What changed in this filing

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Item 1. Financial Statements

2025-06-27 compared with 2024-11-19 · 303 added, 348 removed, 456 unchanged (59% 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

4 unchanged sentences

Notes payable - related parties

Derivative liability

Lease liabilities

3 unchanged sentences

Note payable, net of current portion

Note payable, net - related party, net of current portion

Lease liabilities, net of current portion

Total non-current liabilities

5 unchanged sentences

Series A, 300,000 shares designated;

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

122,366 and 122,930 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively

Series B, 1,500,000 shares designated;

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

0 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively

Common stock ($ 0.001 par value);

500,000,000 shares authorized;

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

257,413,570 and 257,286,631 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively

Additional paid-in capital

7 unchanged sentences

For the three months ended

For the nine months ended

September 30,

Product revenue, net

9 unchanged sentences

Interest expense

Debt extinguishment (loss) gain

Debt extinguishment loss

Change in fair value of derivative liabilities

Total other (loss) income

Total other loss

Net loss per share

4 unchanged sentences

(in thousands)

For the Three Months Ended September 30, 2024

Convertible Preferred Stock

Stockholders'

Paid-in Capital

Balance at July 1, 2024

Forfeiture of restricted stock awards

Stock compensation

Balance at September 30, 2024

For the Three Months Ended September 30, 2023

For the Three Months Ended March 31, 2025

Convertible Preferred Stock

1 unchanged sentence

Paid-in Capital

Equity (Deficit)

Balance at July 1, 2023

Forfeiture of restricted stock awards

Stock compensation

Balance at September 30, 2023

For the Nine Months Ended September 30, 2024

Convertible Preferred Stock

Stockholders'

Paid-in Capital

Balance at January 1, 2025

Issuance of common shares for cash

Issuance of common shares from debt redemption

Conversion of Series A convertible preferred stock

Forfeiture of restricted stock awards

Stock compensation

Balance at September 30, 2024

For the Nine Months Ended September 30, 2023

Issuance of warrant in connection with a settlement of accounts payable

Balance at March 31, 2025

For the Three Months Ended March 31, 2024

Convertible Preferred Stock

Stockholders'

Total Stockholders'

Paid-in Capital

3 unchanged sentences

Stock compensation

Balance at September 30, 2023

Balance at March 31, 2024

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

2 unchanged sentences

(in thousands)

For the nine months ended

September 30,

For the three months ended

Cash Flows from Operating Activities:

4 unchanged sentences

Change in fair value of derivative liabilities

Debt extinguishment loss (gain)

Debt extinguishment loss

Amortization of operating lease right-of-use asset

9 unchanged sentences

Cash Flows from Financing Activities:

Proceeds from issuance of common shares

Proceeds from issuance of notes payable

3 unchanged sentences

Net cash provided by financing activities

Net increase in cash

Net decrease in cash

Cash, beginning of the period

6 unchanged sentences

Conversion of Series A convertible preferred stock

Issuance of common shares from debt redemption

Exchange accounts payable with a note payable

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

3 unchanged sentences

Description of the Business

Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries and consolidated variable interest entity (collectively, the “ Company ”), currently formulates, markets and distributes premium, non-combustible nicotine-related products, alternative alkaloid vapor products, and hemp-derived vapor and edible products.

The Company’s products are produced through contract manufacturers for sale by select distributors, specialty retailers, and third-party online resellers throughout the United States, as well as in six primary countries worldwide.

Charlie’s Chalk Dust, LLC (“ Charlie ’ s ” or “ CCD ”), is the Company’s wholly owned subsidiary which produces and sells nicotine-based and alternative alkaloid vapor products.

Don Polly is a consolidated variable interest entity, for which the Company is the primary beneficiary, which develops, markets and distributes products containing cannabinoids derived from hemp.

Don Polly is a consolidated variable interest entity, for which the Company is the primary beneficiary, which develops, markets and distributes other alternative products.

The Company's common stock, par value $ 0.001 per share (the “ Common Stock ”), trades under the symbol "CHUC" on the OTCQB Venture Market.

6 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 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 .

For the three months ended March 31, 2025, the Company’s revenue declined, the Company generated a loss from operations of approximately $ 826,000 , and a consolidated net loss of approximately $ 1,217,000 .

Cash used in operations was approximately $ 409,000 .

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.

