What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2024-04-15 compared with 2023-04-17 · 181 added, 214 removed, 144 unchanged (73% of the section changed)

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the OTCQB Venture Marketplace under the symbol “CHUC”.

Prior to August 3, 2021, our common stock was traded on the OTC Pink Marketplace under the symbol "CHUC", and prior to July 3, 2019, our common stock was traded on the OTC Pink Marketplace under the symbol “TRUU”.

Our common stock is traded on the OTCQB Venture Marketplace under the symbol “CHUC”.

The prices of our common stock on the OTCQB Venture Marketplace represent quotations between dealers without adjustment for retail markup, markdown, or commission and may not represent actual transactions.

As of April 17, 2023, there were 224,112,168 shares of our common stock outstanding, and 199 stockholders of record.

As of April 17, 2023, there were 130,106 shares of our Series A Preferred outstanding held by 94 stockholders of record.

As of April 15, 2024, there were 229,349,388 shares of our common stock outstanding and 199 stockholders of record and 128,181 shares of our Series A Preferred outstanding held by 92 stockholders of record.

Transfer Agent

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Shares authorized for issuance under equity compensation plans

The stockholders previously approved the Charlie’s Holdings Inc.

2019 Omnibus Incentive Plan, as amended (the “Plan”).

The Plan allows for the granting of equity awards to eligible individuals over the life of the Plan, including the issuance of up to 26,072,542 shares of the Company’s common stock.

As of December 31, 2022, we had available 11,953,605 shares remaining for future awards under the Plan.

The following table summarizes the number of shares of common stock to be issued upon exercise of outstanding options and vesting of restricted stock units under the Plan, the weighted-average exercise price of such stock options, and the number of securities available to be issued under the Plan as of December 31, 2022:

The stockholders previously approved the Charlie’s Holdings Inc.

2019 Omnibus Incentive Plan, as amended (the “ Plan ”).

The Plan allows for the granting of equity awards to eligible individuals over the life of the Plan, including the issuance of up to 26,072,542 shares of the Company’s common stock.

As of December 31, 2023, we had available 4,495,571 shares remaining for future awards under the Plan.

Number of securities

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Consists of shares available for award under the Plan.

SELECTED FINANCIAL DATA

As a “smaller reporting company”, as defined by the rules and regulations of the SEC, we are not required to provide this information.

MANAGEMENT ’

S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto contained in this Annual Report.

This discussion contains forward-looking statements that involve risks, uncertainties and assumptions.

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of certain factors, including those set forth under “

Risk Factors Associated with Our Business ”

and elsewhere in this Annual Report.

The Company’s objective is to become a leader in three broad product categories:

Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of certain factors, including those set forth under “ Risk Factors Associated with Our Business ” and elsewhere in this Annual Report.

The Company’s objective is to become a leader in three broad product categories:

(i) non-combustible nicotine-related products, (ii) alternative alkaloid vapor products, and (iii) hemp-derived vapor and edible products.

Through our Charlie’s subsidiary, we formulate, market, and distribute premium, nicotine-based and alternative alkaloid vapor products.

Charlie’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States, as well as in more than 80 countries worldwide.

Charlie’s primary international markets include the United Kingdom, Italy, Spain, New Zealand, Australia, and Canada.

Through our Charlie’s subsidiary, we formulate, market, and distribute premium, nicotine-based and alternative alkaloid vapor products.

Through Don Polly, we develop, market and distribute products containing compounds derived from hemp.

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In 2022, we initiated a plan and began to invest substantial time and resources to develop various proprietary products and new technologies in order to achieve competitive advantages in the vapor and alternative products marketplace.

In conjunction with internal and external research and development resources, we have endeavored to identify a nicotine substitute (“

Metatine ™”) to be used in lieu of tobacco-based and synthetically derived nicotine.

In conjunction with internal and external research and development resources, we endeavored to identify a nicotine substitute (“ Metatine ™”) to be used in lieu of tobacco-based and synthetically derived nicotine.

We believe adult consumers will enjoy Metatine vapor products in much the same way that they enjoy traditional vapor products.

However, because Metatine is not made or derived from tobacco, and because Metatine does not consist of or contain nicotine from any source, the FDA's Center for Tobacco Products does not have jurisdiction to regulate Metatine.

Accordingly, if the Company is successful utilizing Metatine in the development of a viable commercial product, such a product would allow us additional flexibility in offering both flavored and non-flavored vapor products to adult consumers looking to transition away from traditional combustible and smokeless tobacco products.

Accordingly, if the Company is successful utilizing Metatine in a viable commercial product, such a product would allow us additional flexibility in offering both flavored and non-flavored vapor products to adult consumers looking to transition away from traditional combustible and smokeless tobacco products.

In late 2023 the Company began shipping its new Metatine-based, SPREE BAR™ disposable vape products to master distributors, in preparation for launch (and sales to be recognized) in late 2023.

We believe that our transition to the SPREE BAR product line will give Charlie's an extraordinary opportunity to capture significant sales and market share in the vapor products marketplace in 2024 and beyond.

SPREE BAR, with Metatine, is indistinguishable from a conventional disposable vape;

SPREE BAR provides adult consumers with the same satisfaction that typical nicotine disposables provide, but without nicotine.

As a disposable pod system - with a reusable battery - 6,000-puff SPREE BAR flavor pods have a retail price that is significantly more cost-effective than that of the industry-leading 5,500-puff disposables.

