What changed in this filing

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Item 1. Financial Statements

2024-11-19 compared with 2024-08-19 · 196 added, 177 removed, 608 unchanged (38% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

Current assets:

6 unchanged sentences

Right-of-use asset, net

Security deposits

Total non-current assets

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

17 unchanged sentences

Series A, 300,000 shares designated;

126,680 and 128,181 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

126,680 and 128,181 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Series B, 1,500,000 shares designated;

0 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

0 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Common stock ($ 0.001 par value);

500,000,000 shares authorized;

249,602,388 and 228,535,886 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively

249,565,388 and 228,535,886 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively

Additional paid-in capital

7 unchanged sentences

For the three months ended

For the six months ended

For the nine months ended

September 30,

Product revenue, net

12 unchanged sentences

Total other (loss) income

Net (loss) income

Net income (loss) per share

Net loss per share

Weighted average number of common shares outstanding

3 unchanged sentences

(in thousands)

For the Three Months Ended June 30, 2024

For the Three Months Ended September 30, 2024

Convertible Preferred Stock

Total Stockholders'

Stockholders'

Paid-in Capital

Balance at April 1, 2024

Issuance of common shares for cash

Issuance of common shares from debt redemption

Balance at July 1, 2024

Forfeiture of restricted stock awards

Stock compensation

Balance at June 30, 2024

For the Three Months Ended June 30, 2023

Balance at September 30, 2024

For the Three Months Ended September 30, 2023

Convertible Preferred Stock

1 unchanged sentence

Paid-in Capital

Balance at April 1, 2023

Conversion of Series A convertible preferred stock

Equity (Deficit)

Balance at July 1, 2023

Forfeiture of restricted stock awards

Stock compensation

Balance at June 30, 2023

For the Six Months Ended June 30, 2024

Balance at September 30, 2023

For the Nine Months Ended September 30, 2024

Convertible Preferred Stock

Total Stockholders'

Stockholders'

Paid-in Capital

5 unchanged sentences

Stock compensation

Balance at June 30, 2024

For the Six Months Ended June 30, 2023

Balance at September 30, 2024

For the Nine Months Ended September 30, 2023

Convertible Preferred Stock

Total Stockholders'

Stockholders'

Paid-in Capital

1 unchanged sentence

Conversion of Series A convertible preferred stock

Forfeiture of restricted stock awards

Stock compensation

Balance at June 30, 2023

Balance at September 30, 2023

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

2 unchanged sentences

(in thousands)

For the six months ended

For the nine months ended

September 30,

Cash Flows from Operating Activities:

14 unchanged sentences

Lease liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash Flows from Financing Activities:

32 unchanged sentences

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 six months ended June 30, 2024, the Company’s revenue declined, the Company generated a loss from operations of approximately $ 1,677,000 , and a consolidated net loss of approximately $ 2,012,000 .

For the nine months ended September 30, 2024, the Company’s revenue declined, the Company generated a loss from operations of approximately $ 2,553,000 , and a consolidated net loss of approximately $ 3,034,000 .

Cash used in operations was approximately $ 1,244,000 .

The Company had a stockholders’ deficit of $ 296,000 at June 30, 2024.

During the six months ended June 30, 2024, the Company’s working capital position decreased to a deficit of $ 557,000 from $ 332,000 as of December 31, 2023.

The Company had a stockholders’ deficit of $ 1,262,000 at September 30, 2024.

During the nine months ended September 30, 2024, the Company’s working capital position decreased to a deficit of $ 1,392,000 from $ 332,000 as of December 31, 2023.

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 potentially require us to remove products from circulation.

These regulatory risks, as well as other industry-specific challenges, 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 $6,000,000 as of June 30, 2024, to support our PMTA process for the Company’s submissions to the FDA.

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 $ 6.5 million as of September 30, 2024, to support our premarket tobacco product application ( “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 the fourth quarter of 2023, the Company launched SPREE BAR, a non-nicotine, disposable pod system 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.

25 unchanged sentences

More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and the Company 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.

During the fourth quarter of 2023 the Company launched new disposable vape products, under the “SPREE BAR™” brand.

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.

During the fourth quarter of 2023 the Company launched new alternative alkaloid disposable vape products, under the “SPREE BAR™” brand.

The Company and its attorneys believe Metatine™-based alternative alkaloid 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 alternative alkaloid 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.

Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s alternative alkaloid 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 alternative alkaloid products, corroborates these conclusions.

However, should any of these understandings be incorrect, the Company’s position on Metatine not meeting the definition of 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.

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, alternative alkaloid 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.

46 unchanged sentences

Level 3 – Unobservable inputs for the instrument requiring the development of assumptions by the Company.

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of June 30, 2024, and December 31, 2023 (amounts in thousands):

Fair Value at June 30, 2024

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of September 30, 2024, and December 31, 2023 (amounts in thousands):

Fair Value at September 30, 2024

Derivative liability - Warrants

3 unchanged sentences

Total liabilities

There were no transfers between Level 1, 2 or 3 during the six-month period ended June 30, 2024.

The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2024.

There were no transfers between Level 1, 2 or 3 during the nine-month period ended September 30, 2024.

The following table presents changes in Level 3 liabilities measured at fair value for the nine-month period ended September 30, 2024.

Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

2 unchanged sentences

Change in fair value

Balance at June 30, 2024

Balance at September 30, 2024

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in the Monte Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of April 26, 2024 and December 31, 2023, is as follows:

14 unchanged sentences

NOTE 4 – PROPERTY AND EQUIPMENT

Depreciation and amortization expense totaled $ 66,000 and $ 80,000 , respectively, during the six months ended June 30, 2024 and 2023.

Property and equipment as of June 30, 2024 and December 31, 2023, are as follows (dollar amounts in thousands):

Depreciation and amortization expense totaled $ 90,000 and $ 117,000 , respectively, during the nine months ended September 30, 2024 and 2023.

Property and equipment as of September 30, 2024 and December 31, 2023, are as follows (dollar amounts in thousands):

September 30,

Estimated Useful Life

3 unchanged sentences

Leasehold improvements

Lesser of lease term or

estimated useful life

Lesser of lease term or estimated useful life

Accumulated depreciation

Net Property & Equipment

Property and equipment, net

NOTE 5 – CONCENTRATIONS

1 unchanged sentence

For the three months

ended June 30,

For the six months

ended June 30,

During the three months ended June 30, 2024 and 2023, purchases from five vendors represented 86 % and 56 %, respectively, of total inventory purchases.

During the six months ended June 30, 2024 and 2023, purchases from six vendors represented 67 % and 75 %, respectively, of total inventory purchases.

As of June 30, 2024, and December 31, 2023, amounts owed to these vendors totaled $ 666,000 and $ 266,000 respectively, which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

ended September 30,

For the nine months

ended September 30,

During the three months ended September 30, 2024 and 2023, purchases from five vendors represented 84 % and purchases from three vendors represented 73 %, respectively, of total inventory purchases.

During the nine months ended September 30, 2024 and 2023, purchases from five vendors represented 67 % and 66 %, respectively, of total inventory purchases.

As of September 30, 2024, and December 31, 2023, amounts owed to these vendors totaled $ 846,000 and $ 366,000 respectively, which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Accounts Receivable

The Company’s concentration of accounts receivable is as follows:

Four customers made up more than 61 % of net accounts receivable at June 30, 2024.

September 30,

Six customers made up more than 71 % of net accounts receivable at September 30, 2024.

Five customers made up more than 81 % of net accounts receivable at December 31, 2023.

No customer exceeded 10% of total net sales for the three-month and six-month periods ended June 30, 2024 and 2023, respectively.

No customer exceeded 10% of total net sales for the three-month and nine-month periods ended September 30, 2024 and 2023, respectively.

NOTE 6 – DON POLLY, LLC

Don Polly is a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, a former and current executive officer of the Company, respectively, and a consolidated variable interest for which the Company is the primary beneficiary.

Don Polly is a Nevada limited liability company that is owned by entities controlled by Ryan Stump, a current executive officer of the Company, respectively, and a consolidated variable interest for which the Company is the primary beneficiary.

Don Polly formulates, sells and distributes the Company’s hemp-derived product lines.

10 unchanged sentences

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of June 30, 2024 and December 31, 2023, are as follows (amounts in thousands):

Accounts payable and accrued expenses as of September 30, 2024 and December 31, 2023, are as follows (amounts in thousands):

September 30,

Accounts payable

4 unchanged sentences

NOTE 8 – NOTES PAYABLE

September 2024 Pinnacle Receivables Financing

On September 6, 2024, the Company entered into a future receivables sale agreement (“ Pinnacle Receivables Financing Agreement ”) with Pinnacle Business Funding (“ Pinnacle ”) by which Pinnacle purchases from the Company its future accounts receivable and contract rights arising from the sale of goods or services to the Company’s customers.

The purchase price, as defined by the Pinnacle Receivables Financing Agreement, was $ 750,000 which was paid to the Company on September 12, 2024, net of a 1 % origination fee.

The Pinnacle Receivables Financing Agreement requires forty equal payments of $ 25,687.50 to be paid weekly for a total repayment of $ 1,027,500 over the term of the agreement.

January 2024 Note Financing

5 unchanged sentences

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.

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

During the year ended December 31, 2023, the Company made a $ 1,070,000 repayment to the Notes, including a $ 70,000 interest payment.

As of June 30, 2024, $ 400,000 of Notes remained outstanding with Ryan Stump and Henry Sicignano III, and the maturity dates of the outstanding notes have been extended to October 16, 2024.

As of September 30, 2024, $ 400,000 of Notes, plus accrued interest, remained outstanding with Ryan Stump and Henry Sicignano III, and the maturity dates of the outstanding notes had been extended to October 16, 2024.

Subsequently, both notes have been further extended until December 31, 2024.

2023 Receivables Financing

2 unchanged sentences

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

As of June 30, 2024, $ 426,000 remained outstanding.

As of September 30, 2024, $ 195,000 remained outstanding.

April 2022 Note Financing

3 unchanged sentences

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.

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 April 28, 2024, or a liquidity event.

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.

6 unchanged sentences

On April 15, 2024 the Company and Stump Lender entered into a fifth modification to the Loan to extend the maturity date to August 21, 2024.

On August 21, 2024 the Company and Stump Lender entered into a sixth modification to the Loan to extend the maturity date to December 17, 2024.

Economic Injury Disaster Loan

1 unchanged sentence

The balance of principal and interest will be payable thirty years from the date of the EID Loan and interest will accrue at the rate of 3.75 % per annum.

