What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2025-05-29 compared with 2024-04-15 · 169 added, 121 removed, 204 unchanged (59% of the section changed)

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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 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.

As of May 23, 2025, there were 257,413,570 shares of our common stock outstanding and 199 stockholders of record and 122,368 shares of our Series A Preferred outstanding held by 92 stockholders of record.

Transfer Agent

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Recent Sales of Unregistered Securities

On November 22, 2024, the Company entered into subscription agreements with investors for the sale of an aggregate of 6,875,000 shares of its common stock, par value $0.001 per share, at a purchase price per share of $0.08 (the “November Offering”).

The November Offering generated gross proceeds to the Company of approximately $550,000, which will be used for working capital purposes.

The November 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.

Issuer Purchases of Equity Securities

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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.

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

(i) non-combustible nicotine-related products and (ii) alternative alkaloid vapor 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 and select international markets.

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

Operational Plan

Considering industry-specific hurdles, as well as the potential for future regulatory changes, management has targeted opportunities for growth and has adopted the following operational plan.

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 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 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.

In today’s economic landscape, particularly within the vapor products industry, seeking and securing competitive advantage is paramount.

Unlike many competitors in our industry, Charlie’s has focused on achieving full compliance with FDA regulations – while also establishing a regulatory “hedge” through the development of alternative “zero-nicotine” product lines that are not currently subject to FDA review.

Simultaneous to undertaking these initiatives, in 2024 management took aggressive steps to “right size” the business, preserve working capital, and achieve profitability in 2025.

Our key initiatives include:

Product Innovation:

In late 2023 Charlie’s initiated a plan to dramatically expand its business from nicotine products only, to a portfolio of products that includes nicotine substitute products.

This strategic hedge, and the market testing that the shift entailed, significantly reduced Company revenue in 2024.

However, the Company believes that its nicotine substitute, Metatine™, in the SBX™ product line, will position the Company to capture very significant future sales and market share in the vapor products marketplace.

At this date, Charlie's has received FDA Acceptance Filings for more than 650 PMTAs.

By investing an additional $1.2 million in Q4 2024 to amend and enhance certain of our 2022 PMTA submissions, we maintained our commitment to full regulatory compliance, and we enhanced the strategic value of our PMTA portfolio.

The Company believes Charlie’s 650+ PMTAs, as a stand-alone asset, have a monetary value that far exceeds Charlie’s current market cap.

(See Note 16 - Subsequent Events)

Age-Gating Technology:

We have continued to develop intellectual property around, and to seek strategic partnerships for, technologies designed to prevent youth access to nicotine vapor products.

We believe this is both a responsible business practice as well as a potential future competitive advantage in the marketplace.

Cost Structure Optimization:

In order to right-size the Company during a time of significantly reduced revenue, we continue to reduce our overall cost structure while improving margins.

Company executives voluntarily reduced their salaries by 20-50%.

Headcount Reduction:

We have significantly reduced our headcount and associated salary expenses, focusing on maintaining a core group of key employees as we collectively right-size the business.

Sales Team Improvement:

We have upgraded, and will continue to upgrade, our sales team from a solely account management-centric team to a skilled and driven sales team to acquire new customers while maintaining excellent service with our existing customers.

Uplist to a National Securities Exchange:

As the business returns to growth, and as soon as we are able to meet listing requirements, we plan to uplist from the OTCQB exchange to a national securities exchange.

An uplist will increase Charlie’s market visibility, liquidity, and access to capital.

Such a shift could lead to new strategic opportunities and, potentially, to a substantially higher market cap.

Management believes that these initiatives will enhance Charlie’s competitive position in the marketplace, significantly reduce costs, help accelerate the Company’s path to profitability, support business growth, and, ultimately, allow the Company to achieve greater liquidity and visibility through an uplist to a national securities exchange.

Considering industry-specific hurdles, as well as the potential for future regulatory changes, management has prioritized several principal initiatives as opportunities for growth:

Over the last two years, 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.

Marshaling very significant 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 alternative alkaloid vapor products in much the same way that they enjoy traditional vapor products.

Notably, 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 a viable commercial product, such a product will 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 2024, to test consumer acceptance of nicotine substitute vapor products in the marketplace, we launched the SPREE BAR disposable flavor pod system (with Metatine inside) in select markets across the US.

This initiative demonstrated that adult consumers:

(i) overwhelmingly prefer “flavored” vapor products over plain tobacco products;

(ii) are highly receptive to nicotine substitute products that offer the same vaping experience as that provided by conventional nicotine vapor products;

and, surprisingly (iii) are not particularly interested in the cost savings that SPREE BAR flavor pods (with reusable batteries) represent vs.

conventional disposable vapes (with single use batteries).

Applying these findings to our ongoing product development initiatives, by the end of 2024 Charlie’s unveiled the Company’s second-generation Metatine product line:

SBX Disposables.

SBX Disposables feature:

(i) the modern disposable product format (with digital display) that consumers overwhelmingly prefer over pod system vapes;

(ii) award-winning flavors (preferred over plain tobacco vapor by more than 80% of adult consumers);

and, most significantly, for regional and national convenience store chains that are our largest potential customers, (iii) Charlie’s proprietary nicotine substitute that makes SBX legal across most of the United States (without FDA PMTA review).

In a Company-sponsored focus group survey of adult consumers who vape, Charlie's SBX Disposables were overwhelming preferred over Juul tobacco-flavored vapes.

Of 306 survey participants, 287 preferred SBX over Juul.

In Company marketing materials, SBX advantages are highlighted:

"Compared to mass-market vapes offered by Big Tobacco ̶ namely Juul ̶ SBX provides many MORE FLAVOR options, UNBEATABLE TAX ADVANTAGES, and THOUSANDS MORE PUFFS!”

Following up on these encouraging early results, we are currently test marketing SBX in mass market convenience chains.

If one or more of these tests prove successful, regional and national rollouts could prove transformational for Charlie’s.

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

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 in late 2025.

We do, however, recognize the challenges in marketing non-nicotine-based alternative alkaloid products in a market that is saturated with traditional nicotine products;

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

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

Not coincidentally, over the last 10-15 years e-cigarette usage in the United States has grown significantly, and cigarette smoking rates have dropped.

Accordingly, tobacco and synthetically derived nicotine vapor products continue to provide significant growth opportunities for Charlie’s.

In 2021, we launched our synthetic nicotine (not derived from tobacco) Pacha (formerly Pachamama Disposable) product line, which provides access to additional sales channels and broadens our customer base.

These innovative product formats continue to represent an extremely important product category for Charlie’s and we intend to develop new distribution partnerships in order to grow our nicotine disposable business in 2025.

We believe that our substantial investments in FDA regulatory compliance make Charlie’s an attractive partner in this space.

Charlie's has received FDA Acceptance Filings for more than 650 PMTAs.

By investing an additional $1.2 million in Q4 2024 to amend and enhance certain of our 2022 PMTA submissions, we maintained our commitment to full regulatory compliance and we enhanced the strategic value of our PMTA portfolio.

The Company believes Charlie’s 650+ PMTAs, as a stand-alone asset, have a monetary value that far exceeds Charlie’s current market cap.

(See Note 16 - Subsequent Events)

In total, Charlie’s has invested more than $6.5 million on the submission of Premarket Tobacco Applications (“ PMTAs ”) and subsequent amendments to these applications to the FDA.

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

Notwithstanding Charlie’s meaningful and costly regulatory initiatives – and even though hundreds of other companies across the United States invested hundreds of millions of dollars to submit more than 26 million PMTAs – to date, the FDA has authorized only 34 tobacco-flavored (and a handful of menthol) e-cigarette products and devices.

Accordingly, even though former FDA Commissioner Dr.

Scott Gottlieb described e-cigarettes as far lower on the “continuum of risk” than combustible cigarettes, fewer than 1% of the PMTA’s for e-cigarette products and devices have survived FDA’s regulatory gauntlet.

Nonetheless, we are continuing to seek FDA marketing authorization for certain of both our nicotine vapor products and our synthetic nicotine vapor products.

Obtaining one or more marketing orders from the FDA could, we believe, help to remediate perceived health issues related to vaping, and further position the Company as a trusted industry leader.

While we continue in the FDA review process, we are also beginning to seek out strategic partners to monetize our PMTAs;

given that Charlie’s 650+ PMTAs (primarily for flavored vapor products) remain among the fraction of 1% that are still under active review with the FDA, and given that more than 80% of adults in the United States prefer flavored vapor products over plain tobacco vapor products, we believe that Charlie’s PMTA portfolio represents an important competitive advantage – of significant monetary value.

The Company continues to develop intellectual property around, and to seek strategic partnerships for, 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.

We believe age-gating is both a responsible business practice as well as a potential future competitive advantage for Charlie’s.

If our age-gated e-cigarettes-in-development are recognized as "products of merit" by the FDA, Charlie's e-cigarettes could emerge among the select minority of flavored nicotine disposables able to be sold legally in the $8 billion U.S.

vapor products market.

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.

Underlining the importance of Charlie’s work with age-gating technology are initiatives taken by JUUL Labs, Altria, and R.J.

Reynolds, three of the largest competitors in our industry.

In July 2023 JUUL announced that it had 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 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 SPREE BAR.

improving adult-smoker switching from combustible cigarettes and restricting underage access to vapor products...” In the second quarter of 2024, Altria and R.J.

Reynolds announced news of their own PMTA submissions to the FDA for mobile applications that verify consumers’ ages through third-party age verification providers.

Similar to the age-gating technology under development at Charlie’s, the Big Tobacco company devices include mobile and web-based apps that enable age-verification technology, including device-locking, and real-time product information and usage insights for age-verified consumers with industry-leading data-privacy protections.

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 10% 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 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

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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;

The Company has not received an MDO for any of its 2020 PMTA 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.

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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.

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.

The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs.

The administrative appeal was granted on October 30, 2023 and the products were accepted to move forward in the PMTA review process.

The Company continues to sell the affected synthetic nicotine products while the PMTA review process continues.

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.

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.

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.

The Company recently launched new alternative alkaloid Metatine-based disposable vape products, under the “SBX™” brand, that the Company expects will (i) replace a significant portion 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.

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 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, 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, 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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Recent Developments

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.

Expiration of Warrants

On April 26, 2024, the Investor Warrants and Placement Agent Warrants expired without being exercised.

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 11), 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.

May 2024 Capital Raise

On May 31, 2024, the Company entered into subscription agreements with investors for the sale of an aggregate of 20,375,000 shares of its common stock, par value $0.001 per share, at a purchase price per share of $0.08 (the “ May Offering ”).

The May Offering generated gross proceeds of approximately $1.6 million, which will be used for working capital purposes.

The May 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.

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.

November 2024 Capital Raise

The November Offering generated gross proceeds to the Company of approximately $550,000, which will be used for working capital purposes.

The November 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.

Basis of Presentation

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Interest expense

Debt extinguishment gain

Debt extinguishment (loss) gain

Change in fair value of derivative liabilities

Other income, net

Total other income

Loss before income taxes

Provision for income taxes

Total other (loss) income

Revenue for the year ended December 31, 2024, decreased approximately $7,756,000, or 47.7%, to approximately $8,494,000, as compared to approximately $16,250,000 for the year ended December 31, 2023, due to a $6,481,000 decrease in our nicotine-based product sales, and a $1,275,000 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.

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 SPREE BAR nicotine substitute vapor products did not meet performance expectations, resulting in further development efforts and ultimately the release our Metatine-based, SBX line of disposable 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 approximately $4,603,000 or 45.1%, to approximately $5,603,000, or 66.0% of revenue, for the year ended December 31, 2024, as compared to approximately $10,206,000, or 62.8% of revenue, for the year ended December 31, 2023.

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

This cost, as a percent of revenue, increased compared to last year due a combination of lower fixed cost absorption resulting from reduced sales performance as well as overall margin compression across most product categories.

General and Administrative Expense

For the year ended December 31, 2024, total general and administrative expense decreased approximately $1,252,000 to approximately $5,718,000, or 67.3% of revenue, as compared to approximately $6,970,000, or 42.9% of revenue, for the year ended December 31, 2023.

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.

This decrease was primarily comprised of reductions of approximately $762,000 of non-commission wages and benefits, $60,000 of professional fees, $139,000 of information systems costs, as well as $291,000 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.

The decrease in professional fees is largely due to reduced legal and consulting costs.

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

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

Sales and Marketing Expense

For the year ended December 31, 2024, total sales and marketing expense decreased to approximately $693,000 as compared to approximately $1,107,000 for the year ended December 31, 2023, 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.

Commissions decreased due to reduced sales activity during the year.

Research and Development Expense

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.

For the year ended December 31, 2024, we had income from research and development of approximately $68,000 as compared to approximately $169,000 expense for the year ended December 31, 2023.

The decrease of approximately $237,000 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 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.

We incurred a loss from operations of approximately $3,452,000 for the year ended December 31, 2024, as compared to loss from operations of approximately $2,202,000 for the year ended December 31, 2023, due primarily to lower sales and gross profit.

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

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For the years ended December 31, 2024 and 2023, the gain in fair value of derivative liabilities was approximately $79,000 and $550,000, respectively.

The derivative liability is associated with the issuance of the Investor Warrants and the Placement Agent Warrants (see Note 3) in connection with the Share Exchange.

The gain for the year ended December 31, 2023, reflects the effect of the decrease in stock price as of December 31, 2023 compared to December 31, 2022.

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, 2023 that expire unless exercised on or before April 26, 2024.

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 year ended December 31, 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 years ended December 31, 2024 and 2023, we recorded interest expense related to notes payable of $711,000 and $477,000, respectively.

Other Income.

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

The increase was primarily due to an increase of outstanding notes payable.

Debt Extinguishment (Loss) Gain.

For the years ended December 31, 2024 and 2023, we recorded approximately $75,000 of loss from debt extinguishment, which was related to our May 2024 Capital Raise (see Note 11).

The gain of approximately $36,000 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.

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.

The Company did not record income tax for the years ended December 31, 2024 and 2023.

For the years ended December 31, 2024, and 2023, we had a net loss of $4,159,000 and $2,093,000, respectively.

Effects of Inflation

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Liquidity and Capital Resources

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 $2,846,000 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.

As of December 31, 2024, we had working capital deficit of approximately $1,855,000, which consisted of current assets of approximately $3,720,000 and current liabilities of approximately $5,575,000, as compared to working capital of approximately $332,000 at December 31, 2023.

The current liabilities include approximately $3,396,000 of accounts payable and accrued expenses, notes payable of $520,000, note payable from related parties of $1,488,000, approximately $98,000 of deferred revenue associated with product shipped but not yet received by customers, approximately $73,000 of current lease liabilities.

Our cash and cash equivalents balance at December 31, 2024 was approximately $211,000.

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

As of December 31, 2024, we had 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.

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

On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $75,000 of accrued interest and have agreed to modify the Notes to include a 10% interest rate, with monthly payments of principal and interest of approximately $18,000.

The maturity date has been extended to April 28, 2026.

April 2022 Note Financing .

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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 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.

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.

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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 December 31, 2024, approximately $793,000 of principal remained outstanding.

On May 31, 2024, as part of the May 2024 capital raise (see Note 11), 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.

On April 28, 2025 the Lender agreed to accept a payment of approximately $420,000 and entered into a further modification for the remaining balance that includes monthly payments of approximately $37,000 and a maturity date of April 28, 2026.

August 2022 Note Financing .

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The Company also incurred an 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.

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.

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 31, 2024.

On April 28, 2025, the Company paid to Ryan Stump approximately $308,000 to satisfy all outstanding principal and interest due on the Loan entered into August 17, 2022.

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.

As of December 31, 2024, the outstanding balance was approximately $642,000.

On April 16 th , 2025 the Company issued a payment of approximately $1,250,000 to satisfy all outstanding principal and interest owed to Pinnacle.

January 2024 Note Financing.

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 year ended December 31, 2024, net cash used in operating activities was approximately $1,621,000, resulting from a net loss of $4,159,000, offset by a change in operating assets and liabilities of $1,427,000 and a net non-cash activity of $1,111,000.

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 and a change in operating assets and liabilities of $811,000, offset by net non-cash activity of $499,000.

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, 2024 and 2023, we did not incur any expenditures for investment activities.

For the year ended December 31, 2024, we generated approximately $1,465,000 in cash from financing activities which was comprised of the issuance of common shares of $1,580,000, notes payable of $742,000, and notes payable to a related party of $500,000 as well as the repayment of $1,357,000 in notes payable, including $85,000 to a related party.

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.

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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The Company had a stockholders’ deficit of $1,780,000 at December 31, 2024.

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.

During the year ended December 31, 2024, the Company’s working capital position decreased to a deficit of $1,855,000 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 the removal of certain products for sale.

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The Company has undergone cost-cutting measures including salary reductions of up to 50% 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 ”).

During the fourth quarter of 2024, the Company launched SBX, a non-nicotine, disposable vapor product which is not subject to FDA review.

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.

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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