all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this annual report on form 10-k. company history our company was formed on april 9 , 2012 as phalanx , inc. , under the laws of the state of nevada and changed its name to toughbuilt industries , inc. on december 29 , 2015. business overview our company was formed to design , manufacture and distribute innovative tools and accessories to the building industry . the global tool market industry is a multibillion dollar business . toughbuilt 's business is based on 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 the contractors and workers alike . toughbuilt 's current product line includes three major categories related to this field , with several additional categories in various stages of development , consisting of soft goods & kneepads and sawhorses & work products . governments and health organizations have identified an outbreak of a respiratory illness caused by a new coronavirus which has been named covid-19 . the world health organization has declared the outbreak a global pandemic . while the worst of the pandemic seems to have subsided in china , its country of original origin , we are seeing the virus spread and start to peak in other parts of the globe , including in the u.s. , which has caused massive closures of businesses and strain on shipping and freight systems world wide . since the outbreak , 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 . jobs act on april 5 , 2012 , the jumpstart our business startups act of 2012 , or the jobs act , was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act of 1933 , as amended , or the securities act , for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , as an “ emerging growth company , ” we intend to rely on certain of these exemptions from , without limitation , ( i ) providing an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act and ( ii ) complying with any requirement that may be adopted by the public company accounting oversight board ( pcaob ) regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements , known as the auditor discussion and analysis . we will remain an “ emerging growth company ” until the earliest of ( a ) the last day of our fiscal year following the fifth anniversary of the ipo , ( b ) the last day of the first fiscal year in which our annual gross revenues exceed $ 1.07 billion , ( c ) the last day of our fiscal year in which we are deemed to be a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , or exchange act ( which would occur if the market value of our equity securities that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter ) , or ( d ) the date on which we have issued more than $ 1 billion in nonconvertible debt during the preceding three-year period . 16 for the year ended december 31 , 2019 for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 revenues revenues , net of allowances , for the years ended december 31 , 2019 and 2018 were $ 19,090,071 and $ 15,289,400 , respectively , consisted of metal goods and soft goods sold to customers . revenues increased in 2019 over 2018 by $ 3,800,671 , or 24.9 % , primarily due to wide acceptance of our products in the tools industry and receipt of recurring sales orders for metal goods and soft goods from our existing customers and new customers , and introduction and sale of new soft goods products to our customers . cost of goods sold cost of goods sold for the years ended december 31 , 2019 and 2018 was $ 13,475,947 and $ 11,794,206 , respectively . cost of goods sold increased in 2019 over 2018 by $ 1,681,741 or 14.3 % , primarily due to the increase in materials cost of steel and plastics polyester to manufacture metal goods and soft goods and increase in labor cost in china . story_separator_special_tag the second note ( the “ series b note ” and with the series a note , collectively referred to as the “ notes ” ) has a principal amount of $ 4.78 million for which the investor paid $ 4.78 million in the form of a full recourse promissory note issued by the investor to the company ( the “ investor note ” ) secured by $ 4.78 million in cash or cash equivalents of the investor ( i.e : an original issue discount of approximately 15 % to the face amount of the series b note ) . no portion of the series b note may be converted into shares of our common stock ( the “ common stock ” ) until the corresponding portion of the investor note has been prepaid to the company in cash , at which point in time such portion of the series b note shall be deemed “ unrestricted ” . the investor note is subject to optional prepayment at any time at the option of the investor and mandatory prepayment , at the company 's option , subject to certain equity conditions , at any time 45 trading days after the effectiveness of a resale registration statement ( or otherwise the applicability of rule 144 promulgated under the securities act of 1933 , as amended ) . notwithstanding the foregoing , the company may not effect a mandatory prepayment if the shares underlying the series a note and the portion of the series b note that has become unrestricted exceeds 35 % of the market capitalization of the company . the notes are senior secured obligations of the company secured by a lien on all assets of the company , bear no interest ( unless an event default has occurred and is continuing ) and mature on december 31 , 2020. the notes will be convertible at $ 1.00 into a fixed number of shares ( the “ conversion shares ” ) . the notes are convertible at the holder 's option , in whole or in part , at any time after closing . the conversion price will be subject to adjustment for stock dividends , stock splits , anti-dilution and other customary adjustment events . the company shall repay the principal amount of the notes in 12 installments , with the first installment starting on february 1 , 2020 ( each , an “ installment date ” ) . installments 1-3 shall be 1/36th of the principal amount , installments 4-6 shall be 1/18th of the principal amount and installments 7-12 shall be 1/8th of the principal amount . the repayment amount shall be payable in cash , or , subject to the satisfaction of equity conditions , at the option of the company , in registered common stock or a combination of cash and registered common stock . however , if the 30-day volume weighted average price of the common stock ( the “ vwap ” ) of the company falls below 50 % of the [ market price ( as defined above ) ] 1 or the company fails to satisfy certain other equity conditions , the repayment amount is payable in shares of common stock only unless the investor ( s ) waive any applicable equity condition . if the company elects to satisfy all or any portion of an installment in shares of common stock , the company will predeliver such shares of common stock to the investor on the 23rd trading day prior to the applicable installment date , with a true-up of shares ( if necessary ) on the installment date . any excess shares of common stock shall be applied to subsequent installments . the shares used to meet a principal repayment ( “ installment shares ” ) would be valued at a conversion price calculated as the lesser of ( i ) 85 % of the arithmetic average of the three lowest daily vwaps of the 20 trading days prior to the payment date or ( ii ) 85 % of the vwap of the trading day prior to payment date ( “ installment price ” ) with a floor of $ 0.10 . 21 all amortization payments shall be subject to the investors ' right to ( a ) defer some or all of any installment payment to a subsequent installment date ; and ( b ) at any time during an installment period , convert up to four times the installment amount at the installment price ; provided shares received pursuant to such accelerated conversions shall be subject to a leak-out provision that solely limits sales of such shares received by the investor in such accelerated conversion ( and not any other sales ) to the greater of ( a ) $ 500,000 per trading day or ( b ) 40 % of the volume traded on a given day as reported by bloomberg lp . upon completion of a change of control , the holders may require the company to purchase any outstanding notes in cash at 125 % of par plus accrued but unpaid interest . the company shall have the right to redeem any and all amounts of the outstanding note at 125 % of the greater of ( a ) principal amount plus accrued but unpaid interest ( if any ) , or ( b ) conversion value plus accrued but unpaid interest ( if any ) provided the company has satisfied certain equity conditions . the company must give the investor ( s ) ninety ( 90 ) business days ' prior notice of any such redemption . prior to all outstanding amounts under the note being repaid in full , the company will not create any new encumbrances on any of its or its subsidiaries ' assets without the prior written consent of the lender , with a carveout for a working capital facility of which the details are to be determined .

cash flows net cash flows used in operating activities for the year ended december 31 , 2019 was $ 10,229,337 , attributable to a net loss of $ 4,300,969 , offset by depreciation expense of $ 225,426 , amortization of original issuance of debt discount and debt issuance cost and non-cash inducement cost for debt conversion of $ 626,546 , change in the fair value of warrant derivative of $ ( 5,251,852 ) , stock-based compensation expense of $ 336,637 , and net increase in operating assets of $ 1,768,059 , and net decrease in liabilities of $ 97,066. the company offered cash discounts to its customers and factors to accelerate payments of accounts receivable . in addition , the company negotiated extended payment terms with its suppliers , vendors and related parties to conserve its cash . net cash flows used in operating activities for the year ended december 31 , 2018 was $ 8,243,414 , attributable to a net loss of $ 27,651,412 , offset by depreciation expense of $ 120,723 , amortization of original issuance of debt discount and debt issuance cost and non-cash inducement cost for debt conversion of $ 5,278,132 , change in the fair value of warrant derivative of $ 14,336,425 , stock-based litigation settlement expense of $ 939,538 , stock-based compensation expense of $ 557,042 , stock issued in lieu of deferred salaries of $ 650,100 and net increase in operating assets of $ 1,154,073 , and net decrease in liabilities of $ 1,319,889. the company offered cash discounts to its customers and factors to accelerate payments of accounts receivable . in addition , the company negotiated extended payment terms with its suppliers , vendors and related parties to conserve its cash .


 Write a concise suspicious activity report of the following text delimited by triple backquotes. Return your response as a formal report which covers the key points highlighting the location,dates,entity names and account holder information in chronological order of the text.