The following summarizes the Company’s notes payable maturities as of June 30, 2024 ( amounts in thousands):

Six Months Ending December 31, 2024

The following summarizes the Company’s notes payable maturities as of September 30, 2024 ( amounts in thousands):

Three Months Ending December 31, 2024

Year Ending December 31, 2025

7 unchanged sentences

Diluted weighted average common shares include common stock potentially issuable under the Company’s convertible preferred stock, warrants and vested and unvested stock options.

The following table sets forth the computation of (loss) earnings per share (amounts in thousands, except share and per share amounts):

For the three months ended

For the six months ended

Net (loss) income - basic

Reversal of gain due to change in fair value of warrant liability

Net loss - diluted

Weighted average shares outstanding - basic

Diluted preferred shares

Weighted average shares outstanding - diluted

Basic earnings (loss) per share

Diluted earnings (loss) per share

The following securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):

For the six months ended

For the nine months ended

September 30,

Series A convertible preferred shares

1 unchanged sentence

Conversion of Series A Preferred Shares

During the six months ended June 30, 2024, the Company issued approximately 339,000 shares of Common Stock upon conversion of 1,501 shares of Series A Preferred.

During the nine months ended September 30, 2024, the Company issued approximately 339,000 shares of Common Stock upon conversion of 1,501 shares of Series A Preferred.

May 2024 Capital Raise

3 unchanged sentences

As part of the Offering, certain note holders converted their outstanding debt and future debt repayments for total amount of $ 600,000 in lieu of cash payment for the subscription agreement (see Note 8).

The Company recognized a $ 75,000 debt extinguishment loss for the three and six months ended June 30, 2024.

The Company recognized a $ 75,000 debt extinguishment loss for the nine months ended September 30, 2024.

NOTE 11 – STOCK-BASED COMPENSATION

6 unchanged sentences

Non-Qualified Stock Options

The following table summarizes stock option activities during the six months ended June 30, 2024 (all option amounts are in thousands):

The following table summarizes stock option activities during the nine months ended September 30, 2024 (all option amounts are in thousands):

Stock Options

6 unchanged sentences

Options forfeited/expired

Outstanding at June 30, 2024

Options vested and exercisable at June 30, 2024

Outstanding at September 30, 2024

Options vested and exercisable at September 30, 2024

Restricted Stock Awards

The following table summarizes restricted stock awards activities during the six months ended June 30, 2024 (all share amounts are in thousands):

The following table summarizes restricted stock awards activities during the nine months ended September 30, 2024 (all share amounts are in thousands):

Number of Shares

4 unchanged sentences

Restricted stock granted

Nonvested at June 30, 2024

During the six months ended June 30, 2024, the Company granted 525,000 restricted stock awards (“ RSAs ”) to employees and contractors of the Company pursuant to the 2019 Plan, as amended.

Nonvested at September 30, 2024

During the nine months ended September 30, 2024, the Company granted 525,000 restricted stock awards (“ RSAs ”) to employees and contractors of the Company pursuant to the 2019 Plan, as amended.

The RSAs are subject to a vesting schedule and have all the rights of a shareholder of the Company with respect to voting, share adjustments, receipt of dividends (if any) and distributions (if any) on such shares.

The grant date fair value was approximately $ 77,000 .

During the six months ended June 30, 2024, approximately 50,000 RSAs issued to employees were forfeited.

As of June 30, 2024, there was approximately $ 288,000 of total unrecognized compensation expense related to non-vested restricted share-based compensation arrangements granted under the 2019 Plan, as amended.

During the nine months ended September 30, 2024, approximately 185,000 RSAs issued to employees were forfeited.

As of September 30, 2024, there was approximately $ 226,000 of total unrecognized compensation expense related to non-vested restricted share-based compensation arrangements granted under the 2019 Plan, as amended.

That cost is expected to be recognized over a weighted average period of 2.25 years.

The Company recorded total stock-based compensation of approximately $ 117,000 and $ 82,000 during the six months ended June 30, 2024 and 2023 related to the RSAs, respectively.

The Company recorded total stock-based compensation of approximately $ 173,000 and $ 118,000 during the nine months ended September 30, 2024 and 2023 related to the RSAs, respectively.

NOTE 12 – COMMITMENTS AND CONTINGENCIES

The Company leases office space under agreements classified as operating leases that expire on various dates through 2024.

All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expires in 2024, and its warehouse in Huntington Beach, California, which was renewed in May 2022 and expires May 2025.

All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expired on September 30, 2024, and effective October 1, 2024, the lease will be on a month-to-month basis, and its warehouse in Huntington Beach, California, which was renewed in May 2022 and expires May 2025.

On April 29, 2022, the Company entered into a commercial lease agreement for the Company’s sales and marketing operations in Williamsville, New York (“ Williamsville Lease ”) with Henry Sicignano Jr., a relative of the Company’s President, Henry Sicignano III.

13 unchanged sentences

The terms of the Lease were negotiated and approved by the independent members of the Board of Directors, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant.

The total rent paid to related parties for the six months ended June 30, 2024 and 2023 was approximately $ 138,000 and $ 138,000 , respectively.

Effective June 1, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025.

At June 30, 2024, the Company had operating lease liabilities of approximately $ 223,000 and right of use assets of approximately $ 219,000 which were included in the condensed consolidated balance sheet.