Because Metatine is not made or derived from tobacco, and because Metatine does not consist of or contain nicotine from any source, SPREE BAR is not subject to FDA Pre-Market Tobacco Application ( "PMTA" ) requirements.

As of the end of the 2023, we have awarded SPREE BAR Master Distributor and Distributor contracts to eleven large customers.

As part of these agreements, we have accepted purchase orders, and corresponding 50% up-front deposits, for each distributor’s initial order.

It is our plan to sign additional Master Distributor agreements with as many as ten additional SPREE BAR Distributors before the end of 2024.

Given the novelty of the product, its compelling value in the marketplace as a disposable pod system (with a reusable battery), and its very significant regulatory advantages, SPREE BAR represents the single largest, most important commercial opportunity in Charlie's history.

The Company has also begun to develop intellectual property around technologies designed to prevent youth access to nicotine vapor products.

Edward Carmines, Ph.D., a member of Charlie’s Board of Directors and an accomplished scientist and regulatory affairs expert, is spearheading Charlie's development of patented "age-gating technology" for both Charlie's and potential licensees of the Company.

Currently, there is a need for age-gated product technologies that can satisfy or accommodate concerns the FDA has related to under-age youth access in the ENDS market.

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vapor products market.

Rounding out the Company’s research and development initiatives are Charlie’s efforts to expand and enhance the PINWEEL product line.

PINWEEL is Charlie’s alternative cannabis brand that contains only cannabinoids derived from the hemp plant.

Since our PINWEEL product line contains only cannabinoids made from 100% hemp extract, we are able to legally manufacture, distribute and sell to consumers in the United States.

As a result of the Agriculture Improvement Act (the “

Farm Bill ”), ratified and signed into law in December 2018, cannabis containing less than 0.3% Delta 9-THC is legally classified as hemp and is thus legal under federal law.

Accordingly, with the objective of developing an array of new purpose-driven alternative cannabis products that offer adult consumers an enjoyable alternative to alcohol and traditional cannabis products, the Company continues to develop new PINWEEL vapor products, edibles, and other novel products.

In November 2022, we successfully launched our PINWEEL brand of alternative cannabis products.

In 2023, we plan to increase sales and marketing efforts of our PINWEEL product line, including ingestibles and disposable vapor devices.

We feel there is a significant upside in the hemp-derived products space, and we have begun to shift our focus in this business to the burgeoning “alternative cannabis”

market for products containing live resin blends of hemp-derived cannabinoids.

These product categories have grown rapidly, as they offer consumers a range of benefits across varying potencies and product formats.

Alternative cannabis products contain only cannabinoids that are derived from the hemp plant, are not subject to the Controlled Substances Act and are legal throughout most of the United States.

Further, alternative cannabis products are not currently subject to FDA review.

We will expand and refocus our sales team.

Currently, we are increasing the number of independent contractor account executives, as well as refining the skill set of our existing sales team.

Underlining the importance of Charlie’s work with age-gating technology is an initiative taken by JUUL Labs, one of the largest competitors in our industry.

In July JUUL announced that it has submitted a PMTA with the FDA for a new e-cigarette device that also included information on novel, data-driven technologies to restrict underage access.

JUUL’s chief product officer explained, “With our next-generation platform, we have designed a technological solution for two public-health problems:

improving adult-smoker switching from combustible cigarettes and restricting underage access to vapor products...” Similar to the age-gating technology under development at Charlie’s, the JUUL device includes a mobile and web-based app that enables age-verification technology, including device-locking, and real-time product information and usage insights for age-verified consumers with industry-leading data-privacy protections.

With a new focus on the SPREE BAR product line and on the Master Distributors with whom we have awarded SPREE BAR distribution agreements, we will cost-effectively expand and strategically refocus our sales team.

An expanded sales team will more effectively manage key customer relationships across a larger number of reps, mitigating concentration risks and assuring adequate coverage.

The sales team is organized into two groups, each with a specific mandate for targeting customers.

The sales team is organized into two groups, each with a specific mandate for targeting unique classes of customers.

One group will focus on direct-to-retail (smoke shops, chain stores, adult beverage/liquor stores, gas stations, and grocery stores) with the goal of acquiring 1,000 new customer accounts in 2024.

The second group will focus on satisfying the requirements of mega-distributors (McLane, Coremark, HT Hackney, Eby-Brown) in order to sell into the nation’s largest chain store accounts.

Additionally, to broaden our footprint with customers and to minimize order size variability, sales reps will rebalance their product sales mix, placing enhanced focus on alternative cannabis and legacy e-liquid products.

In order to mitigate FDA regulatory risk in the domestic market and to capture what management believes is a significant commercial opportunity, we have dedicated additional resources to efforts focused on growing our market share internationally.

The second group will focus on satisfying the requirements of mega-distributors (McLane, Coremark, HT Hackney, Eby-Brown) in order to sell into the nation’s largest chain store accounts.

Additionally, to broaden our footprint with customers and to minimize order size variability, sales reps will rebalance their product sales mix, placing enhanced focus on SPREE BAR.

In order to mitigate FDA regulatory risk in the domestic market and to capture what management continues to believe is a significant commercial opportunity, we have dedicated additional resources to efforts focused on growing our market share internationally.

Presently, approximately 16% of our vapor product sales come from the international market and we are well positioned to increase sales in countries where we already have presence and, in additional overseas markets, as we have already built an international distribution platform.

To facilitate this plan, we recently hired an Account Executive who will be dedicated to driving our efforts in international expansion.