     ```cash flows net cash flows used in operating activities for the year ended december 31 , 2019 was $ 10,229,337 , attributable to a net loss of $ 4,300,969 , offset by depreciation expense of $ 225,426 , amortization of original issuance of debt discount and debt issuance cost and non-cash inducement cost for debt conversion of $ 626,546 , change in the fair value of warrant derivative of $ ( 5,251,852 ) , stock-based compensation expense of $ 336,637 , and net increase in operating assets of $ 1,768,059 , and net decrease in liabilities of $ 97,066. the company offered cash discounts to its customers and factors to accelerate payments of accounts receivable . in addition , the company negotiated extended payment terms with its suppliers , vendors and related parties to conserve its cash . net cash flows used in operating activities for the year ended december 31 , 2018 was $ 8,243,414 , attributable to a net loss of $ 27,651,412 , offset by depreciation expense of $ 120,723 , amortization of original issuance of debt discount and debt issuance cost and non-cash inducement cost for debt conversion of $ 5,278,132 , change in the fair value of warrant derivative of $ 14,336,425 , stock-based litigation settlement expense of $ 939,538 , stock-based compensation expense of $ 557,042 , stock issued in lieu of deferred salaries of $ 650,100 and net increase in operating assets of $ 1,154,073 , and net decrease in liabilities of $ 1,319,889. the company offered cash discounts to its customers and factors to accelerate payments of accounts receivable . in addition , the company negotiated extended payment terms with its suppliers , vendors and related parties to conserve its cash .
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 Suspicious Activity Report : all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this annual report on form 10-k. company history our company was formed on april 9 , 2012 as phalanx , inc. , under the laws of the state of nevada and changed its name to toughbuilt industries , inc. on december 29 , 2015. business overview our company was formed to design , manufacture and distribute innovative tools and accessories to the building industry . the global tool market industry is a multibillion dollar business . toughbuilt 's business is based on 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 the contractors and workers alike . toughbuilt 's current product line includes three major categories related to this field , with several additional categories in various stages of development , consisting of soft goods & kneepads and sawhorses & work products . governments and health organizations have identified an outbreak of a respiratory illness caused by a new coronavirus which has been named covid-19 . the world health organization has declared the outbreak a global pandemic . while the worst of the pandemic seems to have subsided in china , its country of original origin , we are seeing the virus spread and start to peak in other parts of the globe , including in the u.s. , which has caused massive closures of businesses and strain on shipping and freight systems world wide . since the outbreak , 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 . jobs act on april 5 , 2012 , the jumpstart our business startups act of 2012 , or the jobs act , was enacted . section 107 of the jobs act provides that an “ emerging growth company ” can take advantage of the extended transition period provided in section 7 ( a ) ( 2 ) ( b ) of the securities act of 1933 , as amended , or the securities act , for complying with new or revised accounting standards . in other words , an “ emerging growth company ” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies . we are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the jobs act . subject to certain conditions set forth in the jobs act , as an “ emerging growth company , ” we intend to rely on certain of these exemptions from , without limitation , ( i ) providing an auditor 's attestation report on our system of internal controls over financial reporting pursuant to section 404 ( b ) of the sarbanes-oxley act and ( ii ) complying with any requirement that may be adopted by the public company accounting oversight board ( pcaob ) regarding mandatory audit firm rotation or a supplement to the auditor 's report providing additional information about the audit and the financial statements , known as the auditor discussion and analysis . we will remain an “ emerging growth company ” until the earliest of ( a ) the last day of our fiscal year following the fifth anniversary of the ipo , ( b ) the last day of the first fiscal year in which our annual gross revenues exceed $ 1.07 billion , ( c ) the last day of our fiscal year in which we are deemed to be a “ large accelerated filer ” as defined in rule 12b-2 under the securities exchange act of 1934 , or exchange act ( which would occur if the market value of our equity securities that is held by non-affiliates exceeds $ 700 million as of the last business day of our most recently completed second fiscal quarter ) , or ( d ) the date on which we have issued more than $ 1 billion in nonconvertible debt during the preceding three-year period . 