PROSPECTUS
SUPPLEMENT
(To
Prospectus dated February 8, 2021)
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Filed
Pursuant to Rule 424(b)(5)
Registration Statement No. 333-252630
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ToughBuilt
Industries, Inc.
46,029,920
Shares of Common Stock
Warrants
to Purchase 23,014,960 shares of Common Stock
Placement
Agent Warrants to Purchase 2,761,795 shares of Common Stock
(and
the Shares of Common Stock underlying
such Warrants and Placement Agent Warrants)
We
are offering an aggregate of 46,029,920 shares of our common stock, par value $0.0001 per share (the “Common Stock”)
and warrants to purchase 23,014,960 shares of our Common Stock (the “Warrants”) at a combined purchase price equal
to $0.896 per share and accompanying warrant. Each Warrant is exercisable for one share of our Common Stock at an exercise price of $0.81
per share. The Warrants are immediately exercisable and may be exercised at any time until the fifth anniversary of the date of issuance.
This offering also relates to the shares of Common Stock issuable upon exercise of the Warrants sold in this offering.
Our
Common Stock is listed on The Nasdaq Capital Market, or Nasdaq, under the symbol “TBLT.” The last reported sale price of
our Common Stock on July 9, 2021 was $1.05 per share.
You
should read this prospectus supplement and the accompanying prospectus and the documents incorporated by reference in this prospectus
supplement carefully before you invest.
See
“Risk Factors” on page S-5 of this prospectus supplement to read about factors you should consider before buying shares of
our Common Stock.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.
We
have engaged H.C. Wainwright & Co., LLC, or the Placement Agent, as our exclusive Placement Agent in connection with this offering.
The Placement Agent has no obligation to buy any of the securities from us or to arrange for the purchase or sale of any specific number
or dollar amount of securities. We have agreed to pay the Placement Agent the Placement Agent fees set forth in the table below. Pursuant
to this prospectus supplement and the accompanying prospectus, we will also issue warrants to purchase up to 2,761,795 shares of our
common stock (the “Placement Agent Warrants”) to the Placement Agent, or its designees, as part of the compensation
payable to the Placement Agent (the shares of common stock issuable upon exercise of the Placement Agent Warrants are also being registered
hereby). The Placement Agent Warrants will have an exercise price of $1.08625 per share and will expire five years from the commencement
of sales in this offering. See “Plan of Distribution” beginning on page S-13 of this prospectus supplement for more information
regarding these arrangements.
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Per Share
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Total
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Public offering price
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$
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0.869
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$
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40,000,000
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Placement Agent fees(1)
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$
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0.061
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$
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2,800,000
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Proceeds, before expenses, to us
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$
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0.808
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$
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37,200,000
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(1)
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In
addition, we have agreed to pay the Placement Agent a management fee of 0.5% of the gross proceeds raised in this offering. See “Plan
of Distribution” beginning on page S-13 for more information regarding the Placement Agent’s compensation.
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Delivery
of the shares of our Common Stock and Warrants being offered pursuant to this prospectus supplement and the accompanying prospectus is
expected to be made on or about July 14, 2021.
H.C.
Wainwright & Co.
The
date of this prospectus supplement is July 11, 2021.
TABLE
OF CONTENTS
Prospectus
Supplement
Prospectus
ABOUT
THIS PROSPECTUS SUPPLEMENT
This
document consists of two parts. The first part is this prospectus supplement, which describes the specific terms of the offering and
other matters relating to us. The second part is the accompanying prospectus, which provides more general information about the securities
we may offer from time to time, some of which may not apply to this offering of Common Stock and Warrants (and the shares of Common Stock
underlying the Warrants). This prospectus supplement and the accompanying prospectus are part of a registration statement that we filed
with the Securities and Exchange Commission (the “SEC”) using the SEC’s shelf registration rules. You should
read both this prospectus supplement and the accompanying prospectus, together with the documents incorporated by reference and the additional
information described under the heading “Where You Can Find More Information” in this prospectus supplement and the accompanying
prospectus before making an investment decision.
To
the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information
contained in the accompanying prospectus, on the other hand, the information contained in this prospectus supplement shall control. If
any statement in this prospectus supplement conflicts with any statement in a document that has been incorporated herein by reference,
then you should consider only the statement in the more recent document. You should assume that the information contained in this prospectus
supplement, the accompanying prospectus and the documents incorporated by reference is accurate only as of their respective dates.
We
have not authorized, and the Placement Agent has not authorized, any person to provide you with any information or to make any representation
other than as contained in this prospectus supplement or in the accompanying prospectus and the information incorporated by reference
herein and therein. We do not take any responsibility for, and can provide no assurance as to the reliability of, any information that
others may provide you. The information appearing or incorporated by reference in this prospectus supplement and the accompanying prospectus
is accurate only as of the date of this prospectus supplement or the date of the document in which incorporated information appears unless
otherwise noted in such documents. Our business, financial condition, results of operations and prospects may have changed since those
dates.
The
distribution of this prospectus supplement and the accompanying prospectus and the offering of the Common Stock and Warrants (and the
shares of Common Stock underlying the Warrants) in certain jurisdictions may be restricted by law. We are not making an offer of the
Common Stock or Warrants (or the shares of Common Stock underlying the Warrants) in any jurisdiction where the offer is not permitted.
Persons who come into possession of this prospectus supplement and the accompanying prospectus should inform themselves about and observe
any such restrictions. This prospectus supplement and the accompanying prospectus do not constitute, and may not be used in connection
with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person
making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus supplement and the base prospectus and the documents incorporated by reference in this prospectus include forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) that relate to future events or our future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially
from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words
such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,”
“may,” “plan,” “potential,” “predict,” “project,” “targets,”
“likely,” “will,” “would,” “could,” “should,” “continue,” and
similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for
each forward-looking statement contained in this prospectus and incorporated by reference in this prospectus, we caution you that these
statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors
that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements,
to differ. The sections in our periodic reports, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2020
and our Quarterly Report for the fiscal quarter ended March 31, 2021, entitled “Business,” “Risk Factors,” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as other sections
in this prospectus and the documents or reports incorporated by reference in this prospectus, discuss some of the factors that could
contribute to these differences. These forward-looking statements include, among other things, statements about:
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market
acceptance of our existing and new products;
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delays
in bringing products to key markets;
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an
inability to secure regulatory approvals for the ability to sell our products in certain markets;
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intense
competition in the industry from much larger, multinational companies;
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product
liability claims;
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product
malfunctions;
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our
limited manufacturing capabilities and reliance on subcontractors for assistance;
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our
efforts to successfully obtain and maintain intellectual property protection covering our products, which may not be successful;
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our
reliance on single suppliers for certain product components;
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the
fact that we will need to raise additional capital to meet our business requirements in the future and that such capital raising
may be costly, dilutive or difficult to obtain;
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the
fact that we conduct business in multiple foreign jurisdictions, exposing us to foreign currency exchange rate fluctuations, logistical
and communications challenges, burdens and costs of compliance with foreign laws and political and economic instability in each jurisdiction;
and
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market
and other conditions.
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We
may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place
undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations
disclosed in the forward-looking statements we make. We have included important cautionary statements in this prospectus supplement and
the base prospectus and in the documents incorporated by reference herein, particularly in the “Risk Factors” section, that
we believe could cause actual results or events to differ materially from the forward-looking statements that we make. For a summary
of such factors, please refer to the section entitled “Risk Factors” in this prospectus supplement and the base prospectus,
as updated and supplemented by the discussion of risks and uncertainties under “Risk Factors” contained in any supplements
to this prospectus supplement and the base prospectus and in our most recent annual report on Form 10-K, as revised or supplemented by
our subsequent quarterly reports on Form 10-Q or our current reports on Form 8-K, as well as any amendments thereto, as filed with the
SEC and which are incorporated herein by reference. The information contained in this document is believed to be current as of the date
of this document. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements
to actual results or to changes in our expectations, except as required by law.
In
light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in
this prospectus supplement and the base prospectus or in any document incorporated herein by reference might not occur. Investors are
cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this prospectus supplement
or the date of the document incorporated by reference in this prospectus. We are not under any obligation, and we expressly disclaim
any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section.
PROSPECTUS
SUPPLEMENT SUMMARY
The
following is only a summary. We urge you to read the entire prospectus, including the more detailed consolidated financial statements,
notes to the consolidated financial statements and other information included herein or incorporated by reference from our other filings
with the Securities and Exchange Commission, or SEC. Investing in our securities involves risks. Therefore, please carefully consider
the information provided under the heading “Risk Factors” starting on page S-5.
Overview
ToughBuilt
Industries, Inc. (“ToughBuilt,” the “Company,” “we,” “us” and “our” and similar
expressions) is an advanced product design, manufacturer and distributor with emphasis on innovative products. Currently focused on tools
and other accessories for the professional and do-it-yourself construction industries, we market and distribute various home improvement
and construction product lines for both the do-it-yourself and professional markets under the TOUGHBUILT brand name, within the global
multibillion dollar per year tool market industry. All of our products are designed by our in-house design team. Since launching product
sales in 2013, we have experienced significant annual sales growth. Our current product line includes three major categories, with several
additional categories in various stages of development, consisting of Soft Goods & Kneepads and Sawhorses & Work Products. Our
mission is to provide products to the building and home improvement communities that are innovative, of superior quality derived in part
from enlightened creativity for our end users while enhancing performance, improving well-being and building high brand loyalty.
Since
our initial launch of product sales seven years ago, we have experienced annual sales growth from approximately $1,000,000 in 2013 to
approximately $39,000,000 in 2020.
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:
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Significantly
greater financial resources than we have;
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More
comprehensive product lines;
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Longer-standing
relationships with suppliers, manufacturers, and retailers;
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Broader
distribution capabilities;
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Stronger
brand recognition and loyalty; and
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The
ability to invest substantially more in product advertising and 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, compete effectively
on the basis of 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 its 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 own products or, alternatively, collaborate with each other 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.
Risk
and Uncertainty Concerning COVID-19
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which 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. Most 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. 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. We have concluded that while it is reasonably possible that the virus could
have a negative impact on the 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.
Corporate
Information
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.
Our
principal executive offices are located at 5371 Commercentre Drive, Suite 200, Lake Forest, CA 92630. Our telephone number is (949) 528-3100
and our website address is www.toughbuilt.com. References in this prospectus to our website address does not constitute incorporation
by reference of the information contained on the website.
SUMMARY
OF THE OFFERING
Common
Stock offered
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46,029,920
of Common Stock
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Purchase
Price
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$0.869
per share of Common Stock
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Warrants
offered
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We
are also offering Warrants to purchase 23,014,960 shares of Common Stock. Each Warrant is exercisable for one share of our Common
Stock at an exercise price of $0.81 per share. The Warrants are exercisable immediately and may be exercised at any time until the
fifth anniversary of the issuance date. This offering also relates to the shares of Common Stock issuable upon exercise of the Warrants
sold in this offering.
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Placement
Agent Warrants
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We
will also issue Placement Agent Warrants to purchase up to 2,761,795 shares of common stock (and the shares of common stock issuable
upon the exercise of the Warrants) to our Placement Agent (or its designees) as part of the compensation payable to our Placement
Agent in connection with this offering. The Placement Agent Warrants will have an exercise price of $1.08625 per share (or 125% of
the public offering price) and will be exercisable immediately. The Placement Agent Warrants will expire five years from the commencement
of sales in this offering. Please refer to “Plan of Distribution” for additional information with respect to the Placement
Agent Warrants.
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Common
Stock outstanding before the offering
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83,284,989
shares
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Common
Stock to be outstanding after the offering
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129,314,909
shares (assuming no exercise of the Warrants and Placement Agent Warrants). Assuming all of the Warrants were immediately exercised,
there would be 152,329,869 shares of Common Stock outstanding after this offering.
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Use
of Proceeds
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We
expect to receive net proceeds of approximately $36,325,000 from this offering, excluding any proceeds that may be received upon
the cash exercise of the Warrants or the Placement Agent Warrants, after deducting the estimated offering expenses payable by us,
including the Placement Agent fees. We intend to use the net proceeds from this offering for working capital purposes. See “Use of Proceeds.”
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Nasdaq
Capital Market symbol
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Our
Common Stock is listed on Nasdaq under the symbol “TBLT.” We do not intend to list the Warrants on any securities exchange
or nationally recognized trading system.
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Risk
Factors
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Investing
in our securities involves a high degree of risk. See “Risk Factors” on page S-5 of this prospectus supplement to read
about factors you should consider carefully before buying shares of our Common Stock and Warrants.
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The
number of outstanding shares of Common Stock after this offering excludes:
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17,091,562
shares of Common Stock issuable as of the date hereof upon the exercise of common stock outstanding warrants with a weighted average
exercise price of $2.903 per share;
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203,135
shares of Common Stock issuable as of the date hereof upon the exercise of outstanding stock options with a weighted average exercise
price of $40.56 per share;
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212,500
shares of Common Stock available for future issuance under the Company 2016 Equity Incentive Plan;
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3,409,365
shares of Common Stock available for future issuance under the Company 2018 Equity Incentive Plan;
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23,014,960 shares of Common Stock issuable upon the
exercise of the Warrants to be issued in this offering; and
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2,761,795 shares of Common Stock issuable upon the exercise
of the Placement Agent Warrants to be; issued to the Placement Agent in this offering.
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RISK
FACTORS
Investing
in our securities involves a high degree of risk. You should carefully consider the risks and uncertainties described below and discussed
under the section entitled “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2020
and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which are incorporated by reference in this prospectus supplement,
together with all of the other information contained in, or incorporated by reference, in this prospectus supplement and the accompanying
prospectus, before purchasing any of our securities. These risks and uncertainties are not the only ones facing us. Additional risks
and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If
any of these risks actually occur, our business, financial condition, results of operations and future prospects could be materially
and adversely affected. In that case, the trading price of our Common Stock could decline, and you may lose some or all of your investment.
Risks
Related to Our Company
We
will require additional capital in order to achieve commercial success and, if necessary, to finance future losses from operations as
we endeavor to build revenue, but we do not have any commitments to obtain such capital and we cannot assure you that we will be able
to obtain adequate capital as and when required.
We
may not be able to generate any profit in the foreseeable future. For the year ended December 31, 2020, we had a net loss of $17,348,622,
compared to a net loss of $4,300,969 for the year ended December 31, 2019. For the three months ended March 31, 2021, we recorded net
loss of $6,053,659, compared to a net loss of $3,754,659 for the three months ended March 31, 2020. Accordingly, there is no assurance
that we will realize profits in fiscal 2021 or thereafter. If we fail to generate profits from our operations, we will not be able to
sustain our business. We may never report profitable operations or generate sufficient revenue to maintain our Company as a going concern.
We continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in
the short term to invest in revenue growth; however, we cannot give assurance that we can increase our cash balances or limit our cash
consumption and thus maintain sufficient cash balances for our planned operations. Future business demands may lead to cash utilization
at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure that we
will be able to raise additional capital on acceptable terms, or at all. Our inability to generate profits could have an adverse effect
on our financial condition, results of operations, and cash flows.
We
do not have a significant operating history and, as a result, there is a limited amount of information about us on which to make an investment
decision.
Our
Company was incorporated and commenced operations in April 2012. Accordingly, we have only a limited operating history upon which to
base an evaluation of our business and prospects. Operating results for future periods are subject to numerous uncertainties and we cannot
assure you that we will achieve or sustain profitability. Our prospects must be considered in light of the risks encountered by companies
in the relatively early stage of development, particularly companies in new and rapidly evolving markets. Future operating results will
depend upon many factors, including increasing the number of affiliates, our success in attracting and retaining motivated and qualified
personnel, our ability to establish short-term credit lines, our ability to develop and market new products, control costs, and general
economic conditions. We cannot assure you that we will successfully address any of these risks.
We
have limited management and staff and will be dependent upon partnering arrangements.
As
of March 31, 2021, we have 52 employees, including our four executive officers and 20 independent contractors and consultants. Our dependence
on third-party consultants and service providers creates a number of risks, including but not limited to, the possibility that such third
parties may not be available to us as and when needed, and that we may not be able to properly control the timing and quality of work
conducted with respect to our projects. If we experience significant delays in obtaining the services of such third parties or poor performance
by such parties, our results of operations and stock price will be materially adversely affected.
The
loss of any of our executive officers could adversely affect us.
We
currently only have four executive officers. We are dependent on the extensive experience of our executive officers to implement our
acquisition and growth strategy, specifically, Michael Panosian, our President and Chief Executive Officer, and Joshua Keller, our Vice
President of Research and Development. The loss of the services of any of our executive officers could have a negative impact on our
operations and our ability to implement our strategy. Although we maintain a “key man” life insurance policy only for Michael
Panosian but none for of our other employees, our key man policy for Mr. Panosian is for $1 million and may be insufficient to recover
any losses resulting by Mr. Panosian’s death while serving as our President and Chief Executive Officer.
We
may be unable to attract necessary employees or be able to prevent our current employees from leaving our Company.
To
induce valuable employees to remain at our Company, in addition to salary and cash incentives, we have provided restricted stock and
stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements
in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies.
Despite our efforts to retain valuable employees, members of our management may terminate their employment with us. Our success also
depends on our ability to continue to attract, retain and motivate highly employees.
If
the hosts of third-party marketplaces limit our access to such marketplaces, our operations and financial results will be adversely affected.