The following table summarizes quantitative information about the Company’s operating leases for the three and six months ended June 30, 2024 and 2023 (amounts in thousands):

The total rent paid to related parties for the nine months ended September 30, 2024 and 2023 was approximately $ 207,000 and $ 207,000 , respectively.

At September 30, 2024, the Company had operating lease liabilities of approximately $ 115,000 and right of use assets of approximately $ 112,000 which were included in the condensed consolidated balance sheet.

The following table summarizes quantitative information about the Company’s operating leases for the three and nine months ended September 30, 2024 and 2023 (amounts in thousands):

For the three months ended

For the six months ended

For the nine months ended

September 30,

Operating leases

4 unchanged sentences

Total rent expense

For the six months ended

For the nine months ended

September 30,

Operating cash flows from operating leases

1 unchanged sentence

Weighted-average discount rate – operating leases

Maturities of our operating leases as of June 30, 2024, excluding short-term leases, are as follows (amounts in thousands):

Six Months Ending December 31, 2024

Maturities of our operating leases as of September 30, 2024, excluding short-term leases, are as follows (amounts in thousands):

Three Months Ending December 31, 2024

Year Ending December 31, 2025

Less present value discount

Operating lease liabilities as of March 31, 2024

Operating lease liabilities as of June 30, 2024

Legal Proceedings

10 unchanged sentences

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.

Notwithstanding his contracted annual salary, to cut costs during a time when the Company is striving to launch the Metatine-based alternative alkaloid product lines, Mr.

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

13 unchanged sentences

For these reasons, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.

For the six months ended June 30, 2024 and 2023, the Company's estimate for income taxes was not determined to be significant, and therefore, is not reflected in the Company's condensed consolidated financial statements and related disclosures.

For the nine months ended September 30, 2024 and 2023, the Company's estimate for income taxes was not determined to be significant, and therefore, is not reflected in the Company's condensed consolidated financial statements and related disclosures.

NOTE 14 – SUBSEQUENT EVENTS

The Company evaluated subsequent events for their potential impact on the consolidated condensed financial statements and disclosures through August 19, 2024, the date the consolidated condensed financial statements were available to be issued, and determined that no subsequent events occurred that were reasonably expected to impact the consolidated condensed financial statements presented herein.

The Company evaluated subsequent events for their potential impact on the consolidated condensed financial statements and disclosures through November 19, 2024, the date the consolidated condensed financial statements were available to be issued, and determined that no subsequent events occurred that were reasonably expected to impact the consolidated condensed financial statements presented herein.

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

15 unchanged sentences

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.

We believe adult consumers will enjoy Metatine alternative alkaloid 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.

1 unchanged sentence

With the advent of our nicotine substitute Metatine, we plan to continue developing product formats that offer adult consumers a satisfying alternative to traditional nicotine products.

The SPREE BAR™ line of vapor products launched in late 2023 and is now offered for sale by several master distributors across the United States.

We have recently begun test-marketing Metatine-based e-liquids under the PACHAMAMA PLUS+ trademark and we are developing a second-generation Metatine-based disposable device for launch in Q4 2024.

In response to the rapidly emerging new “pouch products” category in the nicotine products industry, we are also developing a Metatine-based pouch line that could be ready for market as soon as January 2025.

We recognize the challenges in marketing non-nicotine-based products in a market saturated with traditional nicotine products;

accordingly, we are committed to continuous improvement of our alternative alkaloid products in order to satisfy adult consumers’ demands.

The SPREE BAR™ line of vapor products launched in late 2023;

the second-generation Metatine line, SBX Disposables, are launching in Q4 2024.

Further, we have recently begun test-marketing Metatine-based e-liquids under the PACHAMAMA PLUS+ trademark.

We recognize the challenges in marketing non-nicotine-based alternative alkaloid products in a market saturated with traditional nicotine products;

accordingly, we are committed to continuous improvement of our Metatine-based products in order to satisfy ever-evolving adult consumers’ demands.

Since our founding in 2014, Charlie’s has created literally hundreds of products that provide adult smokers with a viable means of abandoning cigarettes.

48 unchanged sentences

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

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.

The Company recently launched new alternative alkaloid Metatine-based disposable vape products, initially 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 Metatine-based 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 alternative alkaloid 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.

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.

Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s alternative alkaloids 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 alternative alkaloid 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, Metatine-based 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.

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The Offering was undertaken in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering.

Results of Operations for the Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023

Regarding results from operations for the quarter ended June 30, 2024, we generated revenue of approximately $2,043,000, as compared to revenue of $3,970,000 for the three months ended June 30, 2023.

September 2024 Pinnacle Receivables Financing

The purchase price, as defined by the Pinnacle Receivables Financing Agreement, was $750,000 which was paid to the Company on September 12, 2024, net of a 1% origination fee.

The Pinnacle Receivables Financing Agreement requires forty equal payments of $25,687.50 to be paid weekly for a total repayment of $1,027,500 over the term of the agreement.

Results of Operations for the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

Regarding results from operations for the quarter ended September 30, 2024, we generated revenue of approximately $1,624,000, as compared to revenue of $2,706,000 for the three months ended September 30, 2023.

This $1,082,000 decrease in revenue was due primarily to a $824,000 decrease in sales of our nicotine-based vapor products, as well as a $258,000 decrease in sales of our hemp-derived products.

We generated a net loss for the three months ended June 30, 2024, of approximately $967,000 as compared to a net income of $32,000 for the three months ended June 30, 2023.

