Designation, is determined by dividing the stated value of the Series F
Preferred Stock and Series G Preferred Stock by $30 (the "Conversion Price").
The Conversion Price can be adjusted as set forth in the Certificate of
Designation for stock dividends and stock splits or the occurrence of a
fundamental transaction. The 2,500 shares of Series F Preferred Stock and 2,500
shares of Series G Preferred Stock are each convertible into 83,334 shares of
common stock. The Series F Preferred Stock and Series G Preferred Stock and the
underlying 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 investors
unregistered warrants to purchase up to an aggregate of 125,000 shares of the
Company's common stock for $37.65 per share from April 15, 2022 until the fifth
year from the date of issuance.
We received net proceeds of approximately $5.1 million from the offering, after
deducting the estimated offering expenses payable by the Company, including the
placement agent fees.

On July 27, 2022, we consummated the closing of a private placement pursuant to
Section 4(a)(2) and/or Regulation 506(b) of the Securities Act (the "Private
Placement").  Pursuant to the terms and conditions of the Securities Purchase
Agreement, dated as of July 25, 2022 (the "Purchase Agreement"), by and among
the Company and certain institutional investors named on the signature pages
thereto (the "Purchasers"). At the closing of the Private Placement, the Company
issued (i) 700,000 shares of common stock (the "Placement Shares"),
(ii) 3,300,000 prefunded warrants (the "Prefunded Warrants"); (iii) 4,000,000
Series A preferred investment options (the "Series A Preferred Investment
Options"); and (iv) 4,000,000 Series B preferred investment options (the "Series
B Preferred Investment Option, and together with the "Series A Preferred
Investment Options, the "Preferred Investment Options" and collectively with the
Prefunded Warrants, the "Warrants"). The purchase price of each Placement Share
and associated Preferred Investment Options was $5.00 and the purchase price of
each 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 expects to use its cash within twelve months of June 30, 2022
and beyond for working capital and research and development.

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