The Company had a stockholders’ deficit of $ 2,809,000 at March 31, 2025.

During the three months ended March 31, 2025, the Company’s working capital deficit was increased to $ 2,829,000 from deficit of $ 1,855,000 as of December 31, 2024.

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 $ 6.5 million as of September 30, 2024, to support our premarket tobacco product application ( “PMTA” ) process for the Company’s submissions to the FDA.

However, as disclosed below in “ Subsequent Events, ” in the second quarter of 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) and subsequent amendment with R.J.

Reynolds Vapor Company (the “ Buyer ”) pursuant to which the Buyer purchased 15 of the Company’s PACHA synthetic products and related assets (the “ Assets ”) that are covered by a premarket tobacco application (“ PMTA ”) first submitted by the Company in 2022.

The combined purchase price for the Assets was $ 6.5 million paid at closings in April and May 2025, plus a contingent one-time payment of up to $ 4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets.

These asset sales have substantially addressed the Company’s debt and working capital short term concerns, and have improved the Company’s cash position.

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 $ 6,500,000 as of March 31, 2025, 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 50% for officers and certain managers and a reduction in headcount for certain departments.

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.

13 unchanged sentences

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 2020 PMTA submissions;

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

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

4 unchanged sentences

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 pursued an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs.

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 products while the PMTA review process continues.

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 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 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.

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.

During the fourth quarter of 2024 the Company launched new disposable vape products, under the “SBX™” brand.

The Company and its attorneys believe SBX 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 SBX 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 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, 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.

Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s SBX 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 SBX 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, SBX 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.

13 unchanged sentences

There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2024 Annual Report.

Recently Issued Accounting Standards, Not Yet Adopted

Improvements to Reportable Segment Disclosures

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”).

ASU 2023-07 updates segment reporting disclosure requirements and brings about significant changes, particularly in the realm of transparency and accountability within organizations.

The primary thrust of ASU 2023-07 is the inclusion of detailed disclosures regarding significant reportable segment expenses.

These are expenses regularly provided to the Chief Operating Decision Maker (“CODM”) and are integral components of each reported measure reflecting a segment's profit or loss.

Furthermore, the ASU mandates disclosure of the CODM's title, position, and a comprehensive explanation of how the reported measures of segment profit or loss factor into assessing segment performance and resource allocation decisions.

This transparency aims to provide stakeholders with a clearer understanding of the decision-making processes within an organization and how segment performance is evaluated.

Recently Adopted Accounting Standards

Improvements to Income Tax Disclosures

6 unchanged sentences

Upon adoption, the guidance can be applied prospectively or retrospectively.

The Company does not expect the adoption of this guidance to have a material impact on its condensed consolidated financial statements.

The Company adopted this standard as of January 1, 2025.

The adoption of this ASU did not have any material impact on the Company’s quarterly condensed consolidated financial statements.

Scope Applications of Profits Interests and Similar Awards

4 unchanged sentences

ASU 2024-01 is effective for annual periods beginning after December 15, 2024, although early adoption is permitted.

Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s condensed consolidated financial statements.

The Company adopted this standard as of January 1, 2025.

The adoption of ASU 2024-01 has no material impact on the Company’s quarterly condensed consolidated financial statements.

Recently Issued Accounting Standards, Not Yet Adopted

Induced Conversions of Convertible Debt Instruments

In November 2024, the FASB, issued ASU 2024-04, Induced Conversions of Convertible Debt Instruments, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion or extinguishment of convertible debt.

The standard is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods.

The Company is currently evaluating the impact of the standard on its consolidated financial statements and related disclosures.

Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40).

In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40):

Clarifying the Effective Date to clarify the effective date of ASU 2024-03.

The amendments require disclosure of additional information about specific expense categories in the notes to the financial statements.

This standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The amendments are to be applied either prospectively to financial statements issued for reporting periods after the effective date of this Update or retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating the impact that the adoption of this standard will have on the consolidated financial statements.

NOTE 3 – FAIR VALUE MEASUREMENTS

6 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 September 30, 2024, and December 31, 2023 (amounts in thousands):

Fair Value at September 30, 2024

Derivative liability - Warrants

Total liabilities

Fair Value at December 31, 2023

Derivative liability - Warrants

Total liabilities

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.

Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs (amounts in thousands).