Third-party
marketplaces account for a significant portion of our revenues. Our sales through online third-party marketplaces represented a combined
20% of total sales for the three months ended March 31, 2021. We anticipate that sales of our products on third-party marketplaces will
continue to account for a significant portion of our revenues. In the future, the loss of access to these third-party marketplaces, or
any significant cost increases from operating on the marketplaces, could significantly reduce our revenues, and the success of our business
depends partly on continued access to these third-party marketplaces. Our relationships with our third-party marketplace providers could
deteriorate as a result of a variety of factors, such as if they become concerned about our ability to deliver quality products on a
timely basis or to protect a third-party’s intellectual property. In addition, third-party marketplace providers could prohibit
our access to these marketplaces if we are not able to meet the applicable required terms of use. Loss of access to a marketplace channel
could result in lower sales, and as a result, our business and financial results may suffer.
We
may not have an adequate number of authorized shares of Common Stock that are unissued and available for issuance to enable us to complete
future equity financing transactions or increase our equity incentive plans, which may adversely affect our ability to grow and develop
the Company and to attract key personnel.
We
are authorized to issue 200,000,000 shares of Common Stock, of which 83,284,989 shares were outstanding on July 11, 2021. At July 11,
2021, we have agreed to issue 46,029,920 shares of Common Stock in connection in this offering. We have also reserved for issuance an
aggregate of 46,693,317 shares of Common Stock, including an additional 25,776,755 shares issuable upon the exercise of the Warrants
and Placement Agent Warrants issued in this offering.
After
this offering and if all of the foregoing securities are exercised for cash, the total number of outstanding shares of Common Stock would
be 176,008,226, which would leave only 23,991,734 authorized but unissued shares of Common Stock remaining.
As
a result of our limited number of our authorized and unissued shares of Common Stock that are not subject to reservation for issuance
of warrants, options or other convertible securities, we may have insufficient shares of Common Stock available to issue in connection
with any future equity financing transactions we may seek to undertake. In addition, we may have insufficient shares of Common Stock
to ask shareholders increase shares available under equity incentive plans for employees or other service providers, even if such increase
is otherwise advisable and in the best interests of the Company. Accordingly, we will likely be required to seek approval in the future
from our stockholders for either an increase in the number of our authorized shares of Common Stock or for a reverse stock split of our
outstanding Common Stock, either of which would have the effect of increasing our authorized but unissued shares available for issuance.
Our stockholders may not be willing to approve such an increase or reverse split. Until we effectively increase the number of authorized
shares available for issuance, we may not be able to raise additional capital following this offering or increase shares in our equity
incentive plans, which may materially and adversely affect our ability to grow and develop the Company or to attract and retain personnel
critical for the execution of our business plans.
Risks
Relating to the Offering
You
will experience immediate and substantial dilution in the net tangible book value per share of the Common Stock you purchase.
Since
the price per share of our Common Stock being offered is substantially higher than the net tangible book value per share of our Common
Stock, you will suffer immediate and substantial dilution in the net tangible book value of the Common Stock you purchase in this offering.
As of March 31, 2021, our net tangible book value was approximately $58,045,861, or $0.71 per share. As discussed in greater detail in
the “Dilution” section of this prospectus supplement, based on the combined offering price of $0.869 per share of Common
Stock and Warrant and our pro forma net tangible book value as of March 31, 2021, if you purchase securities in this offering, you will
suffer immediate and substantial dilution of $0.129 per share with respect to the pro forma net tangible book value of our Common Stock.
There
is no public market for the Warrants being offered in this offering.
There
is no established public trading market for the Warrants being offered in this offering, and we do not expect a market to develop. In
addition, we do not intend to apply to list the Warrants on any securities exchange or nationally recognized trading system, including
Nasdaq. Without an active market, the liquidity of the Warrants will be limited.
Holders
of Warrants purchased in this offering will have no rights as common stockholders until such holders exercise such Warrants and acquire
our Common Stock, except as set forth in the Warrants.
Until
holders of Warrants acquire shares of our Common Stock upon exercise of such Warrants, holders of Warrants will have no rights with respect
to the shares of our Common Stock underlying such Warrants, except as set forth in the Warrants. Upon exercise of the Warrants, the holders
will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise
date.
We
have an outstanding warrant with full-ratchet anti-dilution protection, which may cause significant dilution to our stockholders, have
a material adverse impact on the market price of our Common Stock and make it more difficult for us to raise funds through future equity
offerings.
There
is an outstanding warrant with full-ratchet anti-dilution protection. The offering of our securities in connection with this offering
triggered such full-ratchet anti-dilution provisions in the warrant and increased the amount of common stock issuable upon the exercise
of the warrant from 575,000 to 1,405,868 shares of Common Stock and reduced the exercise price of such warrant from $1.00 to $0.49 per
share. The warrant is exercisable pursuant to a cashless exercise and expires on April 19, 2024. The issuance of shares of Common Stock
upon the exercise of the warrant could dilute the percentage ownership interest of all stockholders, may dilute the book value per share
of our Common Stock and could increase the number of our publicly traded shares, which could depress the market price of our Common Stock.
In
addition to the dilutive effects described above, the perceived risk of dilution as a result of the significant number of increased outstanding
shares of Common Stock due to the warrant cause our common stockholders to be more inclined to sell their shares, which would contribute
to a downward movement in the price of our Common Stock. Moreover, the perceived risk of dilution and the resulting downward pressure
on our Common Stock price could encourage investors to engage in short sales of our Common Stock, which could further contribute to price
declines in our Common Stock. The fact that our stockholders and warrant holders can sell substantial amounts of our Common Stock in
the public market, whether or not sales have occurred or are occurring, as well as the existence of full-ratchet anti-dilution provisions
in the warrant, could make it more difficult for us to raise additional funds through the sale of equity or equity-related securities
in the future at a time and price that we deem reasonable or appropriate, or at all.
If
we sell shares of our Common Stock in future financings, stockholders may experience immediate dilution and, as a result, our stock price
may decline.
We
may from time to time issue additional shares of Common Stock at a discount from the current market price of our Common Stock. As a result,
our stockholders would experience immediate dilution upon the purchase of any shares of our Common Stock sold at such discount. In addition,
as opportunities present themselves, we may enter into financings or similar arrangements in the future, including the issuance of debt
securities, preferred stock or Common Stock. If we issue Common Stock or securities convertible or exercisable into Common Stock, our
common stockholders would experience additional dilution and, as a result, our stock price may decline.
We
will have broad discretion in how we use the net proceeds of this offering. We may not use these proceeds effectively, which could affect
our results of operations and cause our stock price to decline.
We
will have considerable discretion in the application of the net proceeds of this offering, including for any of the purposes described
in the section entitled “Use of Proceeds.” We intend to use the net proceeds from this offering for working capital purposes. As a result, investors will be relying upon management’s judgment with
only limited information about our specific intentions for the use of the balance of the net proceeds of this offering. We may use the
net proceeds for purposes that do not yield a significant return or any return at all for our stockholders. In addition, pending their
use, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
An
active trading market for our Common Stock may not be sustained.
Although
our Common Stock is listed on the Nasdaq Capital Market, the market for our Common Stock has demonstrated varying levels of trading activity.
Furthermore, the current level of trading may not be sustained in the future. The lack of an active market for our Common Stock may impair
investors’ ability to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce
the fair market value of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and
may impair our ability to acquire additional intellectual property assets by using our shares as consideration.
Our
stock price may be subject to substantial volatility, and stockholders may lose all or a substantial part of their investment.
Our
Common Stock currently trades on the Nasdaq Capital Market. There is limited public float, and trading volume historically has been low
and sporadic. As a result, the market price for our Common Stock may not necessarily be a reliable indicator of our fair market value.
The price at which our Common Stock trades may fluctuate as a result of a number of factors, including the number of shares available
for sale in the market, quarterly variations in our operating results, actual or anticipated announcements of new releases by us or competitors,
the gain or loss of significant customers, changes in the estimates of our operating performance, market conditions in our industry and
the economy as a whole.
Our
failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our Common Stock.
On
May 19, 2021, we received written notice from the Nasdaq Stock Market LLC stating that the Company has failed to maintain a minimum bid
price of at least $1.00 per share for the prior 30 consecutive trading day period from April 7, 2021 to May 18, 2021, based upon the
closing bid price for its common stock as required by Nasdaq Listing Rule 5550(a)(2). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A),
the Company has 180 calendar days, or until November 15, 2021, to regain compliance with the minimum bid requirement under Nasdaq Listing
Rule 5550(a)(2). During the compliance period, the Company’s common stock will continue to be listed and traded on the Nasdaq Stock
Market. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum
of 10 consecutive trading days, unless extended by Nasdaq under Nasdaq Rule 5810(c)(3)(G), prior to November 15, 2021. In the event the
Company does not regain compliance during the compliance period, the Company may be eligible for additional 180 calendar days to comply
with Nasdaq Listing Rule 5550(a)(2), subject to the Company satisfying the continued listing requirement for the market value of publicly
held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, subject
to Nasdaq’s approval. There can be no assurances that we will be able to regain compliance with Nasdaq’s minimum bid requirement.
If
we are unable to meet the continuing listing requirements, Nasdaq may take steps to delist our Common Stock. Such a delisting would likely
have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish
to do so. Further, if we were to be delisted from The Nasdaq Capital Market, our Common Stock would cease to be recognized as covered
securities and we would be subject to regulation in each state in which we offer our securities.
Delisting
from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities,
would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our
Common Stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of
institutional investor interest and fewer business development opportunities.
If
our Common Stock becomes subject to the penny stock rules, it may be more difficult to sell our Common Stock.
The
SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized
for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system). The OTC Bulletin Board does not meet such requirements and if the price of
our Common Stock is less than $5.00 and our Common Stock is no longer listed on a national securities exchange such as Nasdaq, our stock
may be deemed a penny stock. The penny stock rules require a broker-dealer, at least two business days prior to a transaction in a penny
stock not otherwise exempt from those rules, to deliver to the customer a standardized risk disclosure document containing specified
information and to obtain from the customer a signed and date acknowledgment of receipt of that document. In addition, the penny stock
rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make
a special written determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s
written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks;
and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.
Because
we do not anticipate paying any cash dividends on our Common Stock in the foreseeable future, capital appreciation, if any, will be your
sole source of gain.
We
have never paid or declared any cash dividends on our Common Stock. We currently intend to retain earnings, if any, to finance the growth
and development of our business and we do not anticipate paying any cash dividends in the foreseeable future. As a result, only appreciation
of the price of our Common Stock will provide a return to our stockholders.
USE
OF PROCEEDS
We
expect to receive net proceeds of approximately $36,325,000 from this offering, after deducting estimated offering expenses payable by
us, including the Placement Agent fees, and excluding the proceeds, if any, from the exercise of the Warrants or the Placement Agent
Warrants issued in this offering. We intend to use the net proceeds from this offering for working capital purposes.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on our Common Stock and do not expect to pay any cash dividends for the foreseeable future.
We intend to use future earnings, if any, in the operation and expansion of our business. Any future determination relating to our dividend
policy will be made at the discretion of our Board of Directors, based on our financial condition, results of operations, contractual
restrictions, capital requirements, business properties, restrictions imposed by applicable law and other factors our Board of Directors
may deem relevant.
DILUTION
As
of March 31, 2021, our net tangible book value was approximately $58,045,861, or $0.71 per share of our Common Stock. Net tangible book
value per share represents the amount of our total tangible assets less our total liabilities, divided by the total number of shares
of our Common Stock outstanding as of March 31, 2021.
After
giving effect to the issuance of 46,029,920 shares of our Common Stock and Warrants to purchase up to 23,014,960 shares of Common Stock
in this offering at a combined offering price of $0.869 per share and warrant, and after deducting estimated offering expenses
payable by us, and excluding the proceeds, if any, from the exercise of the Warrants or the Placement Agent Warrants issued in this offering,
our pro forma as adjusted net tangible book value as of March 31, 2021 would have been approximately $98,045,861, or $0.74 per share
of Common Stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $0.03 per share to our existing
stockholders and immediate dilution in pro forma as adjusted net tangible book value of $0.129 per share to investors participating in
this offering. The following table illustrates this dilution per share of Common Stock to investors participating in this offering:
Weighted average public offering price per share and warrant
|
|
|
|
|
|
$
|
0.869
|
|
Net tangible book value per share as of March 31, 2021
|
|
$
|
0.71
|
|
|
|
|
|
Increase in net tangible book value per share attributable to pro forma adjustments
|
|
$
|
0.03
|
|
|
|
|
|
Pro forma net tangible book value per share as of March 31, 2021
|
|
|
|
|
|
$
|
0.74
|
|
Increase in pro forma net tangible book value per share attributable to this offering
|
|
$
|
0.03
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after giving effect to the offering
|
|
|
0.74
|
|
|
|
|
|
Dilution per share to new investors in this offering
|
|
|
|
|
|
$
|
0.129
|
|
The
foregoing illustration does not reflect the potential dilution from (i) the exercise of Warrants to purchase up to 23,014,960 shares
of Common Stock at an exercise price of $0.81 per share, (ii) the exercise of Placement Agent Warrants to purchase up to 2,761,795
shares of Common Stock for $1.08625 per share, or (iii) the exercise of outstanding options or warrants to purchase shares of our
Common Stock.
Assuming
all of the Warrants and Placement Agent Warrants to purchase up to an aggregate of 25,776,755 shares of Common Stock were immediately
exercised for cash, our as adjusted net tangible book value as of March 31, 2021 would be approximately $113,597,029, or $0.75 per share
of Common Stock. This amount represents an immediate increase in as adjusted net tangible book value of $0.03 per share to our existing
stockholders and an immediate dilution of $0.129 per share to investors participating in this offering.
The
number of shares of Common Stock that will be outstanding after this offering is based on 83,284,989 shares of Common Stock outstanding
as of July 11, 2021, and also excludes:
|
●
|
23,014,960
shares of Common Stock issuable upon the exercise of the Warrants to be issued in this offering;
|
|
●
|
2,761,795
shares of Common Stock issuable upon the exercise of the Placement Agent Warrants to be; issued to the Placement Agent in this offering;
|
|
●
|
17,091,562
shares of Common Stock issuable as of the date hereof upon the exercise of common stock outstanding warrants with a weighted average
exercise price of $2.903 per share;
|
|
●
|
203,135
shares of Common Stock issuable as of the date hereof upon the exercise of outstanding stock options with a weighted average exercise
price of $40.56 per share;
|
|
●
|
212,500
shares of Common Stock available for future issuance under the Company 2016 Equity Incentive Plan; and
|
|
●
|
3,409,365
shares of Common Stock available for future issuance under the Company 2018 Equity Incentive Plan.
|
DESCRIPTION
OF THE SECURITIES WE ARE OFFERING
We
are offering shares of our Common Stock and Warrants. The following description of our Common Stock and Warrants summarizes the material
terms and provisions thereof, including the material terms of the Common Stock and Warrants we are offering under this prospectus supplement
and the accompanying prospectus.
Common
Stock
See
“Description of Common Stock” on page 31 of the accompanying prospectus for a description of the material terms of
our Common Stock.
Warrants
The
following summary of certain terms and provisions of the Warrants that are being offered hereby is not complete and is subject to, and
qualified in its entirety by, the provisions of the Warrant, the form of which is will be filed as an exhibit to our Current Report on
Form 8-K to be filed with the SEC on July 14, 2021. Prospective investors should carefully review the terms and provisions of
the form of Warrant for a complete description of the terms and conditions of the Warrants.
Duration
and Exercise Price. Each Warrant offered hereby has an initial exercise price per share equal to $0.81. The Warrants are immediately
exercisable and may be exercised at any time until the fifth anniversary of the date of issuance. The exercise price and number of shares
of Common Stock issuable upon exercise is subject to appropriate adjustment in the event of stock dividends, stock splits, reorganizations
or similar events affecting our Common Stock and the exercise price.
Exercisability.
The Warrants are exercisable, at the option of each holder, in whole or in part, by delivering to us a duly executed exercise notice
accompanied by payment in full for the number of shares of our Common Stock purchased upon such exercise (except in the case of a cashless
exercise as discussed below). A holder (together with its affiliates) may not exercise any portion of the Warrant to the extent that
the holder would own more than 4.99% (or, at the election of the purchaser, 9.99%) of the outstanding Common Stock immediately after
exercise, except that upon notice from the holder to us, the holder may increase or decrease the limitation on amount of ownership of
outstanding Common Stock after exercising the holder’s Warrants up to 9.99% of the number of shares of our Common Stock outstanding
immediately after giving effect to the exercise, provided that any increase in such limitation shall not be effective until 61 days following
notice to us. No fractional shares of Common Stock will be issued in connection with the exercise of a Warrant. In lieu of fractional
shares, we will round up to the next whole share.
Cashless
Exercise. If a registration statement is not available to the issuance of shares of common stock at the time of exercise, in lieu
of making the cash payment otherwise contemplated to be made to us upon exercise of a Warrant in payment of the aggregate exercise price,
the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined
according to a formula set forth in the Warrants.
Transferability.
Subject to applicable laws, a Warrant may be transferred at the option of the holder upon surrender of the Warrant to us together with
the appropriate instruments of transfer.
Exchange
Listing. There is no trading market available for the Warrants on any securities exchange or nationally recognized trading system.
We do not intend to list the Warrants on any securities exchange or nationally recognized trading system.
Right
as a Stockholder. Except as otherwise provided in the Warrants or by virtue of such holder’s ownership of shares of our Common
Stock, the holders of the Warrants do not have the rights or privileges of holders of our Common Stock, including any voting rights,
until they exercise their Warrants.