The net loss for the three months ended June 30, 2024 includes a non-cash gain in fair value of derivative liabilities of $0 compared to a non-cash gain in fair value of derivative liabilities of $185,000 during the three months ended June 30, 2023.

A review of the three-month period ended June 30, 2024, follows:

We generated a net loss for the three months ended September 30, 2024, of approximately $1,022,000 as compared to a net loss of $708,000 for the three months ended September 30, 2023.

The net loss for the three months ended September 30, 2024 includes a non-cash gain in fair value of derivative liabilities of $0 compared to a non-cash gain in fair value of derivative liabilities of $155,000 during the three months ended September 30, 2023.

A review of the three-month period ended September 30, 2024, follows:

For the three months ended

September 30,

($ in thousands)

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Interest expense

Debt extinguishment loss

Change in fair value of derivative liabilities

Total other (loss) income

Net (loss) income

Revenue for the three months ended June 30, 2024, decreased by approximately $1,927,000 or 48.5%, to approximately $2,043,000, as compared to approximately $3,970,000 for same period in 2023 due to a $1,278,000 decrease in sales of our nicotine-based vapor products, and a $649,000 decrease in sales of our hemp-derived products.

Revenue for the three months ended September 30, 2024, decreased by approximately $1,082,000 or 40.0%, to approximately $1,624,000, as compared to approximately $2,706,000 for same period in 2023 due to a $824,000 decrease in sales of our nicotine-based vapor products, and a $258,000 decrease in sales of our hemp-derived products.

The decrease in our nicotine-based vapor product sales was primarily driven by decreased sales of our Pacha Disposable line as well as periodic stockouts of our e-liquid products.

The launch of the Company’s SPREE BAR line of nicotine substitute vapor products required enhanced focus and resource allocation in order to support sales and marketing efforts, which ultimately affected the sales performance of other product categories.

SPREE BAR sales have been inconsistent since being launched in late 2023 which has caused a gap in overall sales production.

The decrease in sales for our hemp-derived business during the period was directly related to the diversion of working capital and other resources towards the ramp up of our SPREE BAR line of nicotine substitute vapor products.

Despite achieving increased market share for our PINWEEL brand of hemp-derived products, we believe that the market for nicotine and alternative alkaloid products, such as SPREE BAR, offers the Company the most significant opportunity for growth.

The launch of the Company’s Metatine-based line of nicotine substitute vapor products required enhanced focus and resource allocation in order to support sales and marketing efforts, which ultimately affected the sales performance of other product categories.

Metatine-based product sales have been inconsistent since being launched in late 2023 which has caused a gap in overall sales production.

In addition, during the quarter ended September 30, 2024 the Company began allocating resources to its new SBX product series which is an enhanced version of the SPREE Bar line of alternative alkaloid vapor products.

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased by approximately $614,000 or 32.7%, to approximately $1,265,000, or 61.9% of revenue, for the three months ended June 30, 2024, as compared to approximately $1,879,000, or 47.3% of revenue, for the same period in 2023.

This cost, as a percent of revenue, increased compared to last year due to a high sales mix of SPREE BAR products which contain a higher per unit cost relative to sales.

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased by approximately $615,000 or 38.2%, to approximately $994,000, or 61.2% of revenue, for the three months ended September 30, 2024, as compared to approximately $1,609,000, or 59.5% of revenue, for the same period in 2023.

This cost, as a percent of revenue, increased compared to last year due to a high sales mix of Metatine-based products which contain a higher per unit cost relative to sales.

Lower overhead cost absorption also contributed to a higher cost of revenue as a percent of sales.

General and Administrative Expenses

For the three months ended June 30, 2024, total general and administrative expenses decreased by approximately $352,000 to $1,423,000 as compared to approximately $1,775,000 for the same period in 2023.

This change was primarily due to decreases of approximately $165,000 in non-commission payroll and benefits costs, $69,000 in certain professional fees, and approximately $118,000 in other general and administrative expenses.

For the three months ended September 30, 2024, total general and administrative expenses decreased by approximately $177,000 to $1,420,000 as compared to approximately $1,597,000 for the same period in 2023.

This change was primarily due to decreases of approximately $190,000 in non-commission payroll and benefits costs, $36,000 in information systems costs and $32,000 of other general and administrative costs, but was offset by an increase of $81,000 in certain professional fees.

The decrease in payroll and benefits costs was primarily driven by elective salary reductions for executives and a reduced bonus accrual.

Decreased professional fees resulted from reduced legal, accounting and other consulting services during the period.

The reduction in other general and administrative expenses largely consisted of decreased information systems expenses and merchant service fees, which vary directly with sales activity.

Reduced information systems costs were the result of a company-wide cost-cutting effort.

The decrease in other general and administrative costs was primarily due to lower insurance costs and merchant processing fees.

Increased professional fees resulted from increased legal and stock-based compensation during the period.

Sales and Marketing Expense

For the three months ended June 30, 2024, total sales and marketing expense decreased by approximately $202,000 to approximately $117,000 as compared to approximately $319,000 for the same period in 2023, which was primarily due to reduced marketing and commission costs during the period.

For the three months ended September 30, 2024, total sales and marketing expense decreased by approximately $32,000 to approximately $169,000 as compared to approximately $201,000 for the same period in 2023, which was primarily due to reduced marketing and commission costs during the period.

