NOTE 13: SUBSEQUENT EVENTS

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

February 2024 Public Offering

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

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

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

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

February 2024 Warrant Amendments - Series D Warrants

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

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

February 2024 Warrant Amendments – Investor Warrants

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

October 7, 2022 Litigation

On October 7, 2022, a shareholder derivative action was initiated by a stockholder (the “Plaintiff”) against us, Michael Panosian, Joshua Keeler, Zareh Khachatoorian, Martin Galstyan, et al. (“Defendants”), in Nevada’s Eighth Judicial District Court, Case No. A-22-859580-B. The Plaintiff alleged breaches of fiduciary duty by the Defendants, accusing them of failing in their duties in relation to a registered direct offering of Series F and G preferred stock in February 2022, and a 1-for-150 reverse stock split in April 2022. The Plaintiff sought damages exceeding $10,000, attorney fees, an accounting of books and records, equity relief, and reimbursement of legal costs.

The Company’s board formed a special litigation committee (“SLC”) on May 13, 2022, to assess the claims. After review, the SLC supported by third-party legal counsel found no misconduct by Defendants and recommended pursuing Plaintiff’s claims, a decision upheld by the board on November 4, 2022. A Motion to Dismiss was filed by the SLC on October 12, 2023, and after a hearing on February 14, 2024, the court dismissed the case on March 18, 2024, agreeing that the SLC’s investigation met Nevada’s legal standards and upheld the business judgment rule. Following the Plaintiff’s appeal of the District Court’s Order dismissing the derivative claims to the Nevada Supreme Court, Plaintiff filed a Motion for Reconsideration under Rule 60 of the Nevada Rules of Civil Procedure based upon the argument that new evidence demonstrated that at least one member of the SLC was not independent. Following full briefing and oral argument on the Plaintiff’s motion, the District Court issued a Minute Order on October 17, 2024, denying the motion. As the Court recognized, there can be no question that at least two members of the SLC were independent, which is a more than sufficient number under Nevada law. The District Court instructed counsel for the SLC to submit a formal draft order for the District Court’s review and signature. The Plaintiff’s appeal for the dismissal of the derivative claims is still pending and remains in the Nevada Supreme Court settlement program.

Settlement of litigation – PCS Properties 2, LLP

On May 29, 2024, the Company entered into a Settlement Agreement and Mutual Release (the “Agreement”) with PCS Properties 2, LLC (“PCS”), effectively resolving the litigation between the parties as set forth in the Orange County Superior Court Case No. 30-2023-01326779-CU-UD-CJC. On June 22, 2023, PCS filed a lawsuit against the Company in the Superior Court of California, County of Orange, alleging breach of lease agreement, dated December 10, 2021, between the parties regarding the property located at 8687 Research Drive, Irvine, California and was seeking unpaid rent of approximately $124,800 as of May 31, 2023, and seeks damages including future rent through May 31, 2027, totaling at least $2,374,278, minus avoidable costs, along with costs for recovering the premises, reletting expenses, attorney’s fees, leasing commissions for the lease’s unexpired term, prejudgment interest, and court fees. The Company agreed to pay PCS $361,000 in full settlement of the disputes, and has paid $118,000 in June 2024, $118,000 in July 2024, and paid $125,000 on October 9, 2024. Both parties agreed to a general release of all past and present claims related to the litigation, with an explicit waiver of California Civil Code Section 1542. The Agreement contains no admission of liability by any party. This settlement concludes all disputes from the litigation, allowing the Company to avoid further litigation costs and risks.

Settlement of Lease Obligations – Concord Z Property Development, LLC

On June 6, 2024, the Company entered into a Settlement Agreement with Concord Property Development, LLC (“Landlord”) to resolve a dispute arising from nonpayment of rent under a Commercial Lease Agreement dated October 31, 2022, for commercial premises located at 500 South Main Street, Suite 101, Mooresville, North Carolina. Under the terms of the Settlement Agreement, the Company agreed to pay the Landlord a total settlement amount of Six Hundred Sixty-Six Thousand Three Hundred Eighty-Eight Dollars $666,388 in four scheduled payments: (i) $100,000 on or before June 30, 2024; (ii) $200,000 on or before July 31, 2024; (iii) $183,194 on or before August 31, 2024; and (iv) $183,194 on September 30, 2024. The Company has made all the payments totaling $666,388 pursuant to the terms of the Settlement Agreement. The Settlement Agreement stipulates that upon the Company’s timely payment of the full settlement amount, the Landlord will release and forever discharge the Company from any claims, demands, damages, liabilities, or causes of action related to the lease and the dispute. Additionally, the Settlement Agreement provides that in the event of the Company’s default on its payment obligations, the Landlord is entitled to record a Confession of Judgment against the Company, creditable with any payments made. The Agreement also specifies that it is not to be considered an admission of liability by any party. The litigation with was Concord settled on September 30, 2024.

Warrant Conversion

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

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

Series I Preferred Stock

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

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