Fundamental
Transaction. In the event of a fundamental transaction, as described in the Warrants and generally including any reorganization,
recapitalization or reclassification of our Common Stock, the sale, transfer or other disposition of all or substantially all of our
properties or assets, our consolidation or merger with or into another person, the acquisition of more than 50% of our outstanding Common
Stock, or any person or group becoming the beneficial owner of 50% of the voting power represented by our outstanding Common Stock, the
holders of the Warrants will be entitled to receive upon exercise of the Warrants the kind and amount of securities, cash or other property
that the holders would have received had they exercised the Warrants immediately prior to such fundamental transaction. Additionally,
as more fully described in the Warrant, in the event of certain fundamental transactions, the holders of Warrants will be entitled to
receive consideration in an amount equal to the Black Scholes value of the warrants on the date of consummation of such transaction.
Placement
Agent Warrants
We
have also agreed to issue to the Placement Agent the Placement Agent Warrants to purchase up to 2,761,795 shares of common stock. The
Placement Agent Warrants will have the same terms as the Warrants described above, except that the Placement Agent Warrants will have
an exercise price of $1.08625 per share (representing 125% of the public offering price) and will expire five years from the commencement
of sales in this offering.
PLAN
OF DISTRIBUTION
We
have engaged H.C. Wainwright & Co., LLC to act as our exclusive placement agent in connection with this offering (the “Placement
Agent”). The Placement Agent has no commitment to buy any of the securities. We will enter into a securities purchase agreement
directly with investors in connection with this offering and we may not sell the entire amount of shares of our Common Stock and Warrants
offered pursuant to this prospectus supplement. We will make offers only to a limited number of qualified institutional buyers and accredited
investors. The Placement Agent may retain sub-agents and selected dealers in connection with this offering.
We
have agreed to indemnify the Placement Agent against specified liabilities relating to or arising out of the agent’s activities
as Placement Agent, including liabilities under the Securities Act.
Fees
and Expenses
We
have agreed to pay the Placement Agent (i) a total cash fee equal to 7.0% of the aggregate gross proceeds of this offering, (ii) a management
fee equal to 0.5% of the gross proceeds raised in the Offering; (iii) $25,000 for non-accountable expenses; (c) up to $50,000 for fees
and expenses of legal counsel and other reasonable and customary out-of-pocket expenses.
The
following table shows the per share and total cash fees we will pay to the Placement Agent in connection with the sale of the shares
of our Common Stock pursuant to this prospectus supplement and the accompanying prospectus.
|
|
Per Share
|
|
|
Total
|
|
Public offering price
|
|
$
|
0.869
|
|
|
$
|
40,000,000
|
|
Placement Agent fees(1)
|
|
$
|
0.061
|
|
|
$
|
2,800,000
|
|
Proceeds, before expenses, to us
|
|
$
|
0.808
|
|
|
$
|
37,200,000
|
|
We
paid $600,000 for a waiver under an existing agreement in connection with this offering. We estimate the total expenses of this offering
paid or payable by us will be approximately $3,675,000. After deducting the fees due to the Placement Agent and our estimated expenses
in connection with this offering, we expect the net proceeds from this offering will be approximately $36,325,000.
Placement
Agent Warrants
In
addition, we have agreed to issue to the Placement Agent, at the closing of this offering, warrants to purchase 6.0% of the number of
shares of our Common Stock sold in this offering (or warrants to purchase up to 2,761,795 shares of our Common Stock), at an exercise
price of $1.08625 per share (representing 125% of the public offering price). The Placement Agent Warrants and the shares of our Common
Stock issuable upon exercise thereof are being registered hereby. The Placement Agent Warrants will be exercisable immediately and for
five years from the commencement of sales in the offering.
Tail
We
have also agreed to pay the Placement Agent a tail fee equal to the cash and warrant compensation in this offering, if any investor,
who was contacted or introduced to the Company by Placement Agent during the term of its engagement or introduced to us by Placement
Agent during the term of its engagement, provides us with capital in any public or private offering or other financing or capital raising
transaction during the 7.5-month period following the termination or expiration of our engagement agreement.
Right
of First Refusal
In
addition, we have granted a right of first refusal to the Placement Agent pursuant to which it has the right to act as the exclusive
advisor, manager or underwriter or agent, as applicable, if we or our subsidiaries sell or acquire a business, finance any indebtedness
using an agent, or raise capital through a public or private offering of equity or debt securities at any time prior to the 7.5-month
anniversary of the consummation date of this offering.
Other
Relationships
The
Placement Agent has acted as sales agent pursuant to an At The Market Offering Agreement, dated February 1, 2021, for which it received
compensation.
From
time to time, the Placement Agent may provide in the future various advisory, investment and commercial banking and other services to
us in the ordinary course of business, for which they may receive customary fees and commissions. However, except as disclosed in this
prospectus, we have no present arrangements with the Placement Agent for any further services.
Listing
of Common Stock
Our
Common Stock is listed on The Nasdaq Capital Market, or Nasdaq, under the symbol “TBLT.” The last reported sale price of
our Common Stock on July 9, 2021 was $1.05 per share.
LEGAL
MATTERS
Certain
legal matters relating to the issuance of the securities offered by this prospectus supplement will be passed upon for us by Carmel,
Milazzo & Feil LLP, New York, New York. Ellenoff Grossman & Schole LLP, New York, New York is acting as counsel to the Placement
Agent in connection with this offering.
EXPERTS
Our
consolidated financial statements appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 have been audited
by Marcum, LLP, an independent registered public accounting firm, as stated in their report, which is incorporated herein by reference.
Such consolidated financial statements have been so incorporated in reliance upon the report of such firm (which report expresses an
unqualified opinion and includes an explanatory paragraph regarding the Company’s going concern uncertainty) given upon their authority
as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual, quarterly and other periodic reports, proxy statements and other information with the SEC. You can read our SEC filings
over the Internet at the SEC’s website at www.sec.gov. Our Internet address is www.toughbuilt.com. There we make
available free of charge, on or through the investor relations section of our website, annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with the SEC. The information
found on our website is not part of this prospectus supplement or the accompanying prospectus.
INCORPORATION
OF CERTAIN INFORMATION BY REFERENCE
We
are “incorporating by reference” specific documents that we file with the SEC, which means that we can disclose important
information to you by referring you to those documents that are considered part of this prospectus supplement and the accompanying prospectus.
Information that we file subsequently with the SEC will automatically update and supersede this information. We incorporate by reference
the documents listed below, and any documents that we file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act,
after the date of this prospectus supplement until the termination of the offering of all of the securities registered pursuant to the
registration statement of which the accompanying prospectus is a part (excluding any portions of such documents that have been “furnished”
but not “filed” for purposes of the Exchange Act):
|
●
|
our Annual
Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 26, 2021;
|
|
|
|
|
●
|
our Quarterly Reports on
Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 17, 2021;
|
|
|
|
|
●
|
our Current Reports on
Form 8-K, filed with the SEC on January 27, 2021, February 10, 2021, February 17 2021, March 29, 2021, April 1, 2021, May 17, 2021,
May 19, 2021 and June 16, 2021, (except for the information furnished under Items 2.02 or 7.01 and the exhibits furnished thereto);
and
|
|
|
|
|
●
|
the description of our
common stock contained in a registration statement on Form 8-A filed with the SEC on November 8, 2018.
|
You
may request, orally or in writing, a copy of these documents, which will be provided to you at no cost, by contacting ToughBuilt Industries,
Inc., 5371 Commercentre Drive, Suite 200, Lake Forest, CA 92630; Attention: Investor Relations. The Investor Relations Department can
be reached via telephone at is (949) 528-3100.
Any
statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this prospectus supplement and the accompanying prospectus to the extent that a statement contained herein
or therein, in any other subsequently filed document that also is or is deemed to be incorporated by reference herein and in any accompanying
prospectus supplement, modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as
so modified and superseded, to constitute a part of this prospectus supplement.
Any
statement made in this prospectus supplement and the accompanying prospectus concerning the contents of any contract, agreement or other
document is only a summary of the actual contract, agreement or other document. If we have filed or incorporated by reference any contract,
agreement or other document as an exhibit to the registration statement, you should read the exhibit for a more complete understanding
of the document or matter involved. Each statement regarding a contract, agreement or other document is qualified by reference to the
actual document.
PROSPECTUS
TOUGHBUILT
INDUSTRIES, INC.
$100,000,000
COMMON
STOCK
PREFERRED
STOCK
WARRANTS
UNITS
We
may offer and sell the following securities separately or together, in one or more series or classes and in amounts, at prices and on
terms described in one or more offerings: common stock; preferred stock; warrants to purchase our securities, each of which may be convertible
into equity securities; or units comprised of, or other combinations of, the foregoing securities.
We
may offer securities through underwriting syndicates managed or co-managed by one or more underwriters or dealers, through agents or
directly to purchasers. The prospectus supplement for each offering of securities will describe in detail the plan of distribution for
that offering. For general information about the distribution of securities offered, please see “Plan of Distribution” in
this prospectus. Each time our securities are offered, we will provide a prospectus supplement containing more specific information about
the particular offering and attach it to this prospectus. The prospectus supplements may also add, update or change information contained
in this prospectus. This prospectus may not be used to offer or sell securities without a prospectus supplement which includes a description
of the method and terms of this offering.
Our common stock is quoted on the Nasdaq Capital
Market under the symbol “TBLT.” We also have Series A Warrants that trade on the Nasdaq Capital Market under the symbol “TBLTW.”
Our Common Stock is listed on The Nasdaq Capital Market, or Nasdaq, under the symbol “TBLT.” The last reported sale price
of our Common Stock on July 9, 2021 was $1.05 per share.
The
aggregate market value of our outstanding common stock held by non-affiliates was $87,184,088, based on 83,284,989 shares of outstanding
common stock of which 83,031,465 shares are held by non-affiliates, and a per share price of $1.05 which was the closing
sale price of our common stock as quoted on the Nasdaq Capital Market on July 9, 2021.
If
we decide to seek a listing of any preferred stock, purchase contracts, warrants, subscriptions rights, depositary shares or units offered
by this prospectus, the related prospectus supplement will disclose the exchange or market on which the securities will be listed, if
any, or where we have made an application for listing, if any.
Investing
in our securities involves certain risks. See “Risk Factors” beginning on page 5 and any risk factors in our most recent
Annual Report on Form 10-K, which is incorporated by reference herein, as well as in any other recently filed quarterly or current reports
and, if any, in the relevant prospectus supplement. We urge you to carefully read this prospectus and the accompanying prospectus supplement,
together with the documents we incorporate by reference, describing the terms of these securities before investing.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed
upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
The
date of this Prospectus is ___________, ___.
TABLE
OF CONTENTS
Prospectus
ABOUT
THIS PROSPECTUS
This
prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission (the “SEC”)
utilizing a “shelf” registration process. Under this shelf registration process, we may offer and sell, either individually
or in combination, in one or more offerings, any of the securities described in this prospectus, for total gross proceeds of up to $100,000,000.
This prospectus provides you with a general description of the securities we may offer. Each time we offer securities under this prospectus,
we will provide a prospectus supplement to this prospectus that will contain more specific information about the terms of that offering.
We may also authorize one or more free writing prospectuses to be provided to you that may contain material information relating to these
offerings. The prospectus supplement and any related free writing prospectus that we may authorize to be provided to you may also add,
update or change any of the information contained in this prospectus or in the documents that we have incorporated by reference into
this prospectus.
We
urge you to read carefully this prospectus, any applicable prospectus supplement and any free writing prospectuses we have authorized
for use in connection with a specific offering, together with the information incorporated herein by reference as described under the
heading “Incorporation of Documents by Reference,” before investing in any of the securities being offered. You should rely
only on the information contained in, or incorporated by reference into, this prospectus and any applicable prospectus supplement, along
with the information contained in any free writing prospectuses we have authorized for use in connection with a specific offering. We
have not authorized anyone to provide you with different or additional information. This prospectus is an offer to sell only the securities
offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so.
The
information appearing in this prospectus, any applicable prospectus supplement or any related free writing prospectus is accurate only
as of the date on the front of the document and any information we have incorporated by reference is accurate only as of the date of
the document incorporated by reference, regardless of the time of delivery of this prospectus, any applicable prospectus supplement or
any related free writing prospectus, or any sale of a security.
This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the
actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some
of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration
statement of which this prospectus is a part, and you may obtain copies of those documents as described below under the section entitled
“Where You Can Find Additional Information.”
This
prospectus contains, or incorporates by reference, trademarks, tradenames, service marks and service names of ToughBuilt Industries,
Inc., a Nevada corporation.
SPECIAL
NOTE REGARDING FORWARD LOOKING STATEMENTS
This
prospectus supplement and the base prospectus and the documents incorporated by reference in this prospectus include forward-looking
statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”) that relate to future events or our future financial performance and involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially
from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words
such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,”
“may,” “plan,” “potential,” “predict,” “project,” “targets,”
“likely,” “will,” “would,” “could,” “should,” “continue,” and
similar expressions or phrases, or the negative of those expressions or phrases, are intended to identify forward-looking statements,
although not all forward-looking statements contain these identifying words. Although we believe that we have a reasonable basis for
each forward-looking statement contained in this prospectus and incorporated by reference in this prospectus, we caution you that these
statements are based on our projections of the future that are subject to known and unknown risks and uncertainties and other factors
that may cause our actual results, level of activity, performance or achievements expressed or implied by these forward-looking statements,
to differ. The sections in our periodic reports, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2020
and our Quarterly Report for the fiscal quarter ended March 31, 2021, entitled “Business,” “Risk Factors,” and
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as other sections
in this prospectus and the documents or reports incorporated by reference in this prospectus, discuss some of the factors that could
contribute to these differences. These forward-looking statements include, among other things, statements about:
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market
acceptance of our existing and new products;
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delays
in bringing products to key markets;
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an inability
to secure regulatory approvals for the ability to sell our products in certain markets;
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intense
competition in the industry from much larger, multinational companies;
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product
liability claims;
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product
malfunctions;
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our limited
manufacturing capabilities and reliance on subcontractors for assistance;
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our
efforts to successfully obtain and maintain intellectual property protection covering our products, which may not be successful;
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our reliance
on single suppliers for certain product components;
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the fact
that we will need to raise additional capital to meet our business requirements in the future and that such capital raising may be
costly, dilutive or difficult to obtain;
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the fact
that we conduct business in multiple foreign jurisdictions, exposing us to foreign currency exchange rate fluctuations, logistical
and communications challenges, burdens and costs of compliance with foreign laws and political and economic instability in each jurisdiction;
and
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market
and other conditions.
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We
may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place
undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations
disclosed in the forward-looking statements we make. We have included important cautionary statements in this prospectus supplement and
the base prospectus and in the documents incorporated by reference herein, particularly in the “Risk Factors” section, that
we believe could cause actual results or events to differ materially from the forward-looking statements that we make. For a summary
of such factors, please refer to the section entitled “Risk Factors” in this prospectus supplement and the base prospectus,
as updated and supplemented by the discussion of risks and uncertainties under “Risk Factors” contained in any supplements
to this prospectus supplement and the base prospectus and in our most recent annual report on Form 10-K, as revised or supplemented by
our subsequent quarterly reports on Form 10-Q or our current reports on Form 8-K, as well as any amendments thereto, as filed with the
SEC and which are incorporated herein by reference. The information contained in this document is believed to be current as of the date
of this document. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements
to actual results or to changes in our expectations, except as required by law.
In
light of these assumptions, risks and uncertainties, the results and events discussed in the forward-looking statements contained in
this prospectus supplement and the base prospectus or in any document incorporated herein by reference might not occur. Investors are
cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this prospectus supplement
or the date of the document incorporated by reference in this prospectus. We are not under any obligation, and we expressly disclaim
any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
All subsequent forward-looking statements attributable to us or to any person acting on our behalf are expressly qualified in their entirety
by the cautionary statements contained or referred to in this section.
PROSPECTUS
SUPPLEMENT SUMMARY
The
following is only a summary. We urge you to read the entire prospectus, including the more detailed consolidated financial statements,
notes to the consolidated financial statements and other information included herein or incorporated by reference from our other filings
with the Securities and Exchange Commission, or SEC. Investing in our securities involves risks. Therefore, please carefully consider
the information provided under the heading “Risk Factors” starting on page 5.
Overview
ToughBuilt
Industries, Inc. (“ToughBuilt,” the “Company,” “we,” “us” and “our” and similar
expressions) is an advanced product design, manufacturer and distributor with emphasis on innovative products. Currently focused on tools
and other accessories for the professional and do-it-yourself construction industries, we market and distribute various home improvement
and construction product lines for both the do-it-yourself and professional markets under the TOUGHBUILT brand name, within the global
multibillion dollar per year tool market industry. All of our products are designed by our in-house design team. Since launching product
sales in 2013, we have experienced significant annual sales growth. Our current product line includes three major categories, with several
additional categories in various stages of development, consisting of Soft Goods & Kneepads and Sawhorses & Work Products. Our
mission is to provide products to the building and home improvement communities that are innovative, of superior quality derived in part
from enlightened creativity for our end users while enhancing performance, improving well-being and building high brand loyalty.
Since
our initial launch of product sales seven years ago, we have experienced annual sales growth from approximately $1,000,000 in 2013 to
approximately $39,000,000 in 2020.
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:
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Significantly greater financial resources than we have;
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More comprehensive product lines;
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Longer-standing relationships with suppliers, manufacturers,
and retailers;
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Broader distribution capabilities;
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Stronger brand recognition and loyalty; and
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The ability to invest substantially more in product
advertising and 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, compete effectively
on the basis of 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 its 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 own products or,
alternatively, collaborate with each other 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.