Balance at January 1, 2024

Change in fair value

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:

Exercise price

Contractual term (years)

Volatility (annual)

Risk-free rate

Dividend yield (per share)

On April 26, 2019 (the “ Closing Date ”), the Company entered into a Securities Exchange Agreement (“ Share Exchange ”) with each of the former members (“ Members ”) of Charlie’s, and certain direct investors in the Company (“ Direct Investors ”), pursuant to which the Company acquired all outstanding membership interests of Charlie’s beneficially owned by the Members in exchange for the issuance by the Company of units.

Immediately prior to, and in connection with, the Share Exchange, Charlie’s consummated a private offering of membership interests that resulted in net proceeds to Charlie’s of approximately $ 27.5 million (the “ Charlie ’ s Financing ”).

In conjunction with the Share Exchange, the Company issued to holders of its Series A Convertible Preferred Stock, par value $ 0.001 per share (“ Series A Preferred ”), warrants to purchase an aggregate of 31,028,996 shares of Common Stock (the “ Investor Warrants ”) and to its placement agent, Katalyst Securities LLC, warrants to purchase an aggregate of 9,308,699 shares of Common Stock (the “ Placement Agent Warrants ”).

Both the Investor Warrants and Placement Agent Warrants have a five-year term and a strike price of $ 0.44313 per share.

Due to the exercise features of these warrants, they are not considered to be indexed to the Company’s own stock and are therefore not afforded equity treatment in accordance with ASC Topic 815, “ Derivatives and Hedging ” (“ ASC 815 ”).

In accordance with ASC 815, the Company has recorded the Investor Warrants and Placement Agent Warrants as derivative instruments on its consolidated balance sheet.

ASC 815 requires derivatives to be recorded on the balance sheet as an asset or liability and to be measured at fair value.

Changes in fair value are reflected in the Company’s earnings for each reporting period.

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

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis.

At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3.

The valuation of assets and liabilities recognized in business combinations are considered level 3 fair value measurements on the closing date of the acquisition.

These assets and liabilities are not remeasured at each reporting period.

As of March 31, 2025 and December 31, 2024, the Company did not have any Level 1, 2 or 3 assets or liabilities measured on a recurring basis.

NOTE 4 – INVENTORY

The components of inventory as of March 31, 2025 and December 31, 2024 are summarized as follows:

Finished goods

Raw materials

Overhead allocation

Inventory in transit

inventory reserves

NOTE 5 – PROPERTY AND EQUIPMENT

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,

Depreciation and amortization expense totaled $ 13,000 and $ 37,000 , respectively, during the nine months ended March 31, 2025 and 2024.

Property and equipment as of March 31, 2025 and December 31, 2024, are as follows (dollar amounts in thousands):

Estimated Useful Life

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Accumulated depreciation

Property and equipment, net

NOTE 6 – CONCENTRATIONS

1 unchanged sentence

For the three months

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.

ended March 31,

During the three months ended March 31, 2025 and 2024, purchases from four vendors represented 76 % and 72 %, respectively, of total inventory purchases.

As of March 31, 2025, and December 31, 2024, amounts owed to these vendors totaled $ 270,000 and $ 539,000 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:

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 nine-month periods ended September 30, 2024 and 2023, respectively.

For the three months ended

March 31, 2025

March 31, 2024

Five customers made up more than 69 % of net accounts receivable at March 31, 2025.

Three customers made up more than 72 % of net accounts receivable at March 31, 2024.

No customer exceeded 10% of total net sales for the three-month periods ended March 31, 2025 and 2024, respectively.

NOTE 7 – DON POLLY, LLC

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NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

September 30,

Accounts payable and accrued expenses as of March 31, 2025 and December 31, 2024, are as follows (amounts in thousands):

Accounts payable

4 unchanged sentences

NOTE 9 – NOTES PAYABLE

September 2024 Pinnacle Receivables Financing

February 2025 Short-Term Loan – Related Party

On February 27, 2025, the Company entered into a two-month short-term loan agreement (the “Loan”) with the Company’s President, Henry Sicignano III for principal amount of $ 100,000 which bears interest at the rate of 10 % per annum.

January 2025 Chemular Secured Promissory Note

On January 7, 2025, the Company issued a secured promissory note (“ Chemular Note ”) to one of its vendors Chemular, Inc.