More specifically, we plan to build-out a dedicated international team, including country managers and marketing coordinators, to market and sell a suite of custom-made products to new and existing international customers.

Impact of COVID-19

The outbreak of a novel strain of coronavirus (“

COVID-19 ”, or, “

Coronavirus ”) has had a negative impact on the global economy and the markets in which we operate.

Beginning in March 2020, the Company transitioned nearly all employees to a remote working environment for their safety and to protect the integrity of Company operations, which have largely returned to the office.

We will continue to monitor the COVID-19 situation in all regions in which we operate and will maintain strict adherence to local health guidelines and mandates.

We may need to take further actions that we determine are in the best interests of our employees or are required by federal, state, or local authorities.

To facilitate this plan, we recently hired an Account Executive who is dedicated to driving our efforts in international expansion.

Further, in late 2023 and throughout 2024 we plan to build-out a dedicated international team, including country managers and marketing coordinators, to market and sell a suite of custom-made products to new and existing international customers.

Risks and Uncertainties and Ability to Continue as a Going Concern

The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products.

Beginning in 

September 2019,  certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions.

Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories 

may  become subject to new laws and regulations at the federal, state, and local levels.

In addition, in 

June 2022,  the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive levels.

The application of any new laws or regulations that 

may  be adopted in the future, at a federal, state, or local level, directly or indirectly implicating nicotine, flavored e-cigarette liquid, and other electronic nicotine delivery system (“

ENDS ”) products, could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution.

Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company 

may  sell its products.

In the event the prevalence of such bans and/or changes in laws and regulations increase across the United States, or internationally, the Company’s business, results of operations, and financial condition could be adversely impacted.

The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products.

Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions.

Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels.

In addition, in June 2022, the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive levels.

The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating nicotine, flavored e-cigarette liquid, and other electronic nicotine delivery system (“ ENDS ”) products, could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution.

Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company may sell its products.

In addition, the Company is presently seeking to obtain marketing authorization for certain of its tobacco-derived nicotine e-liquid products.

The Company’s applications were submitted in 

September 2020  on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States.

Beginning in 

August 2021,  the FDA began issuing Marketing Denial Orders (“

MDO ”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

The Company has 

not  received an MDO for any of its submissions;

however, there is 

no  assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which could have a significant impact on our sales.

March 15, 2022,  a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. 

These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. 

As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by 

May 14, 2022  or be subject to FDA enforcement. 

The Company filed new PMTAs, for its synthetic Pacha products on 

May 13, 2022,  prior to the 

May 14, 2022  deadline.

November 3, 2022,  FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on 

November 4, 2022,  FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement.

The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs, and has resubmitted PMTAs for, and continues to sell, the affected synthetic nicotine products while the administrative appeal process is pending. There can be 

no  guarantee that FDA will grant our administrative appeal, and the FDA 

may  bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our pending applications at any time. 

More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA’s priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry.

The Company’s applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States.

Beginning in August 2021, the FDA began issuing Marketing Denial Orders (“ MDO ”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

The Company has not received an MDO for any of its submissions;

however, there is no assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which could have a significant impact on our sales.

On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine.

These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products.

As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement.

The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline.

On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement.

There can be no guarantee that FDA will grant our administrative appeal, and the FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our pending applications at any time.

In the event the FDA denies our PMTAs, we would be required to remove products and cease selling them.

As discussed below, our financial statements and working capital raise substantial doubt about the Company’s ability to continue as a going concern.

The Company recently launched new disposable vape products, under the “SPREE BAR™” brand, that the Company expects will (i) replace most of its legacy products and (ii) become the single largest, most important commercial opportunity in Charlie’s history.

The Company and its attorneys believe SPREE BAR products are not subject to FDA review.

Based on the information provided by the Company’s contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company’s chemical supplier) in the Company’s SPREE BAR products does not meet the definition of nicotine set forth in 21 U.S.C.

§ 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as “tobacco products” under 21 U.S.C.

Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s SPREE BAR vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source.

The documentary support for these facts, including a Certificate of Analysis (COA) for the Metatine used in the Company’s SPREE BAR products, corroborates these conclusions.

However, should any of these understandings be incorrect, the Company’s position on Metatine not qualifying as a “tobacco product” would need to be revisited.

Further, should Congress bestow regulatory control over Metatine to the FDA, or should the FDA deem Metatine disposable vape devices “tobacco products” despite the facts that Metatine is not a salt or complex of nicotine, and is not itself derived from nicotine or tobacco, SPREE BAR products might then be subject to the FDA tobacco requirements, including, but not limited to, the requirement that all newly deemed tobacco products obtain premarket authorization before entering the U.S.

If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization.

More generally, FDA’s regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA’s priorities and/or potential jurisdiction over our products will require us to remove our products from the market and to cease selling them.

As discussed below, our financial statements and working capital raise substantial doubt about the Company’s ability to continue as a going concern.

Our financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

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Recent Developments

April 2022 Note Financing

On April 6, 2022, the Company issued a secured promissory note (the “

Note ”) to one of its large individual stockholders, Michael King (the “

Lender "), in the principal amount of $1,000,000, which Note is secured by accounts receivable of the Company pursuant to the terms of a Security Agreement entered into by and between the Company and the Lender (the " Note Financing ").

On September 28, 2022, the Company and the Lender entered into a modification to the Note to extend the maturity date to March 28, 2023 and the Company paid all accrued interest under the Note through such date.

On March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to April 28, 2024, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note.

Principal shall be payable on the 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining principal balance will be paid.