Recent
Developments
Risk
and Uncertainty Concerning COVID-19
In
March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic which 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. Most 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. 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. We have concluded that while it is reasonably possible that the virus could
have a negative impact on the 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.
Corporate
Information
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.
Our
principal executive offices are located at 5371 Commercentre Drive, Suite 200, Lake Forest, CA 92630. Our telephone number is (949) 528-3100
and our website address is www.toughbuilt.com. References in this prospectus to our website address does not constitute incorporation
by reference of the information contained on the website.
RISK
FACTORS
Our
business is subject to many risks and uncertainties, which may affect our future financial performance. If any of the events or circumstances
described below occur, our business and financial performance could be adversely affected, our actual results could differ materially
from our expectations, and the price of our stock could decline. The risks and uncertainties discussed below are not the only ones we
face. There may be additional risks and uncertainties not currently known to us or that we currently do not believe are material that
may adversely affect our business and financial performance. You should carefully consider the risks described below, together with all
other information included in this prospectus including our financial statements and related notes, before making an investment decision.
The statements contained in this prospectus that are not historic facts are forward-looking statements that are subject to risks and
uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements.
If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case,
the trading price of our common stock could decline, and investors in our securities may lose all or part of their investment.
Risks
Related to Our Company
We
will require additional capital in order to achieve commercial success and, if necessary, to finance future losses from operations as
we endeavor to build revenue, but we do not have any commitments to obtain such capital and we cannot assure you that we will be able
to obtain adequate capital as and when required.
We
may not be able to generate any profit in the foreseeable future. For the year ended December 31, 2020, we a net loss of $17,348,622,
compared to a net loss of $4,300,969 for the year ended December 31, 2019. For the three months ended March 31, 2021, we recorded net
loss of $6,053,659, compared to a net loss of $3,754,659 for the three months ended March 31, 2020. Accordingly, there is no assurance
that we will realize profits in fiscal 2021 or thereafter. If we fail to generate profits from our operations, we will not be able to
sustain our business. We may never report profitable operations or generate sufficient revenue to maintain our Company as a going concern.
We continue to control our cash expenses as a percentage of expected revenue on an annual basis and thus may use our cash balances in
the short term to invest in revenue growth; however, we cannot give assurance that we can increase our cash balances or limit our cash
consumption and thus maintain sufficient cash balances for our planned operations. Future business demands may lead to cash utilization
at levels greater than recently experienced. We may need to raise additional capital in the future. However, we cannot assure that we
will be able to raise additional capital on acceptable terms, or at all. Our inability to generate profits could have an adverse effect
on our financial condition, results of operations, and cash flows.
We
do not have a significant operating history and, as a result, there is a limited amount of information about us on which to make an investment
decision.
Our
Company was incorporated and commenced operations in April 2012. Accordingly, we have only a limited operating history upon which to
base an evaluation of our business and prospects. Operating results for future periods are subject to numerous uncertainties and we cannot
assure you that we will achieve or sustain profitability. Our prospects must be considered in light of the risks encountered by companies
in the relatively early stage of development, particularly companies in new and rapidly evolving markets. Future operating results will
depend upon many factors, including increasing the number of affiliates, our success in attracting and retaining motivated and qualified
personnel, our ability to establish short term credit lines, our ability to develop and market new products, control costs, and general
economic conditions. We cannot assure you that we will successfully address any of these risks.
We
have limited management and staff and will be dependent upon partnering arrangements.
As
of March 31, 2021, we have 52 employees, including our four executive officers and 20 independent contractors and consultants. Our dependence
on third party consultants and service providers creates a number of risks, including but not limited to, the possibility that such third
parties may not be available to us as and when needed, and that we may not be able to properly control the timing and quality of work
conducted with respect to our projects. If we experience significant delays in obtaining the services of such third parties or poor performance
by such parties, our results of operations and stock price will be materially adversely affected.
The
loss of any of our executive officers could adversely affect us.
We
currently only have four executive officers. We are dependent on the extensive experience of our executive officers to implement our
acquisition and growth strategy, specifically, Michael Panosian, our President and Chief Executive Officer, and Joshua Keller, our Vice
President of Research and Development. The loss of the services of any of our executive officers could have a negative impact on our
operations and our ability to implement our strategy. Although we maintain a “key man” insurance policy only for Michael
Panosian but none for of our other employees, our key man policy for Mr. Panosian is for $1 million and will be insufficient to recover
any losses resulting by Mr. Panosian’s death while serving as our President and Chief Executive Officer.
We
may be unable to attract necessary employees or be able to prevent our current employees from leaving our Company.
To
induce valuable employees to remain at our Company, in addition to salary and cash incentives, we have provided restricted stock and
stock options that vest over time. The value to employees of stock options that vest over time may be significantly affected by movements
in our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies.
Despite our efforts to retain valuable employees, members of our management may terminate their employment with us. Our success also
depends on our ability to continue to attract, retain and motivate highly employees.
If
the hosts of third-party marketplaces limit our access to such marketplaces, our operations and financial results will be adversely affected.
Third-party
marketplaces account for a significant portion of our revenues. Our sales through online third-party marketplaces represented a combined
20% of total sales for the three months ended March 31, 2021. We anticipate that sales of our products on third-party marketplaces
will continue to account for a significant portion of our revenues. In the future, the loss of access to these third-party marketplaces,
or any significant cost increases from operating on the marketplaces, could significantly reduce our revenues, and the success of our
business depends partly on continued access to these third-party marketplaces. Our relationships with our third-party marketplace providers
could deteriorate as a result of a variety of factors, such as if they become concerned about our ability to deliver quality products
on a timely basis or to protect a third-party’s intellectual property. In addition, third-party marketplace providers could prohibit
our access to these marketplaces if we are not able to meet the applicable required terms of use. Loss of access to a marketplace channel
could result in lower sales, and as a result, our business and financial results may suffer.
We
are highly dependent upon manufacturers in China, India and the Philippines and an interruption in such relationships or our ability
to obtain products from them could adversely affect our business and results of operations.
Our
products are manufactured by factories located in China, India and the Philippines. Our ability to acquire products from our suppliers
in amounts and on terms acceptable to us is dependent upon a number of factors which are unforeseeable and may be beyond our control.
For example, financial or operational difficulties that some of our manufacturers may face could result in an increase in the cost of
the products we purchase from them. If we do not maintain our relationships with our existing manufacturers or fail to find replacement
or additional manufacturers on in a timely manner and on acceptable commercial terms, we may not be able to continue to offer our products
at competitive prices and any failure to deliver those products to our customers in a timely and accurate manner may damage our reputation
and brand and could cause us to lose customers and our sales could decline.
We
are highly dependent upon manufacturers in China, India and the Philippines, which exposes us to complex regulatory regimes and logistical
challenges.
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 or that would allow us to rely on customary indemnification protection
with respect to any third-party claims similar to some of our U.S. suppliers. In addition, because many of our suppliers are outside
of the United States, additional factors could interrupt our relationships or affect our ability to acquire the necessary products on
acceptable terms, including:
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political, social and economic
instability and the risk of war or other international incidents in Asia, India or the Philippines;
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fluctuations in foreign
currency exchange rates that may increase our cost of products;
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imposition of duties, taxes,
tariffs or other charges on imports;
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difficulties in complying
with import and export laws, regulatory requirements and restrictions;
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natural disasters and public
health emergencies, such as the recent outbreak of a novel strain of coronavirus identified first in Wuhan, Hubei Province, China
and having turned into a global pandemic that has impacted a number of countries from which we purchase product;
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import shipping delays
resulting from foreign or domestic labor shortages, slow-downs, or stoppage; and
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the failure of local laws
to provide a sufficient degree of protection against infringement of our intellectual property;
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imposition of new legislation
relating to import quotas or other restrictions that may limit the quantity of our product that may be imported into the U.S. from
countries or regions where we do business;
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financial or political
instability in any of the countries in which our product is manufactured;
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potential recalls or cancellations
of orders for any product that does not meet our quality standards;
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labor disputes or strikes and local business practices;
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political or military conflict
involving the U.S. or any country in which our suppliers are located, which could cause a delay in the transportation of our products,
an increase in transportation costs and additional risk to product being damaged and delivered on time;
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heightened terrorism security
concerns, which could subject imported goods to additional, more frequent or more thorough inspections, leading to delays in deliveries
or impoundment of goods for extended periods;
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inability of our non-U.S.
suppliers to obtain adequate credit or access liquidity to finance their operations; and
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our ability to enforce
any agreements with our foreign suppliers.
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we were unable to import products from China, India and the Philippines or were unable to import products from such countries in a cost-effective
manner, we could suffer irreparable harm to our business and be required to significantly curtail our operations, file for bankruptcy
or cease operations.
From
time to time, we may also have to resort to administrative and court proceedings to enforce our legal rights with foreign suppliers.
However, it may be more difficult to evaluate the level of legal protection we enjoy in China, India and the Philippines and the corresponding
outcome of any administrative or court proceedings than in comparison to our suppliers in the United States.
Our
financial condition and results of operations for fiscal year 2020 may be adversely affected by the recent coronavirus outbreak.
COVID-19
was declared a pandemic by the World Health Organization in March 2020. To date, this pandemic has affected nearly all regions around
the world. In the United States, businesses as well as federal, state and local governments implemented significant actions to mitigate
this public health crisis. Our operations could be disrupted as a result of these actions. While we cannot predict the duration or scope
of the COVID-19 pandemic, it may negatively impact our business and such impact could be material to our financial results, condition
and outlook. The COVID-19 pandemic may also have the effect of worsening other areas such as, but not limited to, those related to:
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reduction or volatility
in demand for our products, which may be caused by, among other things: reduced online traffic and changes in consumer spending behaviors
(e.g., consumer confidence in general macroeconomic conditions and a decrease in consumer spending);
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disruption to our operations
or the operations of our suppliers, through the effects of business and facilities closures, worker sickness and COVID-19 related
inability to work, social, economic, political or labor instability in affected areas, transportation delays, travel restrictions
and changes in operating procedures, including for additional cleaning and safety protocols;
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impacts to our third-party
marketplaces’ ability to operate or manage increases in their operating costs and other supply chain effects that may have
an adverse effect on our ability to meet consumer demand and achieve cost targets;
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increased volatility or
significant disruption of global financial markets due in part to the COVID-19 pandemic, which could have a negative impact on our
ability to access capital markets and other funding sources, on acceptable terms or at all and impede our ability to comply with
debt covenants; and
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The further spread of COVID-19,
and the requirements to take action to mitigate the spread of the pandemic, will impact our ability to carry out our business as
usual and may materially adversely impact global economic conditions, our business, results of operations, cash flows and financial
condition.
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commodity prices such as fuel, plastic and metal increase, our margins may be negatively impacted.
Increasing
prices in the component materials for the parts we sell may impact the availability, the quality and the price of our products, as suppliers
search for alternatives to existing materials and increase the prices they charge. We cannot ensure that we can recover all the increased
costs through price increases, and our suppliers may not continue to provide the consistent quality of product as they may substitute
lower cost materials to maintain pricing levels, all of which may have a negative impact on our business and results of operations.
If
we are unable to manage the challenges associated with our international operations, the growth of our business could be limited and
our business could suffer.
We
maintain international business operations throughout Europe with a majority being in the United Kingdom. Our international operations
include sales and back office support services for our European market. We are subject to a number of risks and challenges that specifically
relate to our international operations. Our international operations may not be successful if we are unable to meet and overcome these
challenges, which could limit the growth of our business and may have an adverse effect on our business and operating results. These
risks and challenges include:
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difficulties and costs
of staffing and managing foreign operations, including any impairment to our relationship with employees caused by a reduction in
force;
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restrictions imposed by
local labor practices and laws on our business and operations;
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exposure to different business
practices and legal standards;
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unexpected changes in regulatory
requirements;
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the imposition of government
controls and restrictions;
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political, social and economic
instability and the risk of war, terrorist activities or other international incidents;
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the failure of telecommunications
and connectivity infrastructure;
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natural disasters and public
health emergencies;
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potentially adverse tax
consequences; and
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fluctuations in foreign
currency exchange rates and relative weakness in the U.S. dollar.
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If
we fail to offer a broad selection of products at competitive prices or fail to maintain sufficient inventory to meet customer demands,
our revenue could decline.
In
order to expand our business, we must successfully offer, on a continuous basis, a broad selection of products that meet the needs of
our customers, including by being the first to market with new SKUs. Our products are used by consumers for a variety of purposes, including
repair, performance, aesthetics and functionality. In addition, to be successful, our product offerings must be broad and deep in scope,
competitively priced, well-made, innovative and attractive to a wide range of consumers. We cannot predict with certainty that we will
be successful in offering products that meet all of these requirements. If our product offerings fail to satisfy our customers’
requirements or respond to changes in customer preferences or we otherwise fail to maintain sufficient in-stock inventory, our revenue
could decline.
As
a result of our international operations, we have foreign exchange risk.
Our
purchases of products from our China, India and Philippines suppliers are denominated in U.S. dollars; however, a change in the foreign
currency exchange rates could impact our product costs over time. Our financial reporting currency is the U.S. dollar and changes in
exchange rates significantly affect our reported results and consolidated trends. For example, if the U.S. dollar weakens year-over-year
relative to currencies in our international locations, our consolidated gross profit and operating expenses would be higher than if currencies
had remained constant.
We
are may never commercialize our new mobile device products.
We
began developing our new mobile device products with apps in 2018 and intend to introduce them and our ruggedized mobile phones in the
first half quarter of 2021. Even if we are successful in developing these new products, we will not be successful in commercialize them
unless these products gain market acceptance. The degree of market acceptance of these products will depend on a number of factors, including:
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the competitive environment;
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our ability to enter into
strategic agreements with manufacturers; and
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the adequacy and success
of distribution, sales and marketing efforts.
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Even
if we successfully develop one or more of these products, we may not become profitable.
Our
products could be recalled.
The
Consumer Product Safety Commission or other applicable regulatory bodies may require the recall, repair or replacement of our products
if those products are found not to be in compliance with applicable standards or regulations. A recall could increase costs and adversely
impact our reputation, and thereby negatively impact our financial condition, results of operations and cash flows.
Regulatory
and Litigation Risks
Product
liability claims and other kinds of litigation could affect our business, reputation, financial condition, results of operations and
cash flows.
The
products that we design and/or have manufactured can lead to product liability claims or other legal claims being filed against us. We
have in the past, and may in the future, be subject to legal proceedings other than those relating to product liability claims. To the
extent that plaintiffs are successful in showing that a defect in a product’s design, manufacture or warnings led to personal injury
or property damage, or that our provision of services resulted in similar injury or damage, we may be subject to claims for damages.
Although we are insured for damages above a certain amount, we bear the costs and expenses associated with defending claims, including
frivolous lawsuits, and are responsible for damages below the insurance retention amount. In addition to claims concerning individual
products, as a manufacturer, we can be subject to costs, potential negative publicity and lawsuits related to product recalls, which
could adversely impact our results and damage our reputation.
Even
defending against unsuccessful claims could cause us to incur significant expenses and result in a diversion of management’s attention.
In addition, even if the money damages themselves did not cause substantial harm to our business, the damage to our reputation and the
brands offered on our websites could adversely affect our future reputation and our brand, and could result in a decline in our net sales
and profitability.
Failure
to comply with privacy laws and regulations and failure to adequately protect customer data could harm our business, damage our reputation
and result in a loss of customers.
Federal
and state and regulations may govern the collection, use, sharing and security of data that we receive from our customers. Any failure,
or perceived failure, by us to comply with our posted privacy policies or with any data-related consent orders, U.S. Federal Trade Commission
requirements or other federal, state or international privacy-related laws and regulations could result in proceedings or actions against
us by governmental entities or others, which could potentially harm our business. Further, failure or perceived failure to comply with
our policies or applicable requirements related to the collection, use or security of personal information or other privacy-related matters
could damage our reputation and result in a loss of customers.
The
regulatory framework for data privacy is constantly evolving, and privacy concerns could adversely affect our operating results.
The
regulatory framework for privacy issues is currently evolving and is likely to remain uncertain for the foreseeable future. The occurrence
of unanticipated events often rapidly drives the adoption of legislation or regulation affecting the use of data and the way we conduct
our business; in fact, there are active discussions among U.S. legislators around adoption of a new U.S. federal privacy law. Restrictions
could be placed upon the collection, management, aggregation and use of information, which could result in a material increase in the
cost of collecting and maintaining certain kinds of data. In June of 2018, California enacted the California Consumer Privacy Act (the
“CCPA”), which took effect on January 1, 2020. The CCPA gives consumers the right to request disclosure of information collected
about them, and whether that information has been sold or shared with others, the right to request deletion of personal information (subject
to certain exceptions), the right to opt out of the sale of the consumer’s personal information, and the right not to be discriminated
against for exercising these rights. We are required to comply with the CCPA. The CCPA provides for civil penalties for violations, as
well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance
costs and potential liability. Some observers have noted that the CCPA could mark the beginning of a trend toward more stringent privacy
legislation in the U.S., which could increase our potential liability and adversely affect our business.
If
we are unable to protect our intellectual property rights, our reputation and brand could be impaired and we could lose customers.