Research and Development Expense

For the three months ended June 30, 2024, we had income from research and development of approximately $26,000 as compared to an expense of $39,000 for the same period in 2023.

For the three months ended September 30, 2024, we had income from research and development of approximately $83,000 as compared to an expense of $41,000 for the same period in 2023.

The decrease of approximately $124,000 was primarily due to a vendor refund of approximately $109,000.

Loss from Operations

We incurred a loss from operations of approximately $736,000 for the three months ended June 30, 2024, compared to loss of approximately $42,000 for the three months ended June 30, 2023, due primarily to lower sales and gross profit.

We incurred a loss from operations of approximately $876,000 for the three months ended September 30, 2024, compared to loss of approximately $742,000 for the three months ended September 30, 2023, due primarily to lower sales and gross profit.

We also incurred certain non-cash, general and administrative expenses during the period including a $57,000 expense related to stock-based compensation.

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Interest Expense.

For the three months ended June 30, 2024, and 2023, we recorded approximately $103,000 and $7,000 of related party interest expense.

For the three months ended September 30, 2024, and 2023, we recorded approximately $81,000 and $102,000 of related party interest expense.

For the same periods, we recorded total interest expense related to notes payable of $146,000 and $121,000, respectively.

The increase was primarily due to $700,000 of notes payable that were entered in July 2023, which bear interest at twenty-one percent (21%) per annum.

Debt Extinguishment Loss.

For the three months ended June 30, 2024, we recorded approximately $75,000 of loss from debt extinguishment, which was related to our May 2024 Capital Raise (see Note 10).

For the three months ended June 30, 2024, we incurred a net loss of $967,000 as compared to net income of $32,000 for the same period in 2023.

Results of Operations for the Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023

Regarding results from operations for the six months ended June 30, 2024, we generated revenue of approximately $5,094,000, as compared to revenue of $8,000,000 for the six months ended June 30, 2023.

The increase was primarily due to $1,028,000 of notes payable that were entered in September 2024.

For the three months ended September 30, 2024, we incurred a net loss of $1,022,000 as compared to net loss of $708,000 for the same period in 2023.

Results of Operations for the Nine months ended September 30, 2024 Compared to the Nine months ended September 30, 2023

Regarding results from operations for the nine months ended September 30, 2024, we generated revenue of approximately $6,718,000, as compared to revenue of $10,706,000 for the nine months ended September 30, 2023.

This $3,988,000 decrease in revenue was due primarily to a $2,758,000 decrease in sales of our nicotine-based vapor products, as well as a $1,230,000 decrease in sales of our hemp-derived products.

We generated a net loss for the six months ended June 30, 2024, of approximately $2,012,000 as compared to a net loss of $1,358,000 for the six months ended June 30, 2023.

The net loss for the six months ended June 30, 2024 includes a non-cash gain in fair value of derivative liabilities of $79,000 compared to a non-cash gain in fair value of derivative liabilities of $408,000 during the six months ended June 30, 2023.

A review of the six months ended June 30, 2024, follows:

For the six months ended

We generated a net loss for the nine months ended September 30, 2024, of approximately $3,034,000 as compared to a net loss of $2,066,000 for the nine months ended September 30, 2023.

The net loss for the nine months ended September 30, 2024 includes a non-cash gain in fair value of derivative liabilities of $79,000 compared to a non-cash gain in fair value of derivative liabilities of $563,000 during the nine months ended September 30, 2023.

A review of the nine months ended September 30, 2024, follows:

For the nine months ended

September 30,

($ in thousands)

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Total other (loss) income

Revenue for the six months ended June 30, 2024, decreased by approximately $2,906,000 or 36.3%, to approximately $5,094,000, as compared to approximately $8,000,000 for same period in 2023 due to a $1,935,000 decrease in sales of our nicotine-based vapor products, and a $971,000 decrease in sales of our hemp-derived products.

The decrease in our nicotine-based vapor product sales was primarily driven by decreased sales of our Pacha Disposable line as well as periodic stockouts of our e-liquid products.

Revenue for the nine months ended September 30, 2024, decreased by approximately $3,988,000 or 37.3%, to approximately $6,718,000, as compared to approximately $10,706,000 for same period in 2023 due to a $2,758,000 decrease in sales of our nicotine-based vapor products, and a $1,230,000 decrease in sales of our hemp-derived products.

The decrease in our nicotine-based vapor product sales was primarily driven by decreased sales of our Pacha Disposable line as well as reduced demand for our e-liquid products.

The launch of the Company’s Metatine-based lines of nicotine substitute vapor products required enhanced focus and resource allocation in order to support sales and marketing efforts, which ultimately affected the sales performance of other product categories.

The decrease in sales for our hemp-derived business during the period was directly related to the diversion of working capital and other resources towards the ramp up of our Metatine-based lines of nicotine substitute vapor products.

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased by approximately $1,646,000 or 32.8%, to approximately $3,372,000, or 66.2% of revenue, for the six months ended June 30, 2024, as compared to approximately $5,018,000, or 62.7% of revenue, for the same period in 2023.

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased by approximately $2,261,000 or 34.1%, to approximately $4,366,000, or 65.0% of revenue, for the nine months ended September 30, 2024, as compared to approximately $6,627,000, or 61.9% of revenue, for the same period in 2023.