Interest shall accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and shall be payable on the same day as installments of principal are payable.

The Company may prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty.

All outstanding principal and interest are due earlier of April 28, 2024, or a liquidity event.

August 2022 Note Financing  

Related Party

On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the " Stump  

Lender ") entered into a loan agreement (the “

Loan ”) in the principal amount of $300,000.

The Loan will be due in full in 120 days or sooner if, before the end of term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds.

The Loan bears an annual interest rate of 10%.

The Company also incurred additional $3,000 issuance cost resulting from the payment of the Stump Lender’s legal fees.

On December 17, 2022, the Company and Stump Lender entered into a modification to the Loan to extend the maturity date to April 16, 2023 and the Company has paid all accrued interest under the Loan through such date.

On April 13, 2023, the Company and Stump Lender entered into a second modification to the Loan to extend the maturity date to August 14, 2023.

During the quarter ended September 30, 2020, the FDA's Center for Tobacco Products informed us that our PMTA received a valid submission tracking number, passed the FDA’s filing review phase, and entered the substantive review phase.

To date, the Company has invested more than $5.1 million for our PMTA submissions.

We engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create our comprehensive PMTA submission.

During the quarter ended September 30, 2021, the FDA began issuing Marketing Denial Orders (“

MDOs ”) for electronic nicotine delivery system (“

ENDS ”) products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. 

These regulations make synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. 

As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. 

The Company filed new PMTAs for its synthetic Pacha products, on May 13, 2022, prior to the May 14, 2022, deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. 

As of December 31, 2022, Charlie’s 2020 PMTA remains among the select minority of applications submitted to the FDA for a tobacco-derived nicotine ENDS product that has not received an MDO or Refuse-to-File designation.

This fact highlights our progress toward achieving full regulatory compliance and demonstrates the emphasis our Company places on providing customers with a trusted product portfolio.

Impact of COVID-19

The outbreak of a novel strain of coronavirus (“

COVID-19 ”, or, “

Coronavirus ”) has had, and continues to have, a negative impact on the global economy and the markets in which we operate.

Beginning in March 2020, the Company transitioned nearly all employees to a remote working environment for their safety and to protect the integrity of Company operations.

We have updated certain sales, accounting, and administrative processes, and corresponding information technology platforms, in an effort to help facilitate the virtual work environment which still persists for some employees.

During the year ended December 31, 2022, we engaged in periodic, informal testing of our business operations, and we do not believe that our financial position, work efficiency, and overall operational integrity have been materially affected.

However, we recognize that a certain degree of employee enthusiasm, teamwork, creativity, and support is normally generated by being present at a physical location, and we believe that prolonged remote working may have a negative impact over time on our business, and on employee productivity.

Our Huntington Beach, CA warehouse location has returned fully to “on premise”

status, while our corporate headquarters in Costa Mesa, CA remains remote for some employees.

We will continue to monitor the COVID-19 situation in all regions in which we operate and will maintain strict adherence to local health guidelines and mandates.

We may need to take further actions that we determine are in the best interests of our employees or are required by federal, state, or local authorities.

Synthetic Nicotine PMTA Update.

On November 4, 2022, FDA issued two Refuse to Accept Letters (“RTAs”) covering multiple PMTA submissions for certain of the Company’s synthetic nicotine products.

The Company exercised its right to appeal the decision with the FDA and on March 6, 2023, the Company filed a request for supervisory review with FDA's Center for Tobacco Products.

On October 30, 2023, the Company received notification from the FDA that its supervisory review appeal had been granted.

Therefore, the FDA has rescinded the RTAs, notified the Company that Acceptance Letters for the PMTAs will be issued, and will place these applications into filing review.

New Executive Employment Agreement.

On June 15, 2023, the Company entered into a new employment agreement with Ryan Stump (the “New Agreement”).

Pursuant to the New Agreement, Mr.

Stump will earn a base salary of $300,000 per year and serve as Chief Operating Officer for a term of two years, renewable on an annual basis unless earlier terminated by the Company or Mr.

Stump is terminated by the Company without Cause (as defined therein) or for Good Reason (as defined therein), he will be entitled to receive his base salary and benefits for a period of one year.

In the event of a change in control, all unvested equity awards will immediately vest.

Notwithstanding his contracted annual salary, to cut costs during a time when the Company is striving to launch the SPREE BAR line, Mr.

Stump has elected to reduce his current compensation to the rate of $225,000 annually.

As a point of reference, all the Company’s other executives have also elected to reduce their current compensation.

It is anticipated that, after the launch of SPREE BAR, executive base salaries will revert to their previous levels.

New Director.

In June 2023, at the Company’s Annual Meeting of Stockholders, the Company’s stockholders appointed Michael D.

King as a director.

King is the Founder and current Chief Executive Officer of OEM Solutions, a private company that has developed a supply network in Asia with world-class manufacturing companies that offer a wide variety of custom-made medical products, scientific instruments, consumer products, and food service devices.

Operating OEM Solutions has been Mr.

King’s sole occupation and employment for the past 22 years.

From 1998 until 2001, Mr.

King worked as a Sales Representative at Allied Enterprises in Pittsburgh, Pennsylvania.

From 1991 through 1998, Mr.

King worked for the Ford Motor Company in the Finance Department as an analyst and eventually supervisor.

King graduated with a Master of Business Administration degree from the State University of New York at Buffalo in 1991.