We
regard our trademarks, trade secrets and similar intellectual property rights important to our success. We rely on trademark and copyright
law, and trade secret protection, and confidentiality and/or license agreements with employees, customers, partners and others to protect
our proprietary rights. We cannot be certain that we have taken adequate steps to protect our proprietary rights, especially in countries
where the laws may not protect our rights as fully as in the United States. In addition, our proprietary rights may be infringed or misappropriated,
and we could be required to incur significant expenses to preserve them. The outcome of such litigation can be uncertain, and the cost
of prosecuting such litigation may have an adverse impact on our earnings. We have common law trademarks, as well as pending federal
trademark registrations for several marks and several registered marks. However, any registrations may not adequately cover our intellectual
property or protect us against infringement by others. Effective trademark, service mark, copyright, patent and trade secret protection
may not be available in every country in which our products and services may be made available online. We also currently own or control
a number of Internet domain names, including www.toughbuilt.com, and have invested time and money in the purchase of domain names and
other intellectual property, which may be impaired if we cannot protect such intellectual property. We may be unable to protect these
domain names or acquire or maintain relevant domain names in the United States and in other countries. If we are not able to protect
our trademarks, domain names or other intellectual property, we may experience difficulties in achieving and maintaining brand recognition
and customer loyalty.
If
we are unable to protect our intellectual property, our business may be adversely affected.
We
must protect the proprietary nature of the intellectual property used in our business. There can be no assurance that trade secrets and
other intellectual property will not be challenged, invalidated, misappropriated or circumvented by third parties. Currently, our intellectual
property includes issued patents, patent applications, trademarks, trademark applications and know-how related to business, product and
technology development. We plan on taking the necessary steps, including but not limited to the filing of additional patents as appropriate.
There is no assurance any additional patents will issue or that when they do issue they will include all of the claims currently included
in the applications. Even if they do issue, those new patents and our existing patents must be protected against possible infringement.
Nonetheless, we currently rely on contractual obligations of our employees and contractors to maintain the confidentiality of our products.
To compete effectively, we need to develop and continue to maintain a proprietary position with respect to our technologies, and business.
The risks and uncertainties that we face with respect to intellectual property rights principally include the following:
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patent applications that
we file may not result in issued patents or may take longer than expected to result in issued patents;
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we may be subject to interference
proceedings;
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other companies may claim
that patents applied for by, assigned or licensed to, us infringe upon their own intellectual property rights;
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we may be subject to opposition
proceedings in the U.S. and in foreign countries;
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any patents that are issued
to us may not provide meaningful protection;
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we may not be able to develop
additional proprietary technologies that are patentable;
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other companies may challenge
patents licensed or issued to us;
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other companies may independently
develop similar or alternative technologies, or duplicate our technologies;
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other companies may design
around technologies that we have licensed or developed;
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any patents issued to us
may expire and competitors may utilize the technology found in such patents to commercialize their own products; and
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enforcement of patents
is complex, uncertain and expensive.
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It
is also possible that others may obtain issued patents that could prevent us from commercializing certain aspects of our products or
require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. If
we license patents, our rights will depend on maintaining its obligations to the licensor under the applicable license agreement, and
we may be unable to do so. Furthermore, there can be no assurance that the work-for-hire, intellectual property assignment and confidentiality
agreements entered into by our employees and consultants, advisors and collaborators will provide meaningful protection for our trade
secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure of such trade secrets, know- how
or other proprietary information. As all of our products are manufactured in China, India and the Philippines, and we may not have the
same strength of intellectual property protection and enforcement in such countries as in North America or Europe. The scope and enforceability
of patent claims are not systematically predictable with absolute accuracy. The strength of our own patent rights depends, in part, upon
the breadth and scope of protection provided by the patent and the validity of our patents, if any.
Because
we are involved in litigation from time to time and are subject to numerous laws and governmental regulations, we could incur substantial
judgments, fines, legal fees and other costs as well as reputational harm.
We
are sometimes the subject of complaints or litigation from customers, employees or other third parties for various reasons. The damages
sought against us in some of these litigation proceedings could be substantial. Although we maintain liability insurance for some litigation
claims, if one or more of the claims were to greatly exceed our insurance coverage limits or if our insurance policies do not cover a
claim, this could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Changes
in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash
flow, financial condition or results of operations.
New
income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could adversely
affect our business operations and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could
be interpreted, changed, modified or applied adversely to us. For example, legislation enacted in 2017, informally titled the Tax Cuts
and Jobs Act (the “Tax Act”) enacted many significant changes to the U.S. tax laws. Future guidance from the Internal Revenue
Service and other tax authorities with respect to the Tax Act may affect us, and certain aspects of the Tax Act could be repealed or
modified in future legislation. In addition, it is uncertain if and to what extent various states will conform to the Tax Act or any
newly enacted federal tax legislation. Changes in corporate tax rates, the realization of net deferred tax assets relating to our operations,
the taxation of foreign earnings, and the deductibility of expenses under the Tax Act or future reform legislation could have a material
impact on the value of our deferred tax assets, could result in significant one-time charges, and could increase our future U.S. tax
expense.
Existing
or future government regulation could expose us to liabilities and costly changes in our business operations and could reduce customer
demand for our products and services.
We
are subject to federal and state consumer protection laws and regulations, including laws protecting the privacy of customer non-public
information and regulations prohibiting unfair and deceptive trade practices, as well as laws and regulations governing businesses in
general and the Internet and e-commerce and certain environmental laws. Additional laws and regulations may be adopted with respect to
the Internet, the effect of which on e-commerce is uncertain. These laws may cover issues such as user privacy, spyware and the tracking
of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing,
content and quality of products and services, taxation, electronic contracts and other communications, intellectual property rights,
and information security. Furthermore, it is not clear how existing laws such as those governing issues such as property ownership, sales
and other taxes, trespass, data mining and collection, and personal privacy apply to the Internet and e-commerce. To the extent we expand
into international markets, we will be faced with complying with local laws and regulations, some of which may be materially different
than U.S. laws and regulations. Any such foreign law or regulation, any new U.S. law or regulation, or the interpretation or application
of existing laws and regulations to the Internet or other online services or our business in general, may have a material adverse effect
on our business, prospects, financial condition and results of operations by, among other things, impeding the growth of the Internet,
subjecting us to fines, penalties, damages or other liabilities, requiring costly changes in our business operations and practices, and
reducing customer demand for our products and services. We may not maintain sufficient, or any, insurance coverage to cover the types
of claims or liabilities that could arise as a result of such regulation.
Possible
new tariffs that might be imposed by the United States government could have a material adverse effect on our results of operations.
Changes
in U.S. and foreign governments’ trade policies have resulted in, and may continue to result in, tariffs on imports into and exports
from the U.S., among other restrictions. Throughout 2018 and 2019, the U.S. imposed tariffs on imports from several countries, including
China. If further tariffs are imposed on imports of our products, or retaliatory trade measures are taken by China or other countries
in response to existing or future tariffs, we could be forced to raise prices on all of our imported products or make changes to our
operations, any of which could materially harm our revenue or operating results. Any additional future tariffs or quotas imposed on our
products or related materials may impact our sales, gross margin and profitability if we are unable to pass increased prices onto our
customers.
We
operate in an industry with the risk of intellectual property litigation. Claims of infringement against us may hurt our business.
Our
success depends, in part, upon non-infringement of intellectual property rights owned by others and being able to resolve claims of intellectual
property infringement without major financial expenditures or adverse consequences. Participants that own, or claim to own, intellectual
property may aggressively assert their rights. From time to time, we may be subject to legal proceedings and claims relating to the intellectual
property rights of others. Future litigation may be necessary to defend us or our clients by determining the scope, enforceability, and
validity of third-party proprietary rights or to establish its proprietary rights. Some competitors have substantially greater resources
and are able to sustain the costs of complex intellectual property litigation to a greater degree and for longer periods of time. In
addition, patent holding companies that focus solely on extracting royalties and settlements by enforcing patent rights may target us.
Regardless of whether claims that we are infringing patents or other intellectual property rights have any merit, these claims are time-consuming
and costly to evaluate and defend and could:
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adversely affect relationships with future clients;
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cause delays or stoppages in providing products;
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divert management’s attention and resources;
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subject us to significant liabilities; and
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require us to cease some or all of its activities.
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In
addition to liability for monetary damages, which may be tripled and may include attorneys’ fees, or, in some circumstances, damages
against clients, we may be prohibited from developing, commercializing, or continuing to provide some or all of our products unless we
obtain licenses from, and pay royalties to, the holders of the patents or other intellectual property rights, which may not be available
on commercially favorable terms, or at all.
Risks
Related to this Offering and the Ownership of Our Securities
An
investment in our securities is speculative and there can be no assurance of any return on any such investment.
An
investment in our securities is speculative and there can be no assurance that investors will obtain any return on their investment.
Investors may be subject to substantial risks involved in an investment us, including the risk of losing their entire investment.
Our
failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting of our Common Stock.
On
May 19, 2021, we received written notice from the Nasdaq Stock Market LLC stating that the Company has failed to maintain a minimum bid
price of at least $1.00 per share for the prior 30 consecutive trading day period from April 7, 2021 to May 18, 2021, based upon the
closing bid price for its common stock as required by Nasdaq Listing Rule 5550(a)(2). Pursuant to Nasdaq Listing Rule 5810(c)(3)(A),
the Company has 180 calendar days, or until November 15, 2021, to regain compliance with the minimum bid requirement under Nasdaq Listing
Rule 5550(a)(2). During the compliance period, the Company’s common stock will continue to be listed and traded on the Nasdaq Stock
Market. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for a minimum
of 10 consecutive trading days, unless extended by Nasdaq under Nasdaq Rule 5810(c)(3)(G), prior to November 15, 2021. In the event the
Company does not regain compliance during the compliance period, the Company may be eligible for additional 180 calendar days to comply
with Nasdaq Listing Rule 5550(a)(2), subject to the Company satisfying the continued listing requirement for the market value of publicly
held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, subject
to Nasdaq’s approval. There can be no assurances that we will be able to regain compliance with Nasdaq’s minimum bid requirement.
If
we are unable to meet the continuing listing requirements, Nasdaq may take steps to delist our Common Stock. Such a delisting would likely
have a negative effect on the price of our Common Stock and would impair your ability to sell or purchase our Common Stock when you wish
to do so. Further, if we were to be delisted from The Nasdaq Capital Market, our Common Stock would cease to be recognized as covered
securities and we would be subject to regulation in each state in which we offer our securities.
Delisting
from Nasdaq could adversely affect our ability to raise additional financing through the public or private sale of equity securities,
would significantly affect the ability of investors to trade our securities and would negatively affect the value and liquidity of our
Common Stock. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of
institutional investor interest and fewer business development opportunities.
If
our Common Stock becomes subject to the penny stock rules, it may be more difficult to sell our Common Stock.
The
SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or authorized
for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions
in such securities is provided by the exchange or system). The OTC Bulletin Board does not meet such requirements and if the price of
our Common Stock is less than $5.00 and our Common Stock is no longer listed on a national securities exchange such as Nasdaq, our stock
may be deemed a penny stock. The penny stock rules require a broker-dealer, at least two business days prior to a transaction in a penny
stock not otherwise exempt from those rules, to deliver to the customer a standardized risk disclosure document containing specified
information and to obtain from the customer a signed and date acknowledgment of receipt of that document. In addition, the penny stock
rules require that prior to effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make
a special written determination that the penny stock is a suitable investment for the purchaser and receive: (i) the purchaser’s
written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks;
and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for our Common Stock, and therefore stockholders may have difficulty selling their shares.
Because
we do not anticipate paying any cash dividends on our Common Stock in the foreseeable future, capital appreciation, if any, will be your
sole source of gain.
We
have never paid or declared any cash dividends on our Common Stock. We currently intend to retain earnings, if any, to finance the growth
and development of our business and we do not anticipate paying any cash dividends in the foreseeable future. As a result, only appreciation
of the price of our Common Stock will provide a return to our stockholders.
We
have broad discretion over the use of the net proceeds from this offering and our existing cash and may not use them effectively.
Our
management will have broad discretion over the application of the net proceeds from this offering, including for any of the purposes
described in the section titled “Use of Proceeds,” as well as our existing cash, and you will be relying on the judgment
of our management regarding such application. You will not have the opportunity, as part of your investment decision, to assess whether
the proceeds are being used effectively. Our management might not apply the net proceeds or our existing cash in ways that ultimately
increase the value of your investment. If we do not invest or apply the net proceeds from this offering or our existing cash in ways
that enhance stockholder value, we may fail to achieve expected results, which could cause our stock price to decline. Pending their
use, we may invest the net proceeds from this offering in short-term U.S. Treasury securities with insignificant rates of return. These
investments may not yield a favorable return to our stockholders.
Certain
provisions of our Articles of Incorporation, as amended, could allow concentration of voting power in one individual, which may, among
other things, delay or frustrate the removal of incumbent directors or a takeover attempt, even if such events may be beneficial to our
stockholders.
Provisions
of our Articles of Incorporation, as amended, such as our ability to designate and issue a class of preferred stock, without stockholder
approval, may delay or frustrate the removal of incumbent directors and may prevent or delay a merger, tender offer or proxy contest
involving our company that is not approved by our Board of Directors, even if those events may be perceived to be in the best interests
of our stockholders. For example, one or more of our affiliates could theoretically be issued a newly authorized and designated class
of shares of our preferred stock. Such shares could have significant voting power, among other terms. Consequently, anyone to whom these
shares were issued could have sufficient voting power to significantly influence if not control the outcome of all corporate matters
submitted to the vote of our common stockholders. Those matters could include the election of directors, changes in the size and composition
of the Board of Directors, and mergers and other business combinations involving our company. In addition, through any such person’s
control of the Board of Directors and voting power, the affiliate may be able to control certain decisions, including decisions regarding
the qualification and appointment of officers, dividend policy, access to capital (including borrowing from third-party lenders and the
issuance of additional equity securities), and the acquisition or disposition of assets by our company. In addition, the concentration
of voting power in the hands of an affiliate could have the effect of delaying or preventing a change in control of our company, even
if the change in control would benefit our stockholders and may adversely affect the future market price of our common stock should a
trading market therefor develop.
If
you purchase shares of our common stock sold in this offering, you may experience immediate and substantial dilution in the net tangible
book value of your shares. In addition, we may issue shares of common stock pursuant to our equity incentive plans and additional equity
or convertible debt securities in the future, which may result in additional dilution to investors.
We
are currently authorized to issue up to 200,000,000 shares of common stock. We may, in the future, issue previously authorized and unissued
shares of common stock, which would result in the dilution of current stockholders’ ownership interests. Additional shares are
subject to issuance through various equity compensation plans or through the exercise of currently outstanding equity awards. The potential
issuance of additional shares of common stock may create downward pressure on the trading price of our common stock. We also may in the
future issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in order
to raise capital or effectuate other business purposes. Purchasers of the shares we sell, as well as our existing stockholders, will
experience significant dilution if we sell shares at prices significantly below the price at which they invested. In addition, to the
extent we need to raise additional capital in the future and we issue additional shares of common stock or securities convertible or
exchangeable for our common stock, our then existing stockholders may experience dilution and the new securities may have rights senior
to those of our common stock offered in this offering. Any of the above events could significantly harm our business, prospects, financial
condition and results of operations and cause the price of our common stock to decline.
We
may need, but be unable, to obtain additional funding on satisfactory terms, which could dilute our stockholders or impose burdensome
financial restrictions on our business.
We
have relied upon cash from financing activities and in the future, we hope to rely on revenues generated from operations to fund the
cash requirements of our activities. However, there can be no assurance that we will be able to generate any significant cash from our
operating activities in the future. Future financing may not be available on a timely basis, in sufficient amounts or on terms acceptable
to us, if at all. Any debt financing or other financing of securities senior to the common stock will likely include financial and other
covenants that will restrict our flexibility. Any failure to comply with these covenants would have a material adverse effect on our
business, prospects, financial condition and results of operations because we could lose our existing sources of funding and impair our
ability to secure new sources of funding.
The
requirements of being a public company may strain our resources, divert management’s attention and affect our results of operations.
As
a public company in the United States, we face increased legal, accounting, administrative and other costs and expenses. We are subject
to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act of 2002. The Exchange Act requires, among other things,
that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires,
among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. For
example, Section 404 of the Sarbanes-Oxley Act requires that our management report on the effectiveness of our internal controls structure
and procedures for financial reporting. Section 404 compliance may divert internal resources and will take a significant amount of time
and effort to complete. If we fail to maintain compliance under Section 404, or if in the future management determines that our internal
control over financial reporting are not effective as defined under Section 404, we could be subject to sanctions or investigations by
Nasdaq, the SEC, or other regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a
decline in the market price of our common stock. Any failure of our internal control over financial reporting could have a material adverse
effect on our stated results of operations and harm our reputation. If we are unable to implement these changes effectively or efficiently,
it could harm our operations, financial reporting or financial results and could result in an adverse opinion on internal controls from
our independent auditors. We may need to hire a number of additional employees with public accounting and disclosure experience in order
to meet our ongoing obligations as a public company, particularly if we become fully subject to Section 404 and its auditor attestation
requirements, which will increase costs. We expect these rules and regulations to increase our legal and financial compliance costs and
to make some activities more time consuming and costly, although we are currently unable to estimate these costs with any degree of certainty.
A number of those requirements will require us to carry out activities we have not done previously. Our management team and other personnel
will need to devote a substantial amount of time to new compliance initiatives and to meeting the obligations that are associated with
being a public company, which may divert attention from other business concerns, which could have a material adverse effect on our business,
financial condition and results of operations.