This cost, as a percent of revenue, increased compared to last year due to a high sales mix of SPREE BAR products which contain a higher per unit cost relative to sales.

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General and Administrative Expenses

For the six months ended June 30, 2024, total general and administrative expenses decreased by approximately $795,000 to $2,968,000 as compared to approximately $3,763,000 for the same period in 2023.

This change was primarily due to decreases of approximately $410,000 in non-commission payroll and benefits costs, $112,000 in professional fees, $80,000 in information systems costs and approximately $193,000 in other general and administrative expenses.

The decrease in payroll and benefits costs was primarily driven by elective salary reductions for executives and a reduced bonus accrual.

Decreased professional fees resulted from reduced legal, accounting and other consulting services during the period.

The decrease in information systems resulted from reduced software licenses and system support.

The reduction in other general and administrative expenses largely consisted of decreased merchant processing fees and bad debt expense, both of which vary with sales.

For the nine months ended September 30, 2024, total general and administrative expenses decreased by approximately $972,000 to $4,388,000 as compared to approximately $5,360,000 for the same period in 2023.

This change was primarily due to decreases of approximately $600,000 in non-commission payroll and benefits costs, $117,000 in information systems costs, $77,000 in merchant processing fees and approximately $178,000 in other general and administrative expenses.

The decrease in payroll and benefits costs was primarily driven by elective salary reductions for executives and reduced headcount.

Decreased information systems costs were the result of a company-wide cost-cutting effort during the period.

The decrease in merchant processing fees was directly the result of reduced sales activity during the period.

The reduction in other general and administrative expenses largely consisted of decreases in bad debt, insurance costs and professional fees.

Sales and Marketing Expense

For the six months ended June 30, 2024, total sales and marketing expense decreased by approximately $236,000 to approximately $451,000 as compared to approximately $687,000 for the same period in 2023, which was primarily due to reduced marketing and commission costs during the period.

For the nine months ended September 30, 2024, total sales and marketing expense decreased by approximately $268,000 to approximately $620,000 as compared to approximately $888,000 for the same period in 2023, which was primarily due to reduced marketing efforts and commission costs during the period.

Research and Development Expense

For the six months ended June 30, 2024, we had income from research and development of approximately $20,000 as compared to an expense of $91,000 for the same period in 2023.

For the nine months ended September 30, 2024, we had income from research and development of approximately $103,000 as compared to an expense of $132,000 for the same period in 2023.

The decrease of approximately $235,000 was primarily due to reduced costs associated with the development of new technologies and product formats as well as a vendor refund of approximately $136,000

Loss from Operations

We incurred a loss from operations of approximately $1,677,000 for the six months ended June 30, 2024, compared to loss of approximately $1,559,000 for the six months ended June 30, 2023, due primarily to lower sales and gross profit.

We incurred a loss from operations of approximately $2,553,000 for the nine months ended September 30, 2024, compared to loss of approximately $2,301,000 for the nine months ended September 30, 2023, due primarily to lower sales and gross profit.

We also incurred certain non-cash, general and administrative expenses during the period including a $173,000 expense related to stock-based compensation.

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Change in Fair Value of Derivative Liabilities.

For the six months ended June 30, 2024, the gain in fair value of derivative liabilities was $79,000, compared to a gain in fair value of derivative liabilities of $408,000 for the six months ended June 30, 2023.

For the nine months ended September 30, 2024, the gain in fair value of derivative liabilities was $79,000, compared to a gain in fair value of derivative liabilities of $563,000 for the nine months ended September 30, 2023.

The derivative liability is associated with the Investor Warrants and the Placement Agent Warrants (as defined in Note 3 of this Report) in connection with the Share Exchange.

The gain for the six months ended June 30, 2024 was due to the expiration of the warrants in April 2024 which resulted in the warrant liability being written off.

The gain for the nine months ended September 30, 2024 was due to the expiration of the warrants in April 2024 which resulted in the warrant liability being written off.

Interest Expense.

For the six months ended June 30, 2024, and 2023, we recorded approximately $200,000 and $15,000 of related party interest expense.

For the nine months ended September 30, 2024, and 2023, we recorded approximately $273,000 and $166,000 of related party interest expense.

For the same periods, we recorded total interest expense related to notes payable of $485,000 and $363,000, respectively.

The increase was primarily due to $700,000 of notes payable that were entered in July 2023, which bear interest at twenty-one percent (21%) per annum.

Debt Extinguishment Loss.

For the six months ended June 30, 2024, we recorded approximately $75,000 of loss from debt extinguishment, which was related to our May 2024 Capital Raise (see Note 10).

For six months ended June 30, 2024, we incurred a net loss of $2,012,000 as compared to a net loss of $1,358,000 for the same period in 2023.

The increase was primarily due to $1,028,000 of notes payable that were entered in September 2024.

Debt Extinguishment (Loss) Gain.

For the nine months ended September 30, 2024, we recorded approximately $75,000 of loss from debt extinguishment, which was related to our May 2024 Capital Raise (see Note 10).

The gain in 2023 resulted from a modification to the promissory note issued to Michael King, a significant shareholder and member of the Company’s Board of Directors, which extended the maturity date to March 2025.

For nine months ended September 30, 2024, we incurred a net loss of $3,034,000 as compared to a net loss of $2,066,000 for the same period in 2023.

