Toughbuilt Industries, Inc

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, 2022

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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____to_____

Commission File Number:

001-38739

TOUGHBUILT INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Nevada		46-0820877
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

25371 Commercentre Drive, Suite 200 Lake Forest, CA		92630
(Address of principal executive offices)		(Zip Code)

(949) 528-3100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and formal fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol(s)	Name of each exchange on which registered:
Common Stock	TBLT	NASDAQ CAPITAL MARKET
Series A Warrants	TBLTW	NASDAQ CAPITAL MARKET

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated filer ☒	Smaller reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to section 13(a) of the Exchange Act.

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes

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As of May

2022, the registrant had 1,015,637 shares of common stock, $0.0001 par value per share outstanding.

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS	3

	CONDENSED CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2022 (UNAUDITED) AND DECEMBER 31, 2021	3

	CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)	4

	CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)	5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2022 AND 2021 (UNAUDITED)	6

	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	35

ITEM 4.	CONTROLS AND PROCEDURES	35

PART II.	OTHER INFORMATION	36

ITEM 1.	LEGAL PROCEEDINGS	36

ITEM 1A.	RISK FACTORS	36

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	36

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	36

ITEM 4.	MINE SAFETY DISCLOSURES	36

ITEM 5.	OTHER INFORMATION	37

ITEM 6.	EXHIBITS	37

	SIGNATURES	38

RT I. FINANCIAL INFORMATION

TEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TOUGHBUILT INDUSTRIES, INC.

NDENSED CONSOLIDATED BALANCE SHEETS

	March 31,			December 31,
	2022			2021
	(UNAUDITED)
Assets
Current Assets
Cash	$	936,822		$	7,472,224
Accounts receivable, net		15,059,121			18,179,933
Inventory, net		41,342,689			38,432,012
Prepaid and other current assets		1,075,379			786,036
Total Current Assets		58,414,011			64,870,205
Other Assets
Property and equipment, net		15,698,940			13,341,629
Right-of-use asset		1,952,984			-
Other assets		1,398,908			742,691
Total Assets	$	77,464,843		$	78,954,525

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	21,952,919		$	14,440,506
Accrued expenses		1,999,023			1,815,567
Lease liability , current maturities		495,964			-
Warrant liabilities		3,831,904			4,801,929
Total Current Liabilities		28,279,810			21,058,002

Lease liability , net of current maturities		1,448,042			-
Total Liabilities		29,727,852			21,058,002

Commitment and Contingencies (Note 5)

Stockholders’ Equity
Series C Preferred Stock, $0.0001 par value, 4,268 authorized, 0 issued and outstanding at March 31, 2022 and December 31, 2021		-			-
Series D Preferred Stock, $1,000 par value, 5,775 shares authorized, issued, and outstanding at March 31, 2022 and December 31, 2021, respectively		-			-
Series E Preferred Stock, $0.0001 par value, 15 authorized, 9 issued and outstanding at March 31, 2022 and December 31, 2021, respectively		-			-
Series F Preferred Stock, $0.0001 par value, 2,500 authorized, issued and outstanding at March 31, 2022, 0 authorized, issued and outstanding at December 31, 2021		-			-
Series G Preferred Stock, $0.0001 par value, 2,500 authorized, issued and outstanding at March 31, 2022, 0 authorized, issued and outstanding at December 31, 2021		-			-
Common stock, $0.0001 par value, 200,000,000 shares authorized, 861,997 and 861,997 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		86			86
Additional paid-in capital		158,031,423			156,184,327
Accumulated deficit		(110,294,518	)		(98,287,890	)
Total Stockholders’ Equity		47,736,991			57,896,523
Total Liabilities and Stockholders’ Equity	$	77,464,843		$	78,954,525

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

TOUGHBUILT INDUSTRIES, INC.

NDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended March 31,
	2022			2021
Revenues, net of allowances
Metal goods	$	7,868,628		$	4,345,197
Soft goods		8,858,578			7,937,058
Electronic goods		493,538			-
Total revenues, net of allowances		17,220,744			12,282,255

Cost of Goods Sold
Metal goods		7,351,882			3,328,000
Soft goods		6,385,371			5,491,127
Electronic goods		480,364			-
Total cost of goods sold		14,217,617			8,819,127

Gross profit		3,003,127			3,463,128

Operating expenses:
Selling, general and administrative expenses		15,934,045			7,949,783
Research and development		2,514,050			1,406,385
Total operating expenses		18,448,095			9,356,168

Income (loss) from operations		(15,444,968	)		(5,893,040	)

Other income (expense)
Warrant issuance costs		(275,130	)		-
Change in fair value of warrant liabilities		3,616,160			-
Interest expense		-			(160,619	)
Total other income (expense)		3,341,030			(160,619	)

Net loss	$	(12,103,938	)	$	(6,053,659	)

Basic and diluted net loss per share attributed to common stockholders	$	(14.04	)	$	(13.43	)
Basic and diluted weighted average common shares outstanding		861,997			450,624

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

TOUGHBUILT INDUSTRIES, INC.

ATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED March 31, 2022 AND 2021

(UNAUDITED)

	Series C				Series D				Series E				Series F				Series G
	Preferred				Preferred				Preferred				Preferred				Preferred								Additional					Total
	Stock				Stock				Stock				Stock				Stock				Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		Deficit			Equity

January 1, 2021		-	$	-		-	$	-		-		-		-	$	-		-	$	-		297,792	$	29	$	80,108,016	$	(60,761,992	)	$	19,346,053
Issuance of common stock upon conversion of warrants		-		-		-		-		-		-		-		-		-		-		36,057		4		5,408,536		-			5,408,540
Issuance of common stock for services		-		-		-		-		-		-		-		-		-		-		1,000		-		189,000		-			189,000
Issuance of common stock		-		-		-		-		-		-		-		-		-		-		214,186		21		39,074,368		-			39,074,390
Stock based compensation expense		-		-		-		-		-		-		-		-		-		-		-		-		81,537		-			81,537
Net loss		-		-		-		-		-		-		-		-		-		-		-		-		-		(6,053,659	)		(6,053,659	)
Balance - March 31, 2021		-	$	-		-	$	-		-	$	-		-	$	-		-	$	-		544,035	$	54	$	124,861,457	$	(66,815,651	)	$	58,045,861
January 1, 2022		-	$	-		-	$	-		9	$	-		-	$	-		-	$	-		861,997	$	86	$	156,184,327	$	(98,287,890	)	$	57,896,523
Adoption of lease guidance		-		-		-		-		-		-		-		-		-		-		-		-		-		97,310			97,310
Issuance of preferred stock		-		-		-		-		-		-		2,500		-		2,500		-		-		-		1,833,995		-			1,833,995
Stock based compensation expense		-		-		-		-		-		-		-		-		-		-		-		-		13,101		-			13,101
Net loss		-		-		-		-		-		-		-		-		-		-		-		-		-		(12,103,938	)		(12,103,938	)
March 31, 2022		-	$	-		-	$	-		9		-		2,500	$	-		2,500	$	-		861,997	$	86	$	158,031,423	$	(110,294,518	)	$	47,736,991

The accompanying notes are an integral part of these condensed consolidated unaudited financial statements.

TOUGHBUILT INDUSTRIES, INC.

NDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(12,103,938	)	$	(6,053,659	)
Adjustments to reconcile from net loss to net cash used i n operating activities:
Depreciation		933,725			296,016
Stock-based compensation expense		13,101			81,537
Amortization of capitalized contract costs		-			213,353
Amortization of right-of-use asset		72,829			-
Common stock issued for services		-			189,000
Warrant issuance costs		275,130			-
Loss on sale of property and equipment		15,806			-
Change in fair value of warrant liabilities		(3,616,160	)		-
Changes in operating assets and liabilities
Accounts receivable, net		3,120,812			(3,726,729	)
Factor receivables, net		-			(233,172	)
Inventory		(2,910,677	)		(2,752,846	)
Prepaid assets		(289,343