Additionally,
the expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. These increased
costs will require us to divert a significant amount of money that we could otherwise use to develop our business. If we are unable to
satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory
action and potentially civil litigation.
New
laws, regulations, and standards relating to corporate governance and public disclosure may create uncertainty for public companies,
increasing legal and financial compliance costs and making some activities more time consuming.
These
laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result,
may evolve over time as new guidance is provided by the courts and other bodies. This could result in continuing uncertainty regarding
compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. If our efforts to comply
with new laws, regulations, and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related
to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely
affected.
As
a public company subject to these rules and regulations, we may find it more expensive for us to obtain director and officer liability
insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could
also make it more difficult in the future for us to attract and retain qualified members of our Board of Directors, particularly to serve
on its audit committee and compensation committee, and qualified executive officers.
As
an “emerging growth company” under applicable law, we will be subject to lessened disclosure requirements, which could leave
our stockholders without information or rights available to stockholders of more mature companies.
For
as long as we remain an “emerging growth company” as defined in the JOBS Act, we have elected to take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies”
including, but not limited to:
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not
being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act;
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being
permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements
disclosure;
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taking
advantage of an extension of time to comply with new or revised financial accounting standards;
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reduced
disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and
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exemptions
from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute
payments not previously approved.
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We
expect to take advantage of these reporting exemptions until we are no longer an “emerging growth company.” Because of these
lessened regulatory requirements, our stockholders are not provided information or rights available to stockholders of more mature companies.
We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find
our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may
be more volatile.
We
are also a “smaller reporting company” as defined in Rule 12b-2 of the Exchange Act and have elected to follow certain scaled
disclosure requirements available to smaller reporting companies.
If
research analysts do not publish research about our business or if they issue unfavorable commentary or downgrade our common stock, our
stock price and trading volume could decline.
The
trading market for our securities may depend in part on the research and reports that research analysts publish about us and our business.
If we do not maintain adequate research coverage, or if any of the analysts who cover us downgrade our stock or publish inaccurate or
unfavorable research about our business, the price of our common stock and warrants could decline. If one or more of our research analysts
ceases to cover our business or fails to publish reports on us regularly, demand for our securities could decrease, which could cause
the price of our common stock and warrants or trading volume to decline.
We
do not currently intend to pay dividends on our common stock in the foreseeable future, and consequently, your ability to achieve a return
on your investment will depend on appreciation in the price of our common stock.
We
have never declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends to holders of our common
stock in the foreseeable future. Consequently, investors must rely on sales of their common stock after price appreciation, which may
never occur, as the only way to realize any future gains on their investments. There is no guarantee that shares of our common stock
will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
Anti-takeover
provisions in our charter documents and Nevada law could discourage delay or prevent a change of control of our Company and may affect
the trading price of our common stock.
We
are a Nevada corporation and the anti-takeover provisions of the Nevada Control Shares Acquisition Act may discourage, delay or prevent
a change of control by limiting the voting rights of control shares acquired in a control share acquisition. In addition, our Articles
of Incorporation and Bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider
favorable. Among other things, our Amended and Restated Articles of Incorporation and Bylaws:
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authorize
the issuance of “blank check” preferred stock that could be issued by our board of directors in response to a takeover
attempt;
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provide
that vacancies on our board of directors, including newly created directorships, may be filled only by a majority vote of directors
then in office, except a vacancy occurring by reason of the removal of a director without cause shall be filled by vote of the stockholders;
and
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limit
who may call special meetings of stockholders.
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These
provisions could have the effect of delaying or preventing a change of control, whether or not it is desired by, or beneficial to, our
stockholders.
OUR
BUSINESS
This
description of our business does not contain all the information that you should consider before investing in our Company. You should
carefully read the entire prospectus, including all documents incorporated by reference herein. In particular, attention should be directed
to our “Risk Factors,” “Information With Respect to the Company,” “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” and the financial statements and related notes thereto contained herein or otherwise
incorporated by reference hereto, before making an investment decision.
In
this prospectus, “ToughBuilt Industries,” the “Company,” “we,” “us,” and “our”
refer to ToughBuilt Industries, Inc., a Nevada corporation.
Overview
We
were formed to design, manufacture, and distribute innovative tools and accessories to the building industry. We market and distribute
various home improvement and construction product lines for both Do-It-Yourself (“DIY”) and professional markets under
the TOUGHBUILT® brand name, within the global multibillion-dollar per year tool market. All of our products are designed by our in-house
design team. Since our initial launch of product sales seven years ago, we have experienced annual sales growth from approximately $1,000,000
in 2013 to approximately $39,000,000 in 2020.
Since
August 2013, pursuant to a Service Agreement, we have been collaborating with Belegal, a Chinese firm (“Belegal”), whose
team of experts has provided ToughBuilt with additional engineering, sourcing services, and quality control support for our operations
in China. Belegal assists us with supply chain management (process and operations in China) for our operations in China, among other
things, facilitating the transmission of our purchase orders to our suppliers in China, conducting “in-process” quality checking
and inspection, and shipping end-products manufactured in China to their final destinations. In accordance with the Services Agreement,
we pay all of the monthly costs for payroll, overhead, and other operating expenses associated with the Belegal’s activities on
behalf of ToughBuilt.
Our
business is currently based on development of innovative and state-of-the-art products, primarily in tools and hardware category, with
particular focus on building and construction industry with the ultimate goal of making life easier and more productive for contractors
and workers alike. Our current product line includes two major categories related to this field, with several additional categories in
various stages of development, consisting of soft goods and Kneepads and Sawhorses and Work Products.
ToughBuilt
designs and manages its product life cycles through a controlled and structured process. We involve customers and industry experts from
our target markets in the definition and refinement of our product development. Product development emphasis is placed on meeting and
exceeding industry standards and product specifications, ease of integration, ease of use, cost reduction, design-for manufacturability,
quality, and reliability.
Our
mission consists, of providing products to the building and home improvement communities that are innovative, of superior quality derived
in part from enlightened creativity for our end users while enhancing performance, improving well-being, and building high brand loyalty.
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. 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 become
an SEC 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. All share amounts and dollar amounts have been adjusted for the reverse
stock splits.
Recent
Developments
Recent
development of the Company are summarized below and have been previously disclosed in current reports on Form 8-K filed with the SEC:
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On
February 17, 2021, we announced that have grown our business from four stock keeping unit (SKU’s) to 25 SKU’s with Toolstation,
a Netherlands based company with over 60 stores in Benelux countries and one of the highly respected single-source suppliers of tools,
accessories, and building products for professionals and serious do-it-yourselfers. These 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.
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On
December 7, 2020, we filed a shelf registration statement on Form S-3 (File No. 333-251185) (the “First Form S-3”) containing
a base prospectus covering the offering, issuance, and sale by us of up to $75,000,000 of our common stock, preferred stock, warrants
and units; and a sales agreement prospectus covering the offering, issuance, and sale by us of up to a maximum aggregate offering
price of $11,074,247 (which amount was included in the $75,000,000 aggregate offering price set forth in the base prospectus) of
our common stock that may be issued and sold under an At The Market Offering Agreement, dated December 7, 2020 (the “First
ATM Agreement”), we entered into with H.C. Wainwright & Co., LLC, as sales agent (“Wainwright”).
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The
SEC declared the First Form S-3 effective under the Securities Act of 1933, as amended (the “Securities Act”), on December
15, 2020.
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On
January 19, 2021, we filed a prospectus supplement dated January 15, 2021 (the “ATM Prospectus Supplement”) to the First
Form S-3 to offer and sale additional shares of common stock having an aggregate value of $8,721,746 from time to time through Wainwright
acting as sales agent.
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On
February 2, 2021, we 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 us of up to $100,000,000 of our common stock, preferred
stock, warrants, and units; and a sales agreement prospectus covering the offering, issuance and sale by us 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 our
common stock that may be issued and sold under a second At The Market Offering Agreement, dated February 1, 2021 (the “Second
ATM Agreement,” and together with the First ATM Agreement, the “ATM Agreements”), we entered into with Wainwright,
as sales agent. The Second Form S-3 was declared effective by the SEC on February 8, 2021.
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Pursuant
to the ATM Agreements for the First Form S-3 and Second Form S-3, Wainwright is entitled to a commission equal to 3.0% of the gross
sales price per shares of common stock sold. A total of 18,616,338 shares of common stock having an aggregate sales price of $19,763,121
was sold through Wainwright pursuant to the First Form S-3, with net proceeds to us of approximately $19,107,000. During February
to the date of this Prospectus Supplement, the Company has sold 18,826,122 shares of Common Stock for gross proceeds of $25,427,802
in connection with the Second ATM Agreement.
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On
November 20, 2020, the Company and an institutional investor (the “Investor”) entered into an exchange agreement (the
“Exchange Agreement”) pursuant to which the Investor exchanged its Series A Senior Secured Convertible Note, Series B
Senior Convertible Note, and common stock purchase warrants originally purchased pursuant to a securities purchase agreement, dated
August 19, 2019 . Pursuant to the Exchange Agreement, the Investor exchanged its securities and agreed to extinguish its first priority
lien on all of the assets of the Company for (i) a cash payment of $744,972; (ii) 1,850,000 shares of the Company’s common
stock; (iii) a warrant to purchase up to an aggregate of 575,000 shares of the common stock for $1.00 per share, subject to anti-dilution
protection, until August 19, 2024; and (iv) nine shares of Series E Non-Convertible Preferred Stock (the “Series E Preferred
Stock”) of the Company. The Series E Preferred Stock has not yet been issued.
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Business
Developments
The
following highlights recent developments in our business over the past five years:
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In
2018, we entered into contractual agreements with two additional distributors and retailers.
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We
launched a new line of miter saw stands with three different SKUs and a new line of gloves with 16 different SKUs. Our sales increased
from $14,201,836 in 2017 to $15,289,400 in 2018.
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In
November 2018, we completed our initial public offering, pursuant to which we received net proceeds of $12,415,500 after deducting
underwriting discounts and commissions of $934,500. The Company incurred $743,765 in expenses related to the initial public offering.
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On
August 19, 2019, the Company entered into a securities purchase agreement with an institutional investor pursuant to which it sold
$11.5 million aggregate principal amount of promissory notes (at an aggregate original issue discount of 15%) to the investor in
a transaction exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.
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In
the January 2020 public offering, the Company sold 4.45 million shares of its common stock and 49.45 million warrants (each exercisable
into 1/20 of a share of common stock for a total of 24.725 million shares of common stock) from which it received gross proceeds
of $9,472,250 (less underwriters discount of $922,780 for net proceeds of $8,549,470).
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On
February 24, 2020, the Company closed on the public offering of 0.445 million shares of its common stock, for gross proceeds of $912,250
(less underwriters discount of $72,980 for net proceeds of $839,270) based upon the overallotment option arising from the closing
of its January 28, 2020, public offering.
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On
April 4, 2020, the Company received written confirmation from Lowe’s Companies, Inc. (“Lowe’s”)
of its order of products from the Company. This is an award of products across multiple soft goods and kneepad categories with 18
SKUs to be sold under the ToughBuilt name and 12 SKUs to be sold under the Lowe’s proprietary Kobalt name. The products are
sold in all Lowe’s stores in the U.S., as well as online through their website. The initial delivery was made in August 2020,
with the initial purchase order (which shall contain additional terms) to be issued 60 to 90 days prior to that date. After the “load-in”
purchase order, ToughBuilt has been receiving weekly “replenishment” purchase orders since October 2020.
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Products
We
create innovative products that help our customers build faster, build stronger, and work smarter. We accomplish this by listening to
what our customers want and need and researching how professionals work, then we create tools that help them save time, save hassle and
save money.
TOUGHBUILT®
manufactures and distributes an array of high-quality and rugged tool belts, tool bags, and other personal tool organizer products. We
also manufacture and distribute a complete line of knee pads for various construction applications. Our line of job site tools and material
support products consists of a full line of miter saw and table saw stands and saw horses/job site tables and roller stands. All of our
products are designed and engineered in the United States and manufactured in China and India under our quality control supervision.
We do not need government approval for any of our products.
Our
soft-sided tool storage line is designed for a wide range of Do-It-Yourself and professional needs. This line of pouches and tool and
accessories bags is designed to organize our customers’ tools faster and easier. Interchangeable pouches clip on and off any belt,
bag ladder wall, or vehicle. Our products let our customers carry what they want so they have it when they want it. ToughBuilt’s
wide mouth tool carry-all bags come in sizes from 12 inches to 30 inches. They all have steel-reinforced handles and padded shoulder
straps which allow for massive loads to be carried with ease. Rigid plastic hard-body lining protects everything inside. Double mesh
pockets included inside provide complete visibility for stored items. They include a lockable zipper for added security and safety and
secondary side handles for when it takes more than one to carry the load.
All
of these products have innovative designs with unique features that provide extra functionality and enhanced user experience. Patented
features such as our exclusive “Cliptech” mechanism incorporated in some of the products in this line are unique in these
products for the industry and have distinguished the line from other similarly situated products thus we believe, increasing appeal among
the other products of this category in the professional community and among the enthusiasts.
Soft
Goods
The
flagship of the product line is the soft goods line that consists of over 100 variations of tool pouches, tool rigs, tool belts and accessories,
tools bags, totes, 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 revolutionary and patented design features that allow the users to interchange
components to suit particular 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 jobsite needs. They are made with superior quality using multilevel layered construction, heavy-duty webbing,
and abrasion-resistant PVC rubber.
Metal
Goods
Sawhorses
and Work Products
The
second major category consists of Sawhorses and Work Support products with unique designs and robust construction targeted for 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 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 are built to very high standards. Our
sawhorse/jobsite 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 are slowly becoming the standard in the construction industry.
All
of our products are designed in house to achieve features and benefits for not only the professional construction worker but also for
the Do-It-Yourself person.
Business
Strategy
Our
product strategy is to develop product lines in a number of categories rather than focus on a single line of goods. We believe that this
approach allows for rapid growth, 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:
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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;
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Prompt
response;
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Superior
customer service; and
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Value
pricing.
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We
will continue to consider other market opportunities while focusing on our customers’ specific requirements to increase sales.
Market
According
to “Statista & Statistic Brain” the annual revenue in the construction industry (based on firm revenue) was $1.731
trillion for 2016 in the United States. There was approximately $394.6 billion in home improvement sales in the U.S. in 20181
1. The heavy and civil engineering industry is over $260 billion in sales with tools and hardware alone totaling over $60
billion for that same time period. In 2016, there were approximately 729,000 construction companies in the United States employing
more than 7.3 million employees. In addition to the construction market, our products are marketed to the
“Do-It-Yourself” and home improvement market place. The home improvement industry has fared much better in the aftermath
of the Great Recession than the housing market. The U.S. housing stock of more than 130 million homes requires regular investment
merely to offset normal depreciation. And many households that might have traded up to more desirable homes during the downturn
decided instead to make improvements to their current homes. Meanwhile, federal and state stimulus programs encouraged homeowners
and rental property owners to invest in energy-efficient upgrades that they might otherwise have deferred. Finally, many rental
property owners, responding to a surge in demand from households either facing foreclosure or nervous about buying amid the housing
market uncertainty, reinvested in their units.
As
a result, improvement and repair spending held up well compared to residential construction spending. According to “Home Improvement
– Still Growing in 2019,” on www.hiri.org, “the HIRI/IHS Markit forecast expects 5.5% growth in the home improvement
products market in 2019 after a strong 6.2% in 2018.”
Total
home improvement product sales were expected to increase 5.5% in 2018 to $420 billion in total sales. The Professional Market was expected
to increase 6.0% in 2019 over 2018 and the Consumer Market will see a sales increase of 5.3%.
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 placement in Home Depot, Menards, Toolbank (UK), 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.
Retailers
by region include:
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United
States: Lowe’s, Home Depot, Menards, GM products, Fire Safety, Hartville Hardware, ORR, Pooley, YOW, Wesco, Buzzi, and Western
Pacific Building Materials
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Canada:
Princess Auto
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United
Kingdom: Toolbank (distribution throughout the UK and online selling for Europe)
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Australia:
Kincrome, and Bunnings
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New
Zealand: Kincrome, and Bunnings
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Eastern
Europe: VSEInstrumenti.ru
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South
Korea: Dong Shin Tool PIA Co., Ltd.
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1 1 See https://www.statista.com/statistics/239759/predicted-sales-of-home-improvement-retailers-in-the-us/
We
are actively expanding into markets in Mexico and Latin American countries and in 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 and internationally. A product line review requires the supplier to submit a comprehensive proposal which includes product
offerings, prices, competitive market studies, and 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 56 targeted countries.
Innovation
and Brand Strength
Management
believes that the robust capabilities at ToughBuilt eclipse those of many competitors as not every distributor or factory has the ability
to quickly identify industry and end-user opportunities and execute quickly to deliver winning product lines consistently. Also, in our
view, most distributors and factories do not have a recognizable and reputable brand or the proven ability to reach major retailers globally
to position their products and brands. We believe that we are able to take a design from concept to market within a very short period
of time.
Product
and Services Diversification
TOUGHBUILT®
is a singular brand with a driven team that is poised to scale into a highly recognized global entity. We aim to grow ToughBuilt with
several significant subsidiaries in the next few years to become the hub/platform for professionals, DIY’s (Do-It-Yourselfers),
and passionate builders everywhere. Management anticipates that future subsidiaries will focus on licensing, gear, mobile, equipment
rentals, and maintenance services.
New
Products
Tools
In
2018, we launched 28 SKUs of tool belt and pouches. We intend to launch the following tools in the first half of 2021:
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 believe that increasing numbers 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 the 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.