Basis of Presentation

The consolidated financial statements contained within this Annual Report and the disclosure in this Management’s Discussion and Analysis of Financial Condition and Results of Operations with respect to the years ended December 31, 2022 and 2021 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “

SEC ”).

The consolidated financial statements contained within this Annual Report and the disclosure in this Management’s Discussion and Analysis of Financial Condition and Results of Operations with respect to the years ended December 31, 2023 and 2022 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “ SEC ”).

In the opinion of the Company, all adjustments, including normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the interim period have been included.

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Total operating costs and expenses

(Loss) income from operations

Loss from operations

Other income (expense):

Interest expense

Debt extinguishment gain

Change in fair value of derivative liabilities

Gain on debt extinguishment

Other income, net

Total other income

(Loss) income before income taxes

Income taxes (benefit) provision

Net (loss) income

Revenue for the year ended December 31, 2022, increased approximately $4,928,000 , or 22.9%, to approximately $26,424,000, as compared to approximately $21,496,000 for the year ended December 31, 2021, due to a $4,030,000 increase in our nicotine-based product sales, and a $898,000 increase in sales of our hemp-derived products.

The increase in our nicotine-based vapor product sales is directly related to the launch of our Pacha (formerly Pachamama Disposable) product line which grew significantly during the first half of 2022 with the launch of additional size and flavor offerings.

Pacha Disposables became Charlie’s first-ever entrant into the rapidly expanding, disposable e-cigarette market and offer users a variety of premium flavors containing synthetic nicotine (not derived from tobacco) in a compact, discrete format.

Ongoing uncertainty surrounding the FDA’s application review timeline, following the May 13, 2022 PMTA submission deadline, as well as the entrant of lower-priced competitors selling direct from China affected buying patterns of disposable nicotine products in domestic vape market during the second half of 2022.

Sales growth slowed during the quarter ended December 31, 2022 as customers reduced emphasis on offering a wide product variety and focused on low-cost, high-sales velocity offerings.

During the quarter ended March 31, 2021, we began to streamline our existing hemp-derived wellness product offering and to pursue the developing market for products containing hemp-derived cannabinoids.

We view this market segment as having higher growth potential and better alignment with our existing sales channels, and therefore, we will continue to develop and launch additional products in this category.

Loss before income taxes

Provision for income taxes

Revenue for the year ended December 31, 2023, decreased approximately $10,174,000, or 38.5%, to approximately $16,250,000, as compared to approximately $26,424,000 for the year ended December 31, 2022, due to a $8,553,000 decrease in our nicotine-based product sales, and a $1,621,000 decrease in sales of our hemp-derived products.

The decrease in our nicotine-based vapor product sales is directly related to a decline in sales of our Pacha Disposable line, which was launched during the first half of 2022.

Pacha Disposables became Charlie’s first-ever entrant into the rapidly expanding, disposable e-cigarette market and offers users a variety of premium flavors containing synthetic nicotine (not derived from tobacco) in a compact, discrete format.

The nicotine-based disposable category faced significant pressure during the year ended December 31, 2023 due to increased competition from lower-priced Chinese products being sold direct, as well as further shortening of product lifecycles, making it challenging to market effectively.

Uncertainty regarding FDA’s position on flavored nicotine products, specifically disposable vapes, continued to drive the market underground, creating significant challenges for brands like Charlie’s who choose to fully adhere to state and Federal legislation.

Sales in our hemp-derived products business declined due to regulatory challenges with specific product formulations as well as an intentional reallocation of resources to the launch of evergreen product categories such as SPREE BAR.

During the second half of 2023, we decided to strategically contract our hemp-derived products business and utilize working capital to fund the SPREE BAR line of non-nicotine vapor products that launched in November 2023.

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased approximately $6,016,000 or 57.7%, to approximately $16,439,000, or 62.2% of revenue, for the year ended December 31, 2022, as compared to approximately $10,423,000, or 48.5% of revenue, for the year ended December 31, 2021.

This cost, as a percent of revenue, increased due to a higher sales mix consisting of our Pacha Disposable product line, which carries a lower margin per unit relative to our other vapor products.

Cost of revenue was also significantly affected by a large provision for inventory obsolescence related to certain of our nicotine and alternative cannabis disposable products.

The increased provision for inventory obsolescence was mostly the result of compressed product lifecycles in both the nicotine disposable and alternative cannabis product categories.

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased approximately $6,233,000 or 37.9%, to approximately $10,206,000, or 62.8% of revenue, for the year ended December 31, 2023, as compared to approximately $16,439,000, or 62.2% of revenue, for the year ended December 31, 2022.

This cost, as a percent of revenue, remained relatively flat due to a relatively consistent sales mix year over year.

General and Administrative Expense

For the year ended December 31, 2022, total general and administrative expense decreased approximately $369,000 to approximately $8,381,000, or 31.7% of revenue, as compared to approximately $8,750,000, or 40.7% of revenue, for the year ended December 31, 2021.

This decrease is primarily comprised of reductions of approximately $509,000 of wages and benefits and $391,000 of non-cash stock-based compensation.

The decrease in payroll and benefits expense during the year ended December 31, 2022, was primarily due to strategic headcount reduction, salary reductions and cancelled bonuses for Company officers and senior managers, as well as Employee Retention Credits received in conjunction with the Infrastructure Investment and Jobs Act which was enacted in November 2021.

The reduction in non-cash stock-based compensation is primarily related to the conclusion of the vesting period for shares of Common Stock awarded to several employees in conjunction with the Share Exchange completed in April 2019 (See Note 3).