Liquidity and Capital Resources

As of June 30, 2024, we had working capital deficit of approximately $557,000, which consisted of current assets of approximately $4,816,000 and current liabilities of approximately $5,373,000, as compared to working capital of approximately $332,000 at December 31, 2023.

As of September 30, 2024, we had working capital deficit of approximately $1,392,000, which consisted of current assets of approximately $3,936,000 and current liabilities of approximately $5,328,000, as compared to working capital of approximately $332,000 at December 31, 2023.

The current liabilities include approximately $2,686,000 of accounts payable and accrued expenses, notes payable of $901,000, notes payable from related parties of $1,518,000, approximately $108,000 of deferred revenue associated with product shipped but not yet received by customers, and approximately $115,000 of current lease liabilities.

Our cash and cash equivalents balance at June 30, 2024 was approximately $1,085,000.

As of June 30, 2024, we have the following notes outstanding:

Our cash and cash equivalents balance at September 30, 2024 was approximately $601,000.

As of September 30, 2024, 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 June 30, 2024, $400,000 remained outstanding and the maturity dates of the outstanding notes have been extended to October 16, 2024.

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

As of September 30, 2024, $400,000, plus accrued interest, remained outstanding and the maturity dates of the outstanding notes have been extended to December 31, 2024.

April 2022 Note Financing .

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

As of June 30, 2024, approximately $827,000 of principal remained outstanding

As of September 30, 2024, approximately $827,000 of principal remained outstanding.

On May 31, 2024, as part of the May 2024 capital raise (see Note 10), the Lender converted his next four debt repayments for the period from June to September 2024 for a total amount of $100,000 in lieu of cash payment for the subscription agreement.

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On April 15, 2024 the Company and Stump Lender entered into a fifth modification to the Loan to extend the maturity date to August 21, 2024.

On August 21, 2024 the Company and Stump Lender entered into a sixth modification to the Loan to extend the maturity date to December 17, 2024.

December 2023 Receivables Financing.

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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 six months ended June 30, 2024, net cash used in operating activities was approximately $300,000, resulting from a net loss of $2,012,000, offset by a change in operating assets and liabilities of $1,181,000 and net non-cash activity of $531,000.

For the six months ended June 30, 2023, net cash provided by operating activities was approximately $124,000, resulting from a net loss of $1,358,000, offset by a change in operating assets and liabilities of $1,364,000 and net non-cash activity of $118,000.

For the six months ended June 30, 2024, we generated approximately $1,018,000 in cash from financing activities related to the issuance of common shares of $1,030,000, notes payable to a related party of $500,000 and the repayment of $512,000 in notes payable, including $50,000 to a related party.

September 2024 Pinnacle Receivables Financing.

The purchase price, as defined by the Pinnacle Receivables Financing Agreement, was $750,000 which was paid to the Company on September 12, 2024, net of a 1% origination fee.

The Pinnacle Receivables Financing Agreement requires forty equal payments of $25,687.50 to be paid weekly for a total repayment of $1,027,500 over the term of the agreement.

January 2024 Note Financing.

On January 24, 2024, the Company issued an unsecured promissory note (the “ Red Beard Note ”) to one of its largest stockholders Red Beard Holdings LLC (the “ Red Beard Lender "), in the principal amount of $500,000.

Red Beard Note shall bear interest at twenty-one percent (21%) per annum and have maturity through July 24, 2024.

On May 31, 2024, as part of the May 2024 capital raise (see Note 10), the holder of the Red Beard Note (the “ Holder ”) converted the principal amount of $500,000 in lieu of cash payment for the subscription agreement.

Separately, the Holder was paid $52,500 in interest on the maturity date of July 24, 2024.

For the nine months ended September 30, 2024, net cash used in operating activities was approximately $1,244,000, resulting from a net loss of $3,034,000, offset by a change in operating assets and liabilities of $949,000 and net non-cash activity of $841,000.

For the nine months ended September 30, 2023, net cash used in operating activities was approximately $736,000, resulting from a net loss of $2,066,000, offset by a change in operating assets and liabilities of $1,157,000 and net non-cash activity of $173,000.

For the nine months ended September 30, 2024, we generated approximately $1,478,000 in cash from financing activities related to the issuance of common shares of $1,030,000, notes payable of $742,000, notes payable to a related party of $500,000 and the repayment of $795,000 in notes payable, including $50,000 to a related party.

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

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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 six months ended June 30, 2024, the Company’s revenue declined, the Company generated a loss from operations of approximately $1,677,000, and a consolidated net loss of approximately $2,012,000.

For the nine months ended September 30, 2024, the Company’s revenue declined, the Company generated a loss from operations of approximately $2,553,000, and a consolidated net loss of approximately $3,034,000.

Cash used in operations was approximately $1,244,000.

The Company had a stockholders’ deficit of $296,000 at June 30, 2024.

During the six months ended June 30, 2024, the Company’s working capital position decreased to a deficit of $557,000 from $332,000 as of December 31, 2023.

The Company had a stockholders’ deficit of $1,262,000 at September 30, 2024.

During the nine months ended September 30, 2024, the Company’s working capital position decreased to a deficit of $1,392,000 from $332,000 as of December 31, 2023.

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 cumulative expenditures of approximately $6,000,000 as of June 30, 2024, to support our PMTA process for the Company’s submissions to the FDA.

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 $6.5 million as of September 30, 2024, 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 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 ”).

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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-Q

Item 1. Financial Statements