Mobile
Device Market
Based
upon an annual white paper published by the Mobile and Wireless Practice of Venture Development Corporation, we believe that an increasing
number of companies are requiring their employees to transact business in the field and/or other non-traditional office environments.
Because of this and other factors, the construction industry is accelerating its acceptance of wireless technology. We further believe
that the construction industry, like other industries, will be leveraging mobile and wireless solutions to address the need for greater
collaboration among a highly mobile and distributed workforce.
We
believe that mobility is one of the top technology trends that construction companies have been focusing on in 2020 and beyond. Mobile
technology continues to have a significant impact on business, specifically with regard to business communication as this technology
enhances the ability for colleagues at different locations to easily communicate, enhances customer experience through the improvement
of applications and websites available to consumers to do business through their devices “at their fingertips,” and optimizes
business operations as there is instant access to business functions at any time and from any location.
While
the construction industry has widely adopted solutions such as push to talk (PTT) telephony applications, the use of mobile and wireless
data applications has been limited. IT solutions in general and mobile and wireless solutions specifically have been adopted at varying
degrees within organizations and to support the various phases of construction projects. Currently, the business planning, engineering,
and procurement operations have more effectively deployed IT solutions while actual construction operations have fallen behind in IT
infrastructure and field automation solutions. The construction and engineering workforce is inherently mobile. However, construction
sites have never effectively leveraged (wireless) communications networks to connect these distributed and often remote workers and their
assets. Nevertheless, construction project managers require real-time access to a variety of information, including real-time tool inventory
management, raw materials deliveries, job costing, time stamping, and general project management information. The challenge, however,
is the lack of network access on construction sites resulting in an information bottleneck on the job site. Buoyed by advances in wireless
technologies – including coverage, performance, security, and cost of ownership – we believe this is becoming an issue of
the past for construction operations.
Mobile
Apps
We
intend to include apps on our mobile devices and are developing, with a third-party applications developer, apps which will include,
among other things, building codes, permitting, estimating, and job listings. The purposes of the apps that are being developed address:
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Reducing
construction delays. Gathering real-time information at the job site about issues such as tradespeople and contractors present at
the site, construction progress, or incidents, can reduce overall project delays. This critical information helps to bring issues
to light that might put projects on hold, and keep construction on schedule.
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Improving
communication with owners and project stakeholders. Completing daily reports at the job site on mobile devices and sending automated
emails can tighten the communication loop with project stakeholders. When all parties involved in the project have access to the
same information at the same time, errors are reduced and issues requiring attention can be addressed faster.
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Increasing
back office efficiency. By eliminating the use of paper and spreadsheets, construction companies can save hundreds of hours spent
on data entry, collating information for reporting, or looking for paperwork that has been lost or filed away. Increasing back office
efficiency allows projects to be run leaner and to be completed on time and on budget.
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Improving
accountability of field staff. Staff travel times, GPS locations and time spent on-site can all be consistently monitored with mobile
apps. This improves accountability and reduces labor costs. Costs can be also reduced with mobile timesheets that record clock-in/clock-out
time to the minute.
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Improving
accuracy of project documentation. Using mobile apps to capture information at the job site improves accuracy and reduces issues
that arise from illegible handwriting, inconsistent data, and information gaps. Photos, GPS, time stamps, and signatures captured
on-site provide an accurate and indisputable audit trail for the project, delivering accountability to clients or evidence in legal
disputes.
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Improving
equipment management. Construction companies that use a database-driven mobile solution can maximize the use of equipment through
better management and tracking. Real-time information about maintenance schedules, availability, and equipment locations helps to
improve inventory planning and use.
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Utilizing
real-time mobile access to plans and bylaws. With apps that provide two-way access to information, construction companies can file
electronic versions of drawings, plans, or bylaws for quick offline access by teams in the field. This improves productivity and
reduces the need for re-work.
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Sales
Strategy
The
devices, accessories, and bolt-on digital tools will be sold through relevant home improvement big box stores, direct marketing to construction
companies, direct marketing of trade/wholesale outlets and to professional outlets.
Intellectual
Property
We
hold several patents and trademarks of various durations and believe that we hold, have applied for or license all of the patent, trademark,
and other intellectual property rights necessary to conduct our business. We utilize trademarks (licensed and owned) on nearly all of
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.
We
also rely on trade secret protection for our confidential and proprietary information relating to our design and processes for our products.
Copyright protection is also utilized when appropriate.
Domain
names are a valuable corporate asset for companies around the world, including ToughBuilt. Domain names often contain a trademark or
service mark or even a corporate name and are often considered intellectual property. The recognition and value of the ToughBuilt name,
trademark, and domain name are core strengths of the Company.
We
have entered into and will continue to enter into confidentiality, non-competition, and proprietary rights assignment agreements with
our employees and independent contractors. We have entered into and will continue to enter into confidentiality agreements with our suppliers
to protect our intellectual property.
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:
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Significantly
greater financial resources than we have;
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More
comprehensive product lines;
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Longer-standing
relationships with suppliers, manufacturers, and retailers;
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Broader
distribution capabilities;
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Stronger
brand recognition and loyalty; and
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The
ability to invest substantially more in product advertising and 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, compete effectively
on the basis of price and production, and more quickly develop new products. These competitors include DeWalt, Caterpillar, and Samsung
Active.
The
markets for the Company’s mobile products and services are also highly competitive and the Company is confronted by aggressive
competition in all areas of its 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. The Company’s 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. The Company’s 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 the Company 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.
The
Company is 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. The Company expects 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 own products or, alternatively, collaborate with each other 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.
Employees
As
of July 12, 2021, we have 52 full-time employees, including our four executive officers, and 20 independent contractors and consultants.
We engage consultants on an as-needed basis to supplement existing staff. All of our employees, consultants, and contractors that are
involved with sensitive and/or proprietary information have signed nondisclosure agreements. Since the onset of the COVID-19 pandemic,
we have taken an integrated approach to helping our employees manage their work and personal responsibilities, with a strong focus on
employee well-being, health, and safety.
IMPLICATIONS
OF BEING AN EMERGING GROWTH COMPANY
We
are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)
. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year following the fifth anniversary
of the first sale of our common stock pursuant to an effective registration statement under the Securities Act of 1933, as amended (the
“Securities Act”); (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or
more; (iii) the date on which we have issued more than $1.07 billion in nonconvertible debt during the previous three years; or (iv)
the date on which we are deemed to be a large accelerated filer under applicable SEC rules. We expect that we will remain an emerging
growth company for the foreseeable future, but cannot retain our emerging growth company status indefinitely. For so long as we remain
an emerging growth company, we are permitted and intend to rely on exemptions from specified disclosure requirements that are applicable
to other public companies that are not emerging growth companies. These exemptions include:
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being
permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements,
with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
disclosure;
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not
being required to comply with the requirement of auditor attestation of our internal controls over financial reporting;
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not
being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial
statements;
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reduced
disclosure obligations regarding executive compensation; and
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not
being required to hold a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments
not previously approved.
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For
as long as we continue to be an emerging growth company, we expect that we will take advantage of the reduced disclosure obligations
available to us as a result of that classification. Accordingly, the information contained herein may be different than the information
you receive from other public companies in which you hold stock.
An
emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for
complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting
standards until those standards would otherwise apply to private companies. We have irrevocably elected to avail ourselves of this extended
transition period and, as a result, we will not be required to adopt new or revised accounting standards on the dates on which adoption
of such standards is required for other public reporting companies.
We
are also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700
million as of our most recently completed second fiscal quarter and our annual revenue was less than $100 million during our most recently
completed fiscal year. We may continue to be a smaller reporting company if either (i) the market value of our stock held by non-affiliates
is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the
market value of our stock held by non-affiliates is less than $700 million as of our most recently completed second fiscal quarter. If
we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from
certain disclosure requirements that are available to smaller reporting companies.
We
may offer shares of our common stock and preferred stock and warrants to purchase any of such securities, either individually or in units,
with a total value of up to $100,000,000 from time to time under this prospectus, together with any applicable prospectus supplement
and related free writing prospectus, at prices and on terms to be determined by market conditions at the time of offering. Each time
we offer securities under this prospectus, we will provide offerees with a prospectus supplement that will describe the specific amounts,
prices and other important terms of the securities being offered, including, to the extent applicable:
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designation
or classification;
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aggregate
principal amount or aggregate offering price;
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maturity,
if applicable;
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original
issue discount, if any;
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rates
and times of payment of interest or dividends, if any;
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redemption,
conversion, exchange or sinking fund terms, if any;
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conversion
or exchange prices or rates, if any, and, if applicable, any provisions for changes to or adjustments in the conversion or exchange
prices or rates and in the securities or other property receivable upon conversion or exchange;
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restrictive
covenants, if any;
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voting
or other rights, if any; and
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important
United States federal income tax considerations.
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Common
Stock
A
prospectus supplement and any related free writing prospectus that we may authorize to be provided to you may also add, update or change
information contained in this prospectus or in documents we have incorporated by reference. However, no prospectus supplement or free
writing prospectus will offer a security that is not registered and described in this prospectus at the time of the effectiveness of
the registration statement of which this prospectus is a part.
We
may sell the securities to or through underwriters, dealers or agents or directly to purchasers. We, as well as any agents acting on
our behalf, reserve the sole right to accept and to reject in whole or in part any proposed purchase of securities. Each prospectus supplement
will set forth the names of any underwriters, dealers or agents involved in the sale of securities described in that prospectus supplement
and any applicable fee, commission or discount arrangements with them, details regarding any over-allotment option granted to them, and
net proceeds to us. The following is a summary of the securities we may offer with this prospectus.
We
currently have authorized 200,000,000 shares of common stock, $0.0001 par value. We may offer shares of our common stock either alone
or underlying other registered securities convertible into or exercisable for our common stock. Holders of our common stock are entitled
to such dividends as our Board of Directors (the “Board” or “Board of Directors”) may declare from time to time
out of legally available funds, subject to the preferential rights of the holders of any shares of our preferred stock that are outstanding
or that we may issue in the future. Currently, we do not pay any dividends on our common stock. Each holder of our common stock is entitled
to one vote per share. In this prospectus, we provide a general description of, among other things, the rights and restrictions that
apply to holders of our common stock.
USE
OF PROCEEDS
Except
as described in any prospectus supplement and any free writing prospectus in connection with a specific offering, we currently intend
to use the net proceeds from the sale of the securities offered under this prospectus for general corporate purposes and working capital
and capital expenditures. We have not determined the amount of net proceeds to be used specifically for the foregoing purposes. As a
result, our management will have broad discretion in the allocation of the net proceeds and investors will be relying on the judgment
of our management regarding the application of the proceeds of any sale of the securities. Pending use of the net proceeds, we may invest
the proceeds in short-term, investment-grade, interest-bearing instruments.
DIVIDEND
POLICY
We
have never declared or paid any cash dividends on our securities. We have no present plan to declare and pay any dividends on our securities
in the near future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand
our business. Any future determination to pay dividends will be at the discretion of our board of directors, subject to applicable laws,
and will depend on our financial condition, results of operations, capital requirements, general business conditions and other factors
that our board of directors considers relevant.
THE
SECURITIES WE MAY OFFER
We
may offer shares of common stock, shares of preferred stock or warrants to purchase common stock, preferred stock or any combination
of the foregoing, either individually or as units comprised of one or more of the other securities. We may offer up to $100,000,000 of
securities under this prospectus. If securities are offered as units, we will describe the terms of the units in a prospectus supplement.
DESCRIPTION
OF CAPITAL STOCK
General
Our
authorized capital stock presently consists of 200,000,000 shares of common stock, par value $0.0001 per share, and 5,000,000 shares
of “blank check” preferred stock, par value $0.001 per share. As of January 29, 2021, we had 61,762,112 shares of common
stock outstanding and 98 record holders of our common stock.
The
following is a summary of the terms of our capital stock.
Common
Stock
Holders
of common stock are entitled to one vote for each share held on all matters submitted to a vote of the stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect
all of the directors standing for election. Holders of common stock are entitled to receive ratably any dividends, as may be declared
by the Board of Directors out of funds legally available therefor, subject to the rights of the holders of preferred stock. Upon the
liquidation, dissolution or winding up of our company, the holders of common stock are entitled to receive ratably our net assets available
after the payment of our debts and other liabilities. Holders of common stock have no preemptive, subscription, redemption or conversion
rights. The outstanding shares of common stock are fully paid and nonassessable.
Listing
Our
common stock is listed on the Nasdaq Capital Market under the symbol “TBLT.”
Preferred
Stock
Our
Articles of Incorporation, as amended, authorizes 5,000,000 shares of “blank check” preferred stock, par value $0.0001 per
share, of which none are outstanding. The Board of Directors of the Company may provide for the issue of any or all of the unissued and
undesignated shares of the preferred stock in one or more series, and to fix the number of shares and to determine or alter for each
such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating,
optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution
or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by law, without stockholder
approval.
Our
board of directors has the right to establish one or more series of preferred stock without stockholder approval. Unless required by
law or by any stock exchange on which our common stock is listed, the authorized shares of preferred stock will be available for issuance
at the discretion of our board of directors without further action by our stockholders. Our board of directors is able to determine,
with respect to any series of preferred stock, the terms and rights of that series, including:
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the
designation of the series;
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the
number of shares of the series;
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whether
dividends, if any, will be cumulative or non-cumulative and the dividend rate, if any, of the series;
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the
dates at which dividends, if any, will be payable;
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the
redemption rights and price or prices, if any, for shares of the series;
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the
terms and amounts of any sinking fund provided for the purchase or redemption of shares of the series;
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the
amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding-up of the
affairs of our company;
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whether
the shares of the series will be convertible into shares of any other class or series, or any other security, of our company or any
other entity, and, if so, the specification of the other class or series or other security, the conversion price or prices or rate
or rates and provisions for any adjustments to such prices or rates, the date or dates as of which the shares will be convertible,
and all other terms and conditions upon which the conversion may be made;
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the
ranking of such series with respect to dividends and amounts payable on our liquidation, dissolution or winding-up, which may include
provisions that such series will rank senior to our common stock with respect to dividends and those distributions;
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restrictions
on the issuance of shares of the same series or any other class or series; or
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voting
rights, if any, of the holders of the series.
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The
issuance of preferred stock could adversely affect, among other things, the voting power of holders of common stock and the likelihood
that stockholders will receive dividend payments and payments upon our liquidation, dissolution or winding up. The issuance of preferred
stock could also have the effect of delaying, deferring or preventing a change in control of us.
A
prospectus supplement relating to any series of preferred stock being offered will include specific terms related to the offering. They
will include, where applicable:
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the
title and stated value of the series of preferred stock and the number of shares constituting that series;
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the
number of shares of the series of preferred stock offered, the liquidation preference per share and the offering price of the shares
of preferred stock;
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the
dividend rate(s), period(s) and/or payment date(s) or the method(s) of calculation for those values relating to the shares of preferred
stock of the series;
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the
date from which dividends on shares of preferred stock of the series shall cumulate, if applicable;
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our
right, if any, to defer payment of dividends and the maximum length of any such deferral period;
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the
procedures for any auction and remarketing, if any, for shares of preferred stock of the series;
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the
provision for redemption or repurchase, if applicable, of shares of preferred stock of the series;
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any
listing of the series of shares of preferred stock on any securities exchange;
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the
terms and conditions, if applicable, upon which shares of preferred stock of the series will be convertible into shares of preferred
stock of another series or common stock, including the conversion price, or manner of calculating the conversion price;
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whether
the preferred stock will be exchangeable into debt securities, and, if applicable, the exchange period, the exchange price, or how
it will be calculated, and under what circumstances it may be adjusted;
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voting
rights, if any, of the preferred stock;
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restrictions
on transfer, sale or other assignment, if any;
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whether
interests in shares of preferred stock of the series will be represented by global securities;
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any
other specific terms, preferences, rights, limitations or restrictions of the series of shares of preferred stock;
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a
discussion of any material United States federal income tax consequences of owning or disposing of the shares of preferred stock
of the series;
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the
relative ranking and preferences of shares of preferred stock of the series as to dividend rights and rights upon liquidation, dissolution
or winding up of our affairs; and
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any
limitations on issuance of any series of shares of preferred stock ranking senior to or on a parity with the series of shares of
preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of our affairs.
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If
we issue shares of preferred stock under this prospectus, the shares will be fully paid and nonassessable and will not have, or be subject
to, any preemptive or similar rights.
Indemnification
of Officers and Directors and Insurance
Our
Bylaws provide for limitation of liability of our directors and for indemnification of our directors and officers to the fullest extent
permitted under Nevada law. Our directors and officers may be liable for a breach or failure to perform their duties in accordance with
Nevada law only if their breach or failure to perform constitutes gross negligence, willful misconduct or intentional harm on our company
or our stockholders. Our directors may not be personally liable for monetary damages for action taken or failure to take action as a
director except in specific instances established by Nevada law.
In
accordance with Nevada law, we may generally indemnify a director or officer against liability incurred in a proceeding if he or she
acted in good faith, and believed that his or her conduct was in our best interest and that he or she had no reason to believe his or
her conduct was unlawful. We may not indemnify a director or officer if the person was adjudged liable to us or in the event it is adjudicated
that the director or officer received an improper personal benefit.
Under
Nevada law, we will indemnify a director or officer who is successful on the merits or otherwise in defense of any proceeding, or in
the defense of any claim, issue or matter in the proceeding, to which he or she was a party because he or she is or was a director or
an officer, as the case may be, against reasonable expenses incurred by him or her in connection with the proceeding or claim with respect
to which he or she has been successful.