The decreases were primarily offset by increases of $161,000 in provision for bad debt, $91,000 of merchant processing and bank fees as well as $279,000 in other general and administrative expenses.

The increases in provision for bad debt and merchant processing fees were primarily related to higher sales achieved during the year ended December 31, 2022.

The increase in other general and administrative costs was primarily related to additional infrastructure and information technology system upgrades as well as higher audit fees and costs related to the calculation of our 2021 income taxes.

For the year ended December 31, 2023, total general and administrative expense decreased approximately $1,411,000 to approximately $6,970,000, or 42.9% of revenue, as compared to approximately $8,381,000, or 31.7% of revenue, for the year ended December 31, 2022.

This decrease was primarily comprised of reductions of approximately $710,000 of non-commission wages and benefits, $209,000 of merchant processing fees, $156,000 of bad debt expense, as well as $461,000 in other general and administrative expenses, offset by an increase of $125,000 in stock-based compensation.

The decrease in payroll and benefits expense during the year ended December 31, 2023, was primarily due to strategic headcount reduction, salary reductions and cancelled bonuses for Company officers and senior managers.

The decreases in provision for bad debt and merchant processing fees were primarily related to lower sales achieved during the year ended December 31, 2023.

The increase in non-cash stock-based compensation is primarily related to the additional 9.1 million restricted awards granted during the year ended 2023.

Sales and Marketing Expense

For the year ended December 31, 2022, total sales and marketing expense increased to approximately $2,605,000 as compared to approximately $1,734,000 for the year ended December 31, 2021, which was primarily due to a shift in spending on product sales support materials and digital marketing campaigns related to the launch of our new alternative cannabis product lines.

Our participation in tradeshows increased substantially during the year as we continue to believe it is the best method for directly reaching consumers and distributors of our products.

For the year ended December 31, 2023, total sales and marketing expense decreased to approximately $1,107,000 as compared to approximately $2,605,000 for the year ended December 31, 2022, which was primarily due to lower sales commissions paid as well as a significant reduction in tradeshow and customer event related costs.

Commissions decreased due to a combination of reduced sales and a modified commission program for sales reps.

Research and Development Expense

For the year ended December 31, 2022, total research and development expense increased approximately $780,000, to $804,000 as compared to approximately $24,000 for the year ended December 31, 2021.

During the year ended December 31, 2022, we (i) filed new PMTAs for our synthetic nicotine Pacha products, (ii) invested in “age-gating technology”

research and development, and (iii) invested in the development of new novel products which resulted in higher research and development expenses relative to the year ended December 31, 2021.

Income (Loss) from Operations

We generated loss from operations of approximately $1,805,000 for the year ended December 31, 2022, as compared to income from operations of approximately $565,000 for the year ended December 31, 2021.

Net income (loss) is determined by adjusting income (loss) from operations by the following items:

For the year ended December 31, 2023, total research and development expense decreased approximately $635,000, to $169,000 as compared to approximately $804,000 for the year ended December 31, 2022.

During the year ended December 31, 2023, further investment in our outstanding PMTAs, originally submitted during 2022 and 2020, was not necessary which led to decreased research and development costs relative to the year ended December 31, 2022.

Loss from Operations

We generated loss from operations of approximately $2,202,000 for the year ended December 31, 2023, as compared to loss from operations of approximately $1,805,000 for the year ended December 31, 2022.

Net loss is determined by adjusting loss from operations by the following items:

Change in fair value of derivative liabilities.

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Due to the limited supply of shares currently freely trading, our stock price may experience volatility and therefore, considerable fluctuations in the value of our warrant derivative liability may occur in the future.

We had warrants to purchase approximately 40,424,000 shares of common stock outstanding as of December 31, 2022.

We had warrants to purchase approximately 40,424,000 shares of common stock outstanding as of December 31, 2023 that expire unless exercised on or before April 26, 2024.

Interest Expense.

For the years ended December 31, 2023 and 2022, we recorded interest expense related to notes payable of $477,000 and $155,000, respectively.

Gain on debt extinguishment.

For the years ended December 31, 2022, and 2021 we recorded a gain on debt extinguishment of $0 and $1,060,000, respectively, related to forgiveness of Paycheck Protection Program loans extended to Charlie’s and Don Polly.

Other Income.

For the years ended December 31, 2022 and 2021, we recorded other income related to interest and sublease income of $6,000 and $14,000, respectively.

Income Taxes (Benefit) Provision

The Company’s income tax benefit was $92,000, or 5.5% of income before income taxes, for the year ended December 31, 2022.

The Company’s income tax expense was $342,000 for the year ended December 31, 2021.

Net Income (Loss)

For the years ended December 31, 2022, and 2021, we had a net loss of $1,592,000 and net income of $4,808,000, respectively.

For the years ended December 31, 2022, we recorded other income related to interest and sublease income of $6,000.

Income Taxes Benefit

The Company did not record income tax for the year ended December 31, 2023.

The Company’s income tax benefit was $92,000 for the year ended December 31, 2022.

For the years ended December 31, 2023, and 2022, we had a net loss of $2,093,000 and net loss of $1,592,000, respectively.

Effects of Inflation

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As of December 31, 2023, we had working capital of approximately $332,000, which consisted of current assets of approximately $5,086,000 and current liabilities of approximately $4,754,000, as compared to working capital of approximately $1,067,000 at December 31, 2022.