16 for the year ended december 31 , 2019 for the year ended december 31 , 2019 compared to the year ended december 31 , 2018 revenues revenues , net of allowances , for the years ended december 31 , 2019 and 2018 were $ 19,090,071 and $ 15,289,400 , respectively , consisted of metal goods and soft goods sold to customers . revenues increased in 2019 over 2018 by $ 3,800,671 , or 24.9 % , primarily due to wide acceptance of our products in the tools industry and receipt of recurring sales orders for metal goods and soft goods from our existing customers and new customers , and introduction and sale of new soft goods products to our customers . cost of goods sold cost of goods sold for the years ended december 31 , 2019 and 2018 was $ 13,475,947 and $ 11,794,206 , respectively . cost of goods sold increased in 2019 over 2018 by $ 1,681,741 or 14.3 % , primarily due to the increase in materials cost of steel and plastics polyester to manufacture metal goods and soft goods and increase in labor cost in china . story_separator_special_tag the second note ( the “ series b note ” and with the series a note , collectively referred to as the “ notes ” ) has a principal amount of $ 4.78 million for which the investor paid $ 4.78 million in the form of a full recourse promissory note issued by the investor to the company ( the “ investor note ” ) secured by $ 4.78 million in cash or cash equivalents of the investor ( i.e : an original issue discount of approximately 15 % to the face amount of the series b note ) . no portion of the series b note may be converted into shares of our common stock ( the “ common stock ” ) until the corresponding portion of the investor note has been prepaid to the company in cash , at which point in time such portion of the series b note shall be deemed “ unrestricted ” . the investor note is subject to optional prepayment at any time at the option of the investor and mandatory prepayment , at the company 's option , subject to certain equity conditions , at any time 45 trading days after the effectiveness of a resale registration statement ( or otherwise the applicability of rule 144 promulgated under the securities act of 1933 , as amended ) . notwithstanding the foregoing , the company may not effect a mandatory prepayment if the shares underlying the series a note and the portion of the series b note that has become unrestricted exceeds 35 % of the market capitalization of the company . the notes are senior secured obligations of the company secured by a lien on all assets of the company , bear no interest ( unless an event default has occurred and is continuing ) and mature on december 31 , 2020. the notes will be convertible at $ 1.00 into a fixed number of shares ( the “ conversion shares ” ) . the notes are convertible at the holder 's option , in whole or in part , at any time after closing . the conversion price will be subject to adjustment for stock dividends , stock splits , anti-dilution and other customary adjustment events . the company shall repay the principal amount of the notes in 12 installments , with the first installment starting on february 1 , 2020 ( each , an “ installment date ” ) . installments 1-3 shall be 1/36th of the principal amount , installments 4-6 shall be 1/18th of the principal amount and installments 7-12 shall be 1/8th of the principal amount . the repayment amount shall be payable in cash , or , subject to the satisfaction of equity conditions , at the option of the company , in registered common stock or a combination of cash and registered common stock . however , if the 30-day volume weighted average price of the common stock ( the “ vwap ” ) of the company falls below 50 % of the [ market price ( as defined above ) ] 1 or the company fails to satisfy certain other equity conditions , the repayment amount is payable in shares of common stock only unless the investor ( s ) waive any applicable equity condition . if the company elects to satisfy all or any portion of an installment in shares of common stock , the company will predeliver such shares of common stock to the investor on the 23rd trading day prior to the applicable installment date , with a true-up of shares ( if necessary ) on the installment date . any excess shares of common stock shall be applied to subsequent installments . the shares used to meet a principal repayment ( “ installment shares ” ) would be valued at a conversion price calculated as the lesser of ( i ) 85 % of the arithmetic average of the three lowest daily vwaps of the 20 trading days prior to the payment date or ( ii ) 85 % of the vwap of the trading day prior to payment date ( “ installment price ” ) with a floor of $ 0.10 . 21 all amortization payments shall be subject to the investors ' right to ( a ) defer some or all of any installment payment to a subsequent installment date ; and ( b ) at any time during an installment period , convert up to four times the installment amount at the installment price ; provided shares received pursuant to such accelerated conversions shall be subject to a leak-out provision that solely limits sales of such shares received by the investor in such accelerated conversion ( and not any other sales ) to the greater of ( a ) $ 500,000 per trading day or ( b ) 40 % of the volume traded on a given day as reported by bloomberg lp . upon completion of a change of control , the holders may require the company to purchase any outstanding notes in cash at 125 % of par plus accrued but unpaid interest . the company shall have the right to redeem any and all amounts of the outstanding note at 125 % of the greater of ( a ) principal amount plus accrued but unpaid interest ( if any ) , or ( b ) conversion value plus accrued but unpaid interest ( if any ) provided the company has satisfied certain equity conditions . the company must give the investor ( s ) ninety ( 90 ) business days ' prior notice of any such redemption . prior to all outstanding amounts under the note being repaid in full , the company will not create any new encumbrances on any of its or its subsidiaries ' assets without the prior written consent of the lender , with a carveout for a working capital facility of which the details are to be determined .