We
maintain a directors’ and officers’ liability insurance policy which, subject to the limitations and exclusions stated therein,
covers our directors and officers for certain actions or inactions they may take or omit to take in their capacities as directors and
officers.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable.
The
Company maintains general liability insurance that covers certain liabilities of its directors and officers arising out of claims based
on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers, or persons who control the Company, the Company
has been informed that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities
Act and is therefore unenforceable.
These
provisions may discourage stockholders from bringing a lawsuit against the Company’s directors for breach of their fiduciary duty,
or may have the practical effect in some cases of eliminating the Company’s stockholders’ ability to collect monetary damages
from its directors and officers. These provisions may also have the effect of reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might otherwise benefit the Company and its stockholders. Furthermore,
a stockholder’s investment may be adversely affected to the extent the Company pays the costs of settlement and damage awards against
directors and officers pursuant to these indemnification provisions.
Authorized
but Unissued Shares
Our
authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. We may
use additional shares for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions
and as employee compensation. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult
or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Transfer
Agent and Registrar
Our
transfer agent and registrar is VStock Transfer Company, Inc. located at 18 Lafayette Pl, Woodmere, New York 11598. Their telephone number
is (212) 828-8436.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we may include in any applicable prospectus supplements and free writing
prospectuses, summarizes the material terms and provisions of the warrants that we may offer under this prospectus, which may consist
of warrants to purchase common stock or preferred stock and may be issued in one or more series. Warrants may be offered independently
or together with common stock or preferred stock offered by any prospectus supplement and may be attached to or separate from those securities.
While the terms we have summarized below will apply generally to any warrants that we may offer under this prospectus, we will describe
the particular terms of any series of warrants that we may offer in more detail in the applicable prospectus supplement and any applicable
free writing prospectus. The terms of any warrants offered under a prospectus supplement may differ from the terms described below. However,
no prospectus supplement will fundamentally change the terms that are set forth in this prospectus or offer a security that is not registered
and described in this prospectus at the time of its effectiveness.
We
will issue the warrants under a warrant agreement that we will enter into with a warrant agent to be selected by us. The warrant agent
will act solely as an agent of ours in connection with the warrants and will not act as an agent for the holders or beneficial owners
of the warrants. We will file as exhibits to the registration statement of which this prospectus is a part or will incorporate by reference
from a current report on Form 8-K that we file with the SEC, the form of warrant agreement, including a form of warrant certificate,
that describes the terms of the particular series of warrants we are offering before the issuance of the related series of warrants.
The following summaries of material provisions of the warrants and the warrant agreements are subject to, and qualified in their entirety
by reference to, all the provisions of the warrant agreement and warrant certificate applicable to a particular series of warrants. We
urge you to read the applicable prospectus supplement and any applicable free writing prospectus related to the particular series of
warrants that we sell under this prospectus, as well as the complete warrant agreements and warrant certificates that contain the terms
of the warrants.
General
We
will describe in the applicable prospectus supplement the terms relating to a series of warrants, including:
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offering price and aggregate number of warrants offered;
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the
currency for which the warrants may be purchased;
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if
applicable, the designation and terms of the securities with which the warrants are issued and the number of warrants issued with
each such security or each principal amount of such security;
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if
applicable, the date on and after which the warrants and the related securities will be separately transferable;
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in
the case of warrants to purchase common stock or preferred stock, the number of shares of common stock or preferred stock, as the
case may be, purchasable upon the exercise of one warrant and the price at which these shares may be purchased upon such exercise;
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the
effect of any merger, consolidation, sale or other disposition of our business on the warrant agreements and the warrants;
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the
terms of any rights to redeem or call the warrants;
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any
provisions for changes to or adjustments in the exercise price or number of securities issuable upon exercise of the warrants;
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the
dates on which the right to exercise the warrants will commence and expire;
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the
manner in which the warrant agreements and warrants may be modified;
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United
States federal income tax consequences of holding or exercising the warrants;
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the
terms of the securities issuable upon exercise of the warrants; and
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any
other specific terms, preferences, rights or limitations of or restrictions on the warrants.
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Before
exercising their warrants, holders of warrants will not have any of the rights of holders of the securities purchasable upon such exercise,
including, in the case of warrants to purchase common stock or preferred stock, the right to receive dividends, if any, or, payments
upon our liquidation, dissolution or winding up or to exercise voting rights, if any
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we specify in the applicable prospectus supplement at the exercise price
that we describe in the applicable prospectus supplement. Unless we otherwise specify in the applicable prospectus supplement, holders
of the warrants may exercise the warrants at any time up to the specified time on the expiration date that we set forth in the applicable
prospectus supplement. After the close of business on the expiration date, unexercised warrants will become void.
Holders
of the warrants may exercise the warrants by delivering the warrant certificate representing the warrants to be exercised together with
specified information, and paying the required amount to the warrant agent in immediately available funds, as provided in the applicable
prospectus supplement. We will set forth on the reverse side of the warrant certificate and in the applicable prospectus supplement the
information that the holder of the warrant will be required to deliver to the warrant agent.
Upon
receipt of the required payment and the warrant certificate properly completed and duly executed at the corporate trust office of the
warrant agent or any other office indicated in the applicable prospectus supplement, we will issue and deliver the securities purchasable
upon such exercise. If fewer than all of the warrants represented by the warrant certificate are exercised, then we will issue a new
warrant certificate for the remaining amount of warrants. If we so indicate in the applicable prospectus supplement, holders of the warrants
may surrender securities as all or part of the exercise price for warrants.
Enforceability
of Rights by Holders of Warrants
Each
warrant agent will act solely as our agent under the applicable warrant agreement and will not assume any obligation or relationship
of agency or trust with any holder of any warrant. A single bank or trust company may act as warrant agent for more than one issue of
warrants. A warrant agent will have no duty or responsibility in case of any default by us under the applicable warrant agreement or
warrant, including any duty or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder
of a warrant may, without the consent of the related warrant agent or the holder of any other warrant, enforce by appropriate legal action
its right to exercise, and receive the securities purchasable upon exercise of, its warrants.
DESCRIPTION
OF UNITS
The
following description, together with the additional information we may include in any applicable prospectus supplements and free writing
prospectuses, summarizes the material terms and provisions of the units that we may offer under this prospectus.
While
the terms we have summarized below will apply generally to any units that we may offer under this prospectus, we will describe the particular
terms of any series of units in more detail in the applicable prospectus supplement. The terms of any units offered under a prospectus
supplement may differ from the terms described below. However, no prospectus supplement will fundamentally change the terms that are
set forth in this prospectus or offer a security that is not registered and described in this prospectus at the time of its effectiveness.
We
will file as exhibits to the registration statement of which this prospectus is a part, or will incorporate by reference from a current
report on Form 8-K that we file with the SEC, the form of unit agreement that describes the terms of the series of units we are offering,
and any supplemental agreements, before the issuance of the related series of units. The following summaries of material terms and provisions
of the units are subject to, and qualified in their entirety by reference to, all the provisions of the unit agreement and any supplemental
agreements applicable to a particular series of units. We urge you to read the applicable prospectus supplements related to the particular
series of units that we sell under this prospectus, as well as the complete unit agreement and any supplemental agreements that contain
the terms of the units.
General
We
may issue units comprised of one or more shares of common stock, shares of preferred stock and warrants in any combination. Each unit
will be issued so that the holder of the unit is also the holder of each security included in the unit. Thus, the holder of a unit will
have the rights and obligations of a holder of each included security. The unit agreement under which a unit is issued may provide that
the securities included in the unit may not be held or transferred separately, at any time or at any time before a specified date.
We
will describe in the applicable prospectus supplement the terms of the series of units, including:
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the
designation and terms of the units and of the securities comprising the units, including whether and under what circumstances those
securities may be held or transferred separately;
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any
provisions of the governing unit agreement that differ from those described below; and
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any
provisions for the issuance, payment, settlement, transfer or exchange of the units or of the securities comprising the units.
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The
provisions described in this section, as well as those described under “Description of Capital Stock,” and “Description
of Warrants” will apply to each unit and to any common stock, preferred stock, debt security or warrant included in each unit,
respectively.
Issuance
in Series
We
may issue units in such amounts and in numerous distinct series as we determine.
Enforceability
of Rights by Holders of Units
Each
unit agent will act solely as our agent under the applicable unit agreement and will not assume any obligation or relationship of agency
or trust with any holder of any unit. A single bank or trust company may act as unit agent for more than one series of units. A unit
agent will have no duty or responsibility in case of any default by us under the applicable unit agreement or unit, including any duty
or responsibility to initiate any proceedings at law or otherwise, or to make any demand upon us. Any holder of a unit may, without the
consent of the related unit agent or the holder of any other unit, enforce by appropriate legal action its rights as holder under any
security included in the unit.
We,
the unit agents and any of their agents may treat the registered holder of any unit certificate as an absolute owner of the units evidenced
by that certificate for any purpose and as the person entitled to exercise the rights attaching to the units so requested, despite any
notice to the contrary. See “Legal Ownership of Securities.”
PLAN
OF DISTRIBUTION
We
may sell the securities from time to time pursuant to underwritten public offerings, direct sales to the public, negotiated transactions,
block trades or a combination of these methods. We may sell the securities to or through underwriters or dealers, through agents, or
directly to one or more purchasers. We may distribute securities from time to time in one or more transactions:
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at
a fixed price or prices, which may be changed;
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at
market prices prevailing at the time of sale;
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at
prices related to such prevailing market prices; or
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at
negotiated prices.
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A
prospectus supplement or supplements (and any related free writing prospectus that we may authorize to be provided to you) will describe
the terms of the offering of the securities, including, to the extent applicable:
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the
name or names of the underwriters, if any;
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the
purchase price of the securities or other consideration therefor, and the proceeds, if any, we will receive from the sale;
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any
options under which underwriters may purchase additional securities from us;
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any
agency fees or underwriting discounts and other items constituting agents’ or underwriters’ compensation;
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any
public offering price;
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any
discounts or concessions allowed or reallowed or paid to dealers; and
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any
securities exchange or market on which the securities may be listed.
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Only
underwriters named in the prospectus supplement will be underwriters of the securities offered by the prospectus supplement.
If
underwriters are used in the sale, they will acquire the securities for their own account and may resell the securities from time to
time in one or more transactions at a fixed public offering price or at varying prices determined at the time of sale. The obligations
of the underwriters to purchase the securities will be subject to the conditions set forth in the applicable underwriting agreement.
We may offer the securities to the public through underwriting syndicates represented by managing underwriters or by underwriters without
a syndicate. Subject to certain conditions, the underwriters will be obligated to purchase all of the securities offered by the prospectus
supplement, other than securities covered by any option to purchase additional securities from us. Any public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may change from time to time. We may use underwriters with whom we have
a material relationship. We will describe in the prospectus supplement, naming the underwriter, the nature of any such relationship.
We
may sell securities directly or through agents we designate from time to time. We will name any agent involved in the offering and sale
of securities and we will describe any commissions we will pay the agent in the prospectus supplement. Unless the prospectus supplement
states otherwise, our agent will act on a best-efforts basis for the period of its appointment.
We
may authorize agents or underwriters to solicit offers by certain types of institutional investors to purchase securities from us at
the public offering price set forth in the prospectus supplement pursuant to delayed delivery contracts providing for payment and delivery
on a specified date in the future. We will describe the conditions to these contracts and the commissions we must pay for solicitation
of these contracts in the prospectus supplement.
We
may provide agents and underwriters with indemnification against civil liabilities, including liabilities under the Securities Act of
1933, as amended (“Securities Act”), or contribution with respect to payments that the agents or underwriters may make with
respect to these liabilities. Agents and underwriters may engage in transactions with, or perform services for, us in the ordinary course
of business.
All
securities we may offer, other than common stock, will be new issues of securities with no established trading market. Any underwriters
may make a market in these securities, but will not be obligated to do so and may discontinue any market making at any time without notice.
We cannot guarantee the liquidity of the trading markets for any securities.
Any
underwriter may engage in over-allotment, stabilizing transactions, short-covering transactions and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934 (“Exchange Act”). Over-allotment involves sales in excess of the offering size,
which create a short position. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids
do not exceed a specified maximum price. Syndicate-covering or other short-covering transactions involve purchases of the securities,
either through exercise of the over-allotment option or in the open market after the distribution is completed, to cover short positions.
Penalty bids permit the underwriters to reclaim a selling concession from a dealer when the securities originally sold by the dealer
are purchased in a stabilizing or covering transaction to cover short positions. Those activities may cause the price of the securities
to be higher than it would otherwise be. If commenced, the underwriters may discontinue any of the activities at any time.
Any
underwriters or agents that are qualified market makers on the Nasdaq Capital Market may engage in passive market making transactions
in the common stock on the Nasdaq Capital Market in accordance with Regulation M under the Exchange Act, during the business day prior
to the pricing of the offering, before the commencement of offers or sales of the common stock. Passive market makers must comply with
applicable volume and price limitations and must be identified as passive market makers. In general, a passive market maker must display
its bid at a price not in excess of the highest independent bid for such security; if all independent bids are lowered below the passive
market maker’s bid, however, the passive market maker’s bid must then be lowered when certain purchase limits are exceeded.
Passive market making may stabilize the market price of the securities at a level above that which might otherwise prevail in the open
market and, if commenced, may be discontinued at any time.
LEGAL
MATTERS
The
validity of the issuance of the securities offered hereby will be passed upon for us by Carmel, Milazzo & Feil LLP located in New
York, New York. Additional legal matters may be passed upon for us or any underwriters, dealers or agents, by counsel that we will name
in the applicable prospectus supplement.
EXPERTS
Marcum
LLP, an independent registered public accounting firm, has audited our consolidated financial statements for the years ended December
31, 2019 and 2018 as set forth in their report dated March 30, 2020 included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019 filed with the SEC on March 30, 2020, which is incorporated by reference in this prospectus. Our financial statements
are incorporated by reference herein in reliance on Marcum LLP and its respective report, given its authority as an expert in accounting
and auditing matters.
WHERE
YOU CAN FIND MORE INFORMATION
This
prospectus is part of the registration statement on Form S-3 that we filed with the Commission under the Securities Act and does not
contain all of the information set forth in the registration statement. Whenever a reference is made in this prospectus to any of our
contracts, agreements or other documents, the reference may not be complete and you should refer to the exhibits that are part of the
registration statement or the exhibits to the reports or other document incorporated into this prospectus for a copy of such contract
agreement or other document. Because we are subject to the information and reporting requirements under the Exchange Act, we file annual,
quarterly and special reports, proxy statements and other information with the Commission. Our filings with the Commission are available
to the public over the Commission’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC
at its public reference facility at 100 F Street, N.E., Washington, D.C., 20549, on official business days during the hours of 10 a.m.
to 3 p.m. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100
F Street, N.E., Washington, D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference facility. In addition, you can find more information about us on our website at http://toughbuilt.com.
INCORPORATION
OF DOCUMENTS BY REFERENCE
We
have filed a registration statement on Form S-3 with the Securities and Exchange Commission under the Securities Act. This prospectus
is part of the registration statement but the registration statement includes and incorporates by reference additional information and
exhibits. The Securities and Exchange Commission permits us to “incorporate by reference” the information contained in documents
we file with the Securities and Exchange Commission, which means that we can disclose important information to you by referring you to
those documents rather than by including them in this prospectus. Information that is incorporated by reference is considered to be part
of this prospectus and you should read it with the same care that you read this prospectus. Information that we file later with the Securities
and Exchange Commission will automatically update and supersede the information that is either contained, or incorporated by reference,
in this prospectus, and will be considered to be a part of this prospectus from the date those documents are filed. We have filed with
the Securities and Exchange Commission, and incorporate by reference in this prospectus:
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our
Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 26, 2021;
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our
Quarterly Reports on Form 10-Q for the quarter ended March 31, 2020, filed with the SEC on May 17, 2021;
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our
Current Reports on Form 8-K, filed with the SEC on January 27, 2021, February 10, 2021, February 17 2021, March 29, 2021, April 1, 2021, May 17, 2021, May 19, 2021 and June 16, 2021, (except for the information furnished under Items 2.02 or 7.01 and the exhibits
furnished thereto); and
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the
description of our common stock contained in a registration statement on Form 8-A filed with the SEC on November 8, 2018.
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We
also incorporate by reference all additional documents that we file with the Securities and Exchange Commission under the terms of Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act that are made after the date of the initial registration statement but prior to effectiveness
of the registration statement and after the date of this prospectus but prior to the termination of the offering of the securities covered
by this prospectus. We are not, however, incorporating, in each case, any documents or information that we are deemed to furnish and
not file in accordance with Securities and Exchange Commission rules.
You
may request, and we will provide you with, a copy of these filings, at no cost, by calling us at (949) 528-3100 or by writing to us at
the following address:
ToughBuilt
Industries, Inc
25371
Commercentre Drive, Suite 200
Lake
Forest, CA 92630
Attn:
Michael Panosian, CEO
ToughBuilt
Industries, Inc.
46,029,920
Shares of Common Stock
Warrants
to Purchase 23,014,960 shares of Common Stock
Placement
Agent Warrants to Purchase 2,761,795 shares of Common Stock
(and
the Shares of Common Stock underlying
such Warrants and Placement Agent Warrants)
PROSPECTUS
SUPPLEMENT
H.C.
Wainwright & Co.
July
11, 2021
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