The current liabilities include approximately $2,333,000 of accounts payable and accrued expenses, notes payable of $1,000,000, note payable from a related party of $300,000, approximately $148,000 of deferred revenue associated with product shipped but not yet received by customers, approximately $373,000 of lease liabilities, and $629,000 of derivative liability associated with the Investor Warrants and Placement Agent Warrants (the derivative liability of $629,000 is included in determining the working capital of $1,067,000 but is not expected to use any cash to ultimately satisfy the liability).

On April 6, 2022, the Company issued a secured promissory note (the “

Note ”) to one of its large individual stockholders, Michael King (the “

The current liabilities include approximately $2,846,000 of accounts payable and accrued expenses, notes payable of $716,000, note payable from related parties of $700,000, approximately $58,000 of deferred revenue associated with product shipped but not yet received by customers, approximately $355,000 of current lease liabilities, and $79,000 of derivative liability associated with the Investor Warrants and Placement Agent Warrants.

Our cash and cash equivalents balance at December 31, 2023 was approximately $367,000.

As of December 31, 2023, we have the following notes outstanding:

July 2023 Note Financing .

Between July 17, 2023 and August 1, 2023, the Company issued unsecured promissory notes (the “ Notes ”) to several of its executives and employees, Ryan Stump, Henry Sicignano III, Keith Stump, and Jessica Greenwald, and to three of its largest stockholders, Brandon Stump, Red Beard Holdings LLC, and Michael King (the “ Lenders" ), in the cumulative principal amount of $1,400,000.

Notes shall bear interest at twenty-one percent (21%) per annum and have maturity dates ranging from November 17, 2023 to December 10, 2023.

As of December 31, 2023, $400,000 was remained outstanding and the maturity dates of the outstanding notes have been extended to May 17, 2024.

April 2022 Note Financing .

On April 6, 2022, the Company issued a secured promissory note (the “ Note ”) to one of its individual stockholders, and a member of the Company’s Board of Directors since June 13, 2023, Michael King (the ” Lender" ), in the principal amount of $1,000,000, which Note is secured by accounts receivable of the Company pursuant to the terms of a Security Agreement entered into by and between the Company and the Lender (the "Note Financing" ).

The Note initially required the payment of principal in full and guaranteed interest in an amount the greater of 18% per annum, or $90,000, on or before the earlier date of (i) a Liquidity Event, as defined under the terms of the Note;

or (ii) September 28, 2022.

Principal shall be payable on t he 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining principal balance will be paid.

Immediately following the second modification, the Company entered into a third modification agreement to further extend the maturity date to March 28, 2025.

The third modification agreement was effective on March 28, 2023 and superseded the second modification.

Interest shall accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and shall be payable on the same day as installments of principal are payable.

The Company may prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty.

All outstanding principal and interest are due earlier of March 28, 2025, or a liquidity event.

The third modification was recognized as a debt extinguishment, resulting in a gain on debt extinguishment of approximately $35,000.

The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing.

On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the " Stump Lender ") entered into a loan agreement (the “

Loan ”) in the principal amount of $300,000.

August 2022 Note Financing .

On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the "Stump Lender" ) entered into a loan agreement (the “ Loan ”) in the principal amount of $300,000.

The Loan will be due in full in 120 days or sooner if, before the end of term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds.

The Loan bears an annual interest rate of 10%.

The Company also incurred additional $3,000 issuance cost resulting from the payment of the Stump Lender’s legal fees.

The Company also incurred an additional $3,000 issuance cost resulting from the payment of the Stump Lender’s legal fees.

On April 13, 2023, the Company and Stump Lender entered into a second modification to the Loan to extend the maturity date to August 14, 2023.

Our cash and cash equivalents balance at December 31, 2022 was approximately $257,000.

On August 7, 2023, the Company and Stump Lender entered into a third modification to the Loan to extend the maturity date to December 15, 2023.

On December 15, 2023, the Company and Stump Lender entered into a fourth modification to the Loan to extend the maturity date to April 15, 2024.

January 2023 Receivables Financing.

On January 19, 2023 the Company entered into a future receivables sale agreement (“ Receivables Financing ” or “ Receivables Financing Agreement ”) with Austin Business Finance (“ Austin Purchaser ”) by which Austin Purchaser purchases from the Company, its future accounts and contract rights arising from the sale of goods or rendition of services to the Company’s customers.

The purchase price, as defined by the Receivables Financing Agreement, was $650,000 which was paid to the Company on January 19, 2023, net of a 3% origination fee.

The Receivables Financing Agreement required twenty-six equal payments of $29,250 to be paid weekly for a total repayment of $760,500 over the term of the agreement.

As of December 31, 2023, the Company had fully repaid the outstanding principal balance and accrued interest totaling $760,500 on its Receivables Financing Agreement.

December 2023 Receivables Financing.

On December 13, 2023 the Company entered into a second future receivables sale agreement (“ Second Receivables Financing ” or “ Receivables Financing Agreement ”) with Austin Business Finance (“ Austin Purchaser ”) by which Austin Purchaser purchases from the Company, its future accounts and contract rights arising from the sale of goods or rendition of services to the Company’s customers.

The purchase price, as defined by the Second Receivables Financing Agreement, was $750,000 which was paid to the Company on December 13, 2023, net of a 3% origination fee.

The Second Receivables Financing Agreement requires fifty-two equal payments of $17,740 to be paid weekly for a total repayment of $922,500 over the term of the agreement.

For the year ended December 31, 2023, net cash used in operating activities was approximately $783,000, resulting from a net loss of $2,093,000, offset by a change in operating assets and liabilities of $811,000 and a net non-cash activity of $499,000.