(“ Chemular ”) to settle the outstanding accounts payable of $ 495,000 , in the principal amount of $ 370,000 which bears interest at the rate of 10 % per annum.

Commencing on January 15, 2025 and continuing on the first (1st) day and the fifteenth (15th) day of each month thereafter until June 15, 2025, (the “ Maturity Date ”), the Company shall pay $ 10,000 in accordance with the repayment schedule.

The Company also issued 3,700,000 warrants (“ Chemular Warrants ”) to Chemular in conjunction with the Chemular Note.

The fair value of the Chemular Warrants was $ 148,000 as of the issuance date (see Note 11).

As a result, the Company recognized a debt extinguishment loss of $ 23,000 during the three months ended March 31, 2025.

As part of the closing of the Asset Purchase Agreement (see Note 16 – Subsequent Events) on April 16, 2025, R.J.

Reynolds Vapor Company wired directly to Chemular approximately $ 319,000 to satisfy the Chemular Note in full.

September 2024 and January 2025 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.

1 unchanged sentence

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.

On January 10, 2025, the Company entered into another future receivables sale agreement (“ Amended Pinnacle Receivables Financing Agreement ”) with Pinnacle pursuant to which Pinnacle restructured the existing Pinnacle Receivables Financing Agreement as described the above by amending the outstanding amount to $ 1,644,000 for gross proceeds to the Company of $ 1,188,000 , less the outstanding balance under the Pinnacle Receivables Financing Agreement of $ 591,000 , resulting in net proceeds to the Company of $ 597,000 .

The Amended Pinnacle Receivables Financing Agreement shall be repaid by the Company in 52 weekly installments of $ 31,615 .

The amendment to the Pinnacle Receivables Financing Agreement was accounted for as a debt extinguishment, which resulted a debt extinguishment loss of approximately $ 126,000 during the three months ended March 31, 2025.

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

By satisfying the balance in full prior to April 16, 2025, the Company was able to secure a discount of approximately $ 99,000 .

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

Notes shall 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 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

On December 13, 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 $ 750,000 which was paid to the Company on December 13, 2023, net of a 3 % origination fee.

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

As of March 31, 2025, $ 400,000 of Notes remained outstanding with Ryan Stump and Henry Sicignano III, and the maturity dates of the outstanding notes had been extended to April 1, 2025.

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

1 unchanged sentence

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

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

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

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.

On March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to March 28, 2025, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note.

Principal shall be payable on the 28th day of each month in installments of $ 25,000 , commencing April 28, 2023, continuing up to and including March 28, 2025 whereby a balloon payment for the remaining principal balance will be paid.

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

1 unchanged sentence

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

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

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

On 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.

On May 31, 2024, as part of the May 2024 capital raise, 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.

As of March 31, 2025, approximately $ 781,000 of the Note remained outstanding.

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 – Related Party

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The Loan bears an annual interest rate of 10 %.

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

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

On 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.

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.

Economic Injury Disaster Loan

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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 September 30, 2024 ( amounts in thousands):

Three Months Ending December 31, 2024

The following summarizes the Company’s notes payable maturities as of March 31, 2025 ( amounts in thousands):

Nine Months Ending December 31, 2025

Year Ending December 31, 2026

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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 nine months ended

September 30,

For the three months ended

Series A convertible preferred shares

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Conversion of Series A Preferred Shares

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

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 “ Offering ”).

The Offering generated gross proceeds of approximately $ 1.63 million, which will be used for working capital purposes.

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.

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 nine months ended September 30, 2024.

During the three months ended March 31, 2025, the Company issued approximately 127,000 shares of Common Stock upon conversion of 564 shares of Series A Preferred.

Common Stock Warrants

On January 7, 2025, the Company issued 3,700,000 warrants along with a promissory note to a third-party vendor to settle the outstanding accounts payable.

Each warrant entitles the holder to purchase one share of the Company’s common stock at an exercise price of $ 0.10 per share.

The warrants vest immediately, and are exercisable through December 30, 2027, and are subject to the terms and conditions of the warrant agreement.

The fair value of the warrants on the issuance date was $ 148,000 and was determined using the Black-Scholes option pricing model with the following assumptions:

Exercise price

Contractual term (years)

Volatility (annual)

Risk-free rate

Dividend yield (per share)

NOTE 12 – STOCK-BASED COMPENSATION

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Non-Qualified Stock Options

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

The following table summarizes stock option activities during the three months ended March 31, 2025 (all option amounts are in thousands):

Stock Options

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Exercise Price

Weighted Average

Contractual Life (in

Aggregate Intrinsic

Remaining Contractual Life

Intrinsic Value

Outstanding at January 1, 2025

Options forfeited/expired

Outstanding at September 30, 2024

Options vested and exercisable at September 30, 2024

Outstanding at March 31, 2025

Options vested and exercisable at March 31, 2025

Restricted Stock Awards

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

The following table summarizes restricted stock awards activities during the three months ended March 31, 2025 (all share amounts are in thousands):

Number of Shares

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Nonvested at January 1, 2025

Restricted stock granted

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 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.

Nonvested at March 31, 2025

As of March 31, 2025, there was approximately $ 129,000 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 1.75 years.

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.

The Company recorded total stock-based compensation of approximately $ 40,000 and $ 62,000 during the three months ended March 31, 2025 and 2024 related to the RSAs, respectively.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

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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 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):

Effective October 1, 2024, the lease was on a month-to-month basis.

The total rent paid to related parties for the three months ended March 31, 2025 and 2024 was approximately $ 69,000 and $ 69,000 , 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.

The Company is currently operating in this facility on a month to month basis and is working with the landlord to renew the lease.

At March 31, 2025, the Company had operating lease liabilities of approximately $ 30,000 and right of use assets of approximately $ 29,000 which were included in the condensed consolidated balance sheet.

The following table summarizes quantitative information about the Company’s operating leases for the three months ended March 31, 2025 and 2024 (amounts in thousands):

For the three months ended

For the nine months ended

September 30,

Operating leases

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Total rent expense

For the nine months ended

September 30,

For the three months ended

Operating cash flows from operating leases

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Weighted-average discount rate – operating leases

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

Maturities of our operating leases as of March 31, 2025, excluding short-term leases, are as follows (amounts in thousands):

Nine Months Ending December 31, 2025

Less present value discount

Operating lease liabilities as of June 30, 2024

Operating lease liabilities as of March 31, 2025

Legal Proceedings

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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 Metatine-based alternative alkaloid product lines, Mr.

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

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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 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.

For the three months ended March 31, 2025 and 2024, 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 15 – SUBSEQUENT EVENTS

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.

Entry into a Material Definitive Agreement for the Disposition of Assets

On April 16, 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) with R.J.

Reynolds Vapor Company (the “ Buyer ”) pursuant to which the Buyer purchased 12 of the Company’s PACHA synthetic products and related assets (the “ Assets ”) that are covered by a premarket tobacco application (“ PMTA ”) first submitted by the Company in 2022.

The purchase price for the Assets was $ 5.0 million paid at closing, plus a contingent one-time payment of up to $ 4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets.

The Agreement contains customary representations, warranties, and indemnities by each of the parties.

On May 29, 2025, the Company amended the Agreement (the “ Amendment ”) with the Buyer pursuant to which the Buyer purchased three additional PACHA synthetic products and related assets (the “ Additional Assets ”) that are covered by a PMTA first submitted by the Company in 2022, bringing the total purchased by the Buyer, to date, to 15 products.

The purchase price for the Additional Assets was $ 1.5 million paid at closing.

Repayment of Pinnacle Receivables Financing Agreement

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.

By satisfying the balance in full prior to April 16, 2025, the Company was able to secure a discount of approximately $ 99,000 .

Modification of Ryan Stump and Henry Sicignano III Promissory Notes

On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $ 75,000 of accrued interest and have agreed to modify their 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.

Repayment of August 17, 2022 Loan From Ryan Stump

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.

Modification of April 22, 2022 Loan From Michael King

On April 28, 2025 Michael King, a current member of the Company’s Board of Directors, 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.

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

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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 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.

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.

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.

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.

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.

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;

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

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 as soon as Q1 2025.

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.

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.

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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 develop new distribution partnerships in order to grow our nicotine disposable business in 2025.

To date, 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.

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.

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 despite the fact that 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 only authorized 34 tobacco-flavored e-cigarette products and devices.

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.

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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, could help to remediate perceived health issues related to vaping, and further position the Company as a trusted, industry leader.

The Company has begun to develop intellectual property around technologies designed to prevent youth access to 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.

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

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 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.

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Recent Developments

Expiration of Warrants

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

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.

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 “ Offering ”).

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

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.

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 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:

Entry into a Material Definitive Agreement for the Disposition of Assets

On April 16, 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) with R.J.

The purchase price for the Assets was $5.0 million paid at closing, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets.

The Agreement contains customary representations, warranties, and indemnities by each of the parties.

The purchase price for the Additional Assets was $1.5 million paid at closing.

Results of Operations for the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

Regarding results from operations for the quarter ended March 31, 2025, we generated revenue of approximately $2,306,000, as compared to revenue of $3,051,000 for the three months ended March 31, 2024.

This $745,000 decrease in revenue was due primarily to a $1,296,000 decrease in sales of our nicotine-based vapor products, and offset by an increase of $551,000 in sales of other alternative products distributed through Don Polly.

We generated a net loss for the three months ended March 31, 2025, of approximately $1,217,000 as compared to a net loss of $1,045,000 for the three months ended March 31, 2024.

A review of the three-month period ended March 31, 2025, follows:

For the three months ended

September 30,

($ in thousands)

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Interest expense

Change in fair value of derivative liabilities

Total other (loss) income

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 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 $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 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.

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 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 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 $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.

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

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 $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 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)

Product revenue, net

Total revenues

Operating costs and expenses:

Cost of goods sold - product revenue

General and administrative

Sales and marketing

Research and development

Total operating costs and expenses

Loss from operations

Other income (expense):

Interest expense

Debt extinguishment (loss) gain

Debt extinguishment loss

Change in fair value of derivative liabilities

Total other (loss) income

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.

Total other loss

Revenue for the three months ended March 31, 2025, decreased by approximately $745,000 or 24.4%, to approximately $2,306,000, as compared to approximately $3,051,000 for same period in 2024 due to a $2,875,000 decrease in sales of our nicotine-based vapor products, and offset by an increase of $551,000 in sales of other alternative products distributed by Don Polly.

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.

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.

The increase in alternative products primarily consisted of products distributed through Don Polly on behalf of other brands.

These partnerships have allowed us to leverage existing customer relationships and sales infrastructure to generate incremental revenue.

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 $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.

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

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased by approximately $329,000 or 15.6%, to approximately $1,778,000, or 77.1% of revenue, for the three months ended March 31, 2025, as compared to approximately $2,107,000, or 69.1% of revenue, for the same period in 2024.

This cost, decreased compared to last year due primarily to lower sales volume across all product categories.

As a percentage of sales it increased slightly due to lower fixed cost absorption and overall margin compression across certain of our products.

General and Administrative Expenses

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.

For the three months ended March 31, 2025, total general and administrative expenses decreased by approximately $411,000 to $1,134,000 as compared to approximately $1,545,000 for the same period in 2024.

This change was primarily due to decreases of approximately $73,000 in non-sales related payroll and benefits costs, $188,000 in certain professional fees and $150,000 of other general and administrative costs.

The decrease in payroll and benefits costs was primarily driven by reduced headcount compared to the same period in 2024.

The decrease in professional fees was primarily the result of reductions in audit costs as well as fees pays to members of our Board of Directors.

The decrease in other general and administrative costs was primarily due to lower insurance costs as well as bad debt and merchant processing fees, both of which vary with sales.

Sales and Marketing Expense

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.

For the three months ended March 31, 2025, total sales and marketing expense decreased by approximately $120,000 to approximately $214,000 as compared to approximately $334,000 for the same period in 2024, 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 reduced sales activity during the year.

Research and Development Expense

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

For the three months ended March 31, 2025 and 2024, research and development expense was $6,000.

Loss from Operations

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.

We incurred a loss from operations of approximately $826,000 for the three months ended March 31, 2025, compared to loss of approximately $941,000 for the three months ended March 31, 2024, due primarily to lower sales and gross profit.

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

Change in Fair Value of Derivative Liabilities.

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 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 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 $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.

For the three months ended March 31, 2025, and 2024, we recorded interest expense related to notes payable of approximately $242,000 and $183,000, respectively.

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

Debt Extinguishment Loss.

For the three months ended March 31, 2025, we recorded approximately $149,000 of loss from debt extinguishment, which was related to the amendment to the Pinnacle Receivables Financing Agreement and the settlement of Chemular’s outstanding note payable (see Note 9).

Change in Fair Value of Derivative Liabilities.

For the three months ended March 31, 2024, the gain in fair value of derivative liabilities was $79,000.

The derivative liability was associated with certain investor warrants which was expired without being exercised in April 2024.

For the three months ended March 31, 2025, we incurred a net loss of $1,217,000 as compared to net loss of $1,045,000 for the same period in 2024.

Effects of Inflation

Inflation has not had a material impact on our business.

Liquidity and Capital Resources

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.

As of March 31, 2025, we had working capital deficit of approximately $2,829,000, which consisted of current assets of approximately $3,000,000 and current liabilities of approximately $5,829,000, as compared to working capital deficit of approximately $1,855,000 at December 31, 2024.

The current liabilities include approximately $2,683,000 of accounts payable and accrued expenses, notes payable of $1,405,000, notes payable from related parties of $1,581,000, approximately $130,000 of deferred revenue associated with product shipped but not yet received by customers, and approximately $30,000 of current lease liabilities.

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 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 .

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

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

or (ii) September 28, 2022.

Principal shall be payable on 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 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.

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.

August 2022 Note Financing .

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

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

The Loan bears an annual interest rate of 10%.

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

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.

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.

September 2024 Pinnacle Receivables Financing.

Our cash and cash equivalents balance at March 31, 2025 was approximately $112,000.

As of March 31, 2025, we have the following notes outstanding:

February 2025 Note.

On February 27, 2025, the Company and Henry Sicignano III entered into a loan agreement (the “ Loan ”) in the principal amount of $100,000.

As of March 31, 2025, $100,000 of principal plus accrued interest held by remained outstanding and the maturity dates of the outstanding notes.

September 2024 & January 2025 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.

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.

On January 10, 2025, the Pinnacle Receivables Financing Agreement was restructured.

As of March 31, 2025, the outstanding balance was approximately $1,378,000.

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

July 2023 Notes.

As of March 31, 2025, $400,000 notes payable plus accrued interest held by Ryan Stump and Henry Sicignano III remained outstanding and the maturity dates of the outstanding notes had been extended to April 1, 2025.

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.

August 2022 Note .

As of March 31, 2025, $300,000 notes payable plus accrued interest held by Ryan Stump remained outstanding and the maturity dates of the outstanding notes had been extended to April 1, 2025.

On April 28, 2025, the Company paid to Ryan Stump approximately $308,000 to satisfy all remaining outstanding principal and interest due.

April 2022 Note .

As of March 31, 2025, approximately $781,000 of principal plus accrued interest held by Michael King (the “Lender”) remained outstanding and the maturity dates of the outstanding notes had been extended to March 28, 2025.

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.

For the three months ended March 31, 2025, net cash used in operating activities was approximately $409,000, resulting from a net loss of $1,217,000, offset by a change in operating assets and liabilities of $473,000 and net non-cash activity of $335,000.

For the three months ended March 31, 2024, net cash used in operating activities was approximately $431,000, resulting from a net loss of $1,045,000, offset by a change in operating assets and liabilities of $412,000 and net non-cash activity of $202,000.

For the three months ended March 31, 2025, we generated approximately $310,000 in cash from financing activities related to the issuance of notes payable of $546,000, notes payable to a related party of $100,000 and the repayment of $325,000 in notes payable, including $11,000 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

5 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 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.

For the three months ended March 31, 2025, the Company’s revenue declined, the Company generated a loss from operations of approximately $826,000, and a consolidated net loss of approximately $1,217,000.

Cash used in operations was approximately $409,000.

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.

The Company had a stockholders’ deficit of $2,809,000 at March 31, 2025.

As of March 31, 2025, the Company had working capital deficit of $2,829,000, compared to a deficit of $1,855,000 as of December 31, 2024.

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 $6.5 million as of September 30, 2024, to support our PMTA process for the Company’s submissions to the FDA.

However, as disclosed in “ Subsequent Events, ” in the second quarter of 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) and subsequent Amendment with R.J.

The combined purchase price for the Assets was $6.5 million paid at closings in April and May 2025, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets.

These asset sales have substantially addressed the Company’s debt and working capital short term concerns, and have improved the Company’s cash position.

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 $6,500,000 as of March 31, 2025, 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 50% for officers and certain managers and a reduction in headcount for certain departments.

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

13 unchanged sentences

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