For the year ended December 31, 2022, net cash used in operating activities was approximately $1,720,000, resulting from a net loss of $1,592,000 and a change in operating assets and liabilities of $996,000, offset by net non-cash activity of $868,000.

For the year ended December 31, 2021, net cash used in operating activities was approximately $1,347,000, resulting from a net income of $4,808,000, offset by a $3,545,000 of change in fair value of derivative liabilities, $1,060,000 from debt extinguishment, and $2,866,000 changes in our operating assets and liabilities.

For the year ended December 31, 2022, we used cash for investment activities of approximately $189,000 as compared to $110,000 for the same period in 2021.

The cash used for investment activities is primarily for the on-going development and configuration of enterprise resource planning software as well as the disposal of fixed assets related to the permanent closure of our Denver, Colorado location.

For the year ended December 31, 2023, we did not incur any expenditures for investment activities.

We used cash for investment activities of approximately $189,000 during the year ended December 31, 2022.

The cash used for investment activities is primarily for the development and configuration of enterprise resource planning software as well as the disposal of fixed assets related to the permanent closure of our Denver, Colorado location.

For the year ended December 31, 2023, we generated approximately $893,000 cash from financing activities, resulting from the issuance of $2,769,000 notes payable and offset by repayment $1,876,000 of certain notes.

For the year ended December 31, 2022, we generated approximately $1,300,000 cash from financing activities related to the issuance of a promissory note to a large shareholder and a short-term loan from our chief operating officer and director, Ryan Stump, each as discussed above.

For the year ended December 31, 2021 we generated approximately $3,184,000 cash from financing activities from the Private Placement (as defined in Note 10 of Item 1, Part 1 of this Report) offset by the repayment of the Red Beard Note (as defined in Note 8 of Item 1, Part 1 of this Report).

We also paid cash dividends of $883,000 during the nine months ended September 30, 2021 to our preferred stockholders. 

Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management ’

s plan of operation

Substantial Doubt to Continue as a Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management ’ s Plan of Operation

Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company operates in a rapidly changing legal and regulatory environment;

new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs.

Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States.

Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA.

There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application.

For the year ended December 31, 2022, the Company generated a loss from operations of approximately $1,805,000, and a consolidated net loss of approximately $1,592,000 and used cash in operations of approximately $1,720,000.

The Company had stockholders’

equity of $1,700,000 at December 31, 2022.

During the year ended December 31, 2022, the Company’s working capital requirements continued to evolve as current assets decreased to $5,850,000 from $7,994,000 as of December 31, 2021 and currently liabilities decreased to $4,783,000 from $5,534,000 as of December 31, 2021.

Considering these facts, the issuance of one or several MDOs from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and the removal of certain products for sale.

These regulatory risks, as well as other industry-specific challenges and our low working capital and cash position, remain factors that raise substantial doubt about the Company’s ability to continue as a going concern.

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts, including the expenditure of approximately $5,100,000 to date, to support our PMTA process for the Company’s submissions to the FDA.

Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA.

There was a significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future applications.

For the year ended December 31, 2023, the Company’s revenue declined, the Company generated a loss from operations of approximately $2,202,000, and a consolidated net loss of approximately $2,093,000 and used cash from operations of approximately $783,000.

The Company had a stockholders’ deficit of $107,000 at December 31, 2023.

During the year ended December 31, 2023, the Company’s working capital position decreased to $332,000 from $1,067,000, as of December 31, 2022.

Considering these facts, the issuance of one or several Marketing Denial Orders ( "MDOs ”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and the removal of certain products for sale.

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts, including cumulative expenditures of approximately $5,100,000 as of December 31, 2023, to support our PMTA process for the Company’s submissions to the FDA.

The Company has undergone cost-cutting measures including salary reductions of up to 25% for officers and certain managers and a reduction in headcount for certain departments.

During 2023, we also plan to launch additional products that are not subject to FDA review or covered under the Agriculture Improvement Act (the “

Farm Bill ”).

During 2023, the Company intends to allocate further resources and new personnel to support research and development initiatives in order to support existing, or subsequent PMTAs.

The Company may require additional financing in the future to support subsequent PMTA filings, and/or in the event the FDA requests additional testing for one, or several, of the Company’s prior PMTA submissions.

There can be no assurance that additional financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and, in the Company’s best interests.

During the fourth quarter of 2023, the Company launched SPREE BAR, a non-nicotine, disposable vapor product which is not subject to FDA review or covered under the Agriculture Improvement Act (the “ Farm Bill ”).

The Company may require additional financing in the future to support the development of new product categories as well as subsequent PMTA filings, and/or in the event the FDA requests additional testing for one, or several, of the Company’s prior PMTA submissions.

The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations.

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Revenue Recognition

The Company recognizes revenues in accordance with Accounting Standards Codification (“

ASC ”) 606 –

Contracts with Customers.

The Company recognizes revenues in accordance with Accounting Standards Codification (“ ASC ”) 606 – Contracts with Customers.

Revenues are generated from contracts with customers that consist of sales to retailers and distributors.

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The Company does not grant payment financing terms greater than one year.

Payments received in advance of revenue recognition are recorded as deferred revenue.  

Accounts receivable is recorded at the invoiced amount and does not bear interest.

We determine the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and set up an allowance for doubtful accounts when collection is uncertain.

Customers’

accounts are written off against the allowance when all attempts to collect have been exhausted.

Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted.

Recoveries of accounts receivable previously written off are recorded as income when received.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity