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Item 1. Financial Statements

2025-08-21 compared with 2025-06-27 · 245 added, 156 removed, 603 unchanged (40% of the section changed)

25 unchanged sentences

COMMITMENTS AND CONTINGENCIES (see Note 13)

Stockholders' deficit:

Stockholders' equity (deficit):

Convertible preferred stock ($ 0.001 par value);

1 unchanged sentence

Series A, 300,000 shares designated;

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

122,366 and 122,930 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

Series B, 1,500,000 shares designated;

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

0 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

Common stock ($ 0.001 par value);

500,000,000 shares authorized;

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

259,946,903 and 257,286,631 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders' deficit

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

Total stockholders' equity (deficit)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

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

3 unchanged sentences

For the three months ended

For the six months ended

Product revenue, net

9 unchanged sentences

Interest expense

Debt extinguishment loss

Debt extinguishment gain (loss)

Change in fair value of derivative liabilities

Total other loss

Net loss per share

Gain on sale of PMTA assets

Total other income (loss)

Income (loss) before provision for income taxes

Income tax provision

Net income (loss)

Net earnings (loss) per share

Weighted average number of common shares outstanding

3 unchanged sentences

(in thousands)

For the Three Months Ended March 31, 2025

For the Three Months Ended June 30, 2025

Convertible Preferred Stock

1 unchanged sentence

Paid-in Capital

Equity (Deficit)

Balance at April 1, 2025

Stock compensation

Forfeiture of restricted stock awards

Balance at June 30, 2025

For the Three Months Ended June 30, 2024

Convertible Preferred Stock

Total Stockholders'

Paid-in Capital

Balance at April 1, 2024

Issuance of common shares for cash

Issuance of common shares from debt redemption

Forfeiture of restricted stock awards

Stock compensation

Balance at June 30, 2024

For the Six Months Ended June 30, 2025

Convertible Preferred Stock

Total Stockholders'

Paid-in Capital

Equity (Deficit)

Balance at January 1, 2025

1 unchanged sentence

Stock compensation

Forfeiture of restricted stock awards

Issuance of warrant in connection with a settlement of accounts payable

Balance at March 31, 2025

For the Three Months Ended March 31, 2024

Balance at June 30, 2025

For the Six Months Ended June 30, 2024

Convertible Preferred Stock

2 unchanged sentences

Balance at January 1, 2024

Issuance of common shares for cash

Issuance of common shares from debt redemption

Conversion of Series A convertible preferred stock

1 unchanged sentence

Stock compensation

Balance at March 31, 2024

Balance at June 30, 2024

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

2 unchanged sentences

(in thousands)

For the three months ended

For the six months ended

Cash Flows from Operating Activities:

Reconciliation of net loss to net cash used in operating activities:

Net income (loss)

Reconciliation of net income (loss) to net cash used in operating activities:

Allowance for doubtful accounts

5 unchanged sentences

Stock based compensation

Gain on sale of PMTA assets

Subtotal of non-cash charges

6 unchanged sentences

Net cash used in operating activities

Cash Flows from Investing Activities:

Proceeds from sale of PMTA assets

Net cash provided by investing activities

Cash Flows from Financing Activities:

Proceeds from issuance of common shares

Proceeds from issuance of notes payable

2 unchanged sentences

Repayment of notes payable to related party

Net cash provided by financing activities

Net decrease in cash

Net cash (used in) provided by financing activities

Net increase 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

14 unchanged sentences

Additionally, the Company was required to obtain approval from the United States Food and Drug Administration (“ FDA ”) to continue selling and marketing certain of products used for the vaporization of nicotine in the United States.

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

There was 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 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 $ 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.

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.

For the six months ended June 30, 2025, the Company’s revenue declined.

The Company generated a loss from operations of approximately $ 1,703,000 , and had a consolidated net income of approximately $ 3,744,000 .

Net cash used in operating activities was approximately $ 3,063,000 .

The Company had a stockholders’ equity of $ 2,190,000 at June 30, 2025.

During the six months ended June 30, 2025, the Company’s working capital was increased to $ 2,211,000 from deficit of $ 1,855,000 as of December 31, 2024.

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

During 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.

These asset sales have substantially improved the Company’s debt and working capital short-term concerns, and 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 cumulative expenditures related to our premarket tobacco product application (“ PMTA ”) process of obtaining FDA approval.

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.

98 unchanged sentences

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.

As of June 30, 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:

The components of inventory as of June 30, 2025 and December 31, 2024 are summarized as follows:

Finished goods

4 unchanged sentences

NOTE 5 – PROPERTY AND EQUIPMENT

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):

Depreciation and amortization expense totaled $ 25,000 and $ 66,000 , respectively, during the six months ended June 30, 2025 and 2024.

Property and equipment as of June 30, 2025 and December 31, 2024, are as follows (dollar amounts in thousands):

Estimated Useful Life

8 unchanged sentences

For the three months

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.

For the six months

ended June 30,

During the three months ended June 30, 2025 and 2024, purchases from six vendors represented 77 % and 86 %, respectively, of total inventory purchases.

During the six months ended June 30, 2025 and 2024, purchases from five vendors represented 71 % and 67 %, respectively, of total inventory purchases.

As of June 30, 2025, and December 31, 2024, amounts owed to these vendors totaled $ 673,000 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:

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.

June 30, 2025

December 31, 2024

Three customers made up more than 88 % of net accounts receivable at June 30, 2025.

Four customers made up more than 81 % of net accounts receivable at December 31, 2024.

No customer exceeded 10% of total net sales for the three month period ended June 30, 2025 and 2024, respectively.

NOTE 7 – DON POLLY, LLC

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

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

Don Polly markets and distributes third-party product lines.

Don Polly is classified as a variable interest entity (“ VIE ”) for which the Company is the primary beneficiary.

9 unchanged sentences

NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

Accounts payable and accrued expenses as of June 30, 2025 and December 31, 2024, are as follows (amounts in thousands):

Accounts payable

6 unchanged sentences

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.

The Loan was fully repaid in April 2025.

January 2025 Chemular Secured Promissory Note

4 unchanged sentences

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.

As a result, the Company recognized a debt extinguishment loss of $ 23,000 during the three months ended June 30, 2025.

As part of the closing of the Asset Purchase Agreement on April 16, 2025, R.J.

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

5 unchanged sentences

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 .

By satisfying the balance in full prior to April 16, 2025, the Company was able to secure a discount of approximately $ 99,000 , which was recognized as a gain from debt extinguishment.

July 2023 Note Financing

2 unchanged sentences

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 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.

As of June 30, 2025, approximately $ 336,000 of the Notes remained outstanding.

April 2022 Note Financing

8 unchanged sentences

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.

As of June 30, 2025, approximately $ 339,000 of the Note remained outstanding.

August 2022 Note Financing – Related Party

13 unchanged sentences

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 March 31, 2025 ( amounts in thousands):

Nine Months Ending December 31, 2025

The following summarizes the Company’s notes payable maturities as of June 30, 2025 ( amounts in thousands):

Six Months Ending December 31, 2025

Year Ending December 31, 2026

2 unchanged sentences

Year Ending December 31, 2029

Debt discount

NOTE 10 – (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS

Basic (loss) per common share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period.

Diluted (loss) per common share is computed similar to basic (loss) per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

NOTE 10 – EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS

Basic earnings (loss) per common share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period.

Diluted earnings (loss) per common share is computed similar to basic earnings (loss) per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

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

The following 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):

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

For the three months ended

For the six months ended

Net income (loss) - basic and diluted

Weighted average shares outstanding - basic

Diluted preferred shares

Weighted average shares outstanding - diluted

Basic earnings (loss) per share

Diluted earnings (loss) per share

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

For the six months ended

Series A convertible preferred shares

All common stock options and common stock purchase warrants outstanding as of June 30, 2025 were out of the money and were not included in net earnings per share calculation.

NOTE 11 – STOCKHOLDERS ’ EQUITY

Conversion of Series A Preferred Shares

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.

During the six months ended June 30, 2025, the Company issued approximately 127,000 shares of Common Stock upon conversion of 564 shares of Series A Preferred.

Common Stock Warrants

16 unchanged sentences

Non-Qualified Stock Options

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

The following table summarizes stock option activities during the three months ended June 30, 2025 (all option amounts are in thousands):

Stock Options

Weighted Average

Exercise Price

Remaining Contractual Life

Intrinsic Value

1 unchanged sentence

Options forfeited/expired

Outstanding at March 31, 2025

Options vested and exercisable at March 31, 2025

Outstanding at June 30, 2025

Options vested and exercisable at June 30, 2025

Restricted Stock Awards

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

The following table summarizes restricted stock awards activities during the six months ended June 30, 2025 (all share amounts are in thousands):

Number of Shares

3 unchanged sentences

Nonvested at January 1, 2025

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.

Restricted stock granted

Nonvested at June 30, 2025

During the six months ended June 30, 2025, the Company granted 2,600,000 restricted stock awards (“ RSAs ”) to employees 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 $ 69,000 .

During the six months ended June 30, 2025, approximately 67,000 RSAs issued to employees were forfeited.

As of June 30, 2025, there was approximately $ 154,000 of total unrecognized compensation expense related to non-vested restricted share-based compensation arrangements granted under the 2019 Plan, as amended.

That cost is expected to be recognized over a weighted average period of 2.78 years.

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.

The Company recorded total stock-based compensation of approximately $ 79,000 and $ 117,000 during the six months ended June 30, 2025 and 2024 related to the RSAs, respectively.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

17 unchanged sentences

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.

The total rent paid to related parties for the six months ended June 30, 2025 and 2024 was approximately $ 138,000 and $ 138,000 , respectively.

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

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):

At June 30, 2025, the Company had no operating lease liabilities in the condensed consolidated balance sheet.

All leases were accounted as short-term lease.

The following table summarizes quantitative information about the Company’s operating leases for the three and six months ended June 30, 2025 and 2024 (amounts in thousands):

For the three months ended

For the six months ended

Operating leases

4 unchanged sentences

Total rent expense

For the three months ended

Maturities of our operating leases as of June 30, 2025, excluding short-term leases, are as follows (amounts in thousands):

For the six months ended

Operating cash flows from operating leases

1 unchanged sentence

Weighted-average discount rate – operating leases

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 March 31, 2025

Legal Proceedings

14 unchanged sentences

NOTE 14 – INCOME TAXES

Income taxes for the three months ended June 30, 2025 and June 30, 2024 have been calculated based on an estimated annual effective tax rate.

For the three months ended June 30, 2025, the Company recorded a tax expense of approximately $ 426,000 .

The Company’s income tax expense for the three months ended June 30, 2025 was related to current year projected income that is not eligible to be offset with prior year tax attribute carryovers.

The Company’s income tax expense for the three months ended June 30, 2024 was determined not to be significant and therefore no expense was recorded in the Company's condensed consolidated financial statements and related disclosures.

Income tax expense is comprised of domestic (US federal and state) income taxes at the applicable tax rates, adjusted for non-deductible expenses, stock compensation expenses, and other permanent differences.

1 unchanged sentence

However, due to the full valuation allowance on our deferred tax assets, the net impact to our overall income tax expense is limited.

For the six months ended June 30, 2025, we recorded a tax expense of approximately $ 426,000 .

The Company’s income tax expense for the six months ended June 30, 2025 was related to current year projected income that is not eligible to be offset with prior year tax attribute carryovers.

For the six months ended June 30, 2024, our tax expense was determined not to be significant and therefore wasn't included in the Company's condensed financial statements and related disclosures.

Under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change” (generally defined as a greater than 50 percentage points (by value) in the ownership of its equity over a three-year period), the corporation’s ability to use its pre-change tax attributes to offset its post change income may be limited.

We may have experienced such ownership changes in the past, and we may experience ownership changes in the future or subsequent shifts in our stock ownership, many of which are outside our control.

As of December 31, 2023, we had state net operating losses ( "NOLs" ) of approximately $ 8.5 if not utilized before 2043.

As of December 31, 2024, we had state net operating losses ( "NOLs" ) of approximately $ 13.8 million and federal NOLs of approximately $ 10.9 million.

The federal NOLs do not expire but the state NOLs expire if not utilized before 2043.

Our ability to utilize these NOLs and tax credit carryforwards may be limited by any “ownership changes” as described above that have occurred in prior years or that may occur in the future.

3 unchanged sentences

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

For the 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

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.

Completion of Acquisition or Disposition of Assets

On August 8, 2025, Charlie's Holdings, Inc.

(the "Company" ) entered into and closed on an Amendment to the Asset Purchase Agreement (the “ Amendment ”) with R.

Reynolds Vapor Company (the “ Buyer ”) pursuant to which the Buyer purchased one additional PACHA synthetic product and related asset (the “ Additional Assets ”) that are covered by a premarket tobacco application (“ PMTA ”) first submitted by the Company in 2022, bringing the total purchased by the Buyer to sixteen.

The purchase price for the Additional Assets was $ 1.0 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

144 unchanged sentences

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:

Results of Operations for the Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

Regarding results from operations for the quarter ended June 30, 2025, we generated revenue of approximately $2,544,000, as compared to revenue of $2,043,000 for the three months ended June 30, 2024.

This $501,000 increase in revenue was due primarily to an increase of $658,000 in sales of other alternative products distributed through Don Polly, but was offset by a $157,000 decrease in sales of nicotine and nicotine alternative products.

We generated a net income for the three months ended June 30, 2025, of approximately $4,961,000 as compared to a net loss of $967,000 for the three months ended June 30, 2024.

A review of the three-month period ended June 30, 2025, follows:

For the three months ended

11 unchanged sentences

Interest expense

Debt extinguishment gain (loss)

Gain on sale of PMTA assets

Total other income (loss)

Income (loss) before provision for income taxes

Income tax provision

Net income (loss)

Revenue for the three months ended June 30, 2025, increased by approximately $501,000 or 24.5%, to approximately $2,544,000, as compared to approximately $2,043,000 for same period in 2024 due to an increase of $658,000 in sales of other alternative products distributed through Don Polly.

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, but are not a primary focus for the Company.

Sales of existing nicotine and nicotine alternative based products decreased $157,000 when compared to the same period in 2024.

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $615,000 or 48.6%, to approximately $1,880,000, or 73.9% of revenue, for the three months ended June 30, 2025, as compared to approximately $1,265,000, or 61.9% of revenue, for the same period in 2024.

This cost increased compared to last year due primarily to an increase in the volume of products sold during the period.

Sales of third-party brands carry a lower overall margin and therefore dilute the Company’s margin overall.

General and Administrative Expenses

For the three months ended June 30, 2025, total general and administrative expenses were $1,412,000 as compared to approximately $1,423,000 for the same period in 2024, which were generally consistent compared to the same period in 2024.

Professional fees decreased approximately $171,000 when compared to the previous period but largely offset by increases in wages and benefits and other general and administrative expenses.

Sales and Marketing Expense

For the three months ended June 30, 2025, total sales and marketing expense was approximately $125,000 as compared to approximately $117,000 for the same period in 2024, which were generally consistent compared to the same period in 2024.

The Company continues to evaluate its spending on advertising, promotional and tradeshow related expenses as it aims to increase sales of its new SBX Disposable vapor products.

Research and Development Expense

For the three months ended June 30, 2025, total research and development expense was approximately $4,000 as compared to an income of $26,000 for the same period in 2024.

The income in 2024 period was primarily due to a vendor refund of approximately $26,000.

Income (Loss) from Operations

We incurred a loss from operations of approximately $877,000 for the three months ended June 30, 2025, compared to a loss of approximately $736,000 for the three months ended June 30, 2024, due primarily to decreased sales and gross profit.

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

Gain on sale of PMTA assets.

For the three months ended June 30, 2025, we recorded a $6,500,000 gain related to the sales agreement entered with R.J.

Reynolds Vapor Company.

Interest Expense.

For the three months ended June 30, 2025, and 2024, we recorded interest expense related to notes payable of approximately $335,000 and $156,000, respectively.

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

Debt Extinguishment Gain (Loss).

For the three months ended June 30, 2025, we recorded approximately $99,000 in gain from amendment to the Pinnacle Receivables Financing Agreement (see Note 9).

Income Taxes Provision

For the three months ended June 30, 2025, the Company recorded an income tax provision of approximately $426,000.

Net Income (Loss)

For the three months ended June 30, 2025, we incurred a net income of $4,961,000 as compared to a net loss of $967,000 for the same period in 2024.

Results of Operations for the Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

Regarding results from operations for the six months ended June 30, 2025, we generated revenue of approximately $4,850,000, as compared to revenue of $5,094,000 for the six months ended June 30, 2024.

This $244,000 decrease in revenue was due primarily to a decrease of $1,453,000 in sales of our nicotine-based vapor products, and offset by an increase of $1,209,000 in sales of other alternative products distributed through Don Polly.

We generated a net income for the six months ended June 30, 2025, of approximately $3,744,000 as compared to a net loss of $2,012,000 for the six months ended June 30, 2024.

A review of the six months ended June 30, 2025, follows:

For the six months ended

($ 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

Change in fair value of derivative liabilities

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 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.

Gain on sale of PMTA assets

Total other income (loss)

Income (loss) before provision for income taxes

Income tax provision

Net income (loss)

Revenue for the six months ended June 30, 2025, decreased by approximately $244,000 or 4.8%, to approximately $4,850,000, as compared to approximately $5,094,000 for same period in 2024 due primarily to a decrease of $1,453,000 in sales of our nicotine-based vapor products, and offset by an increase of $1,209,000 in sales of other alternative products distributed through Don Polly.

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.

These partnerships have allowed us to leverage existing customer relationships and sales infrastructure to generate incremental revenue, but are not a primary focus for the Company.

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 $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.

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $286,000 or 8.5%, to approximately $3,658,000, or 75.4% of revenue, for the six months ended June 30, 2025, as compared to approximately $3,372,000, or 66.2% of revenue, for the same period in 2024.

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

General and Administrative Expenses

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.

For the six months ended June 30, 2025, total general and administrative expenses decreased by approximately $422,000 to $2,546,000 as compared to approximately $2,968,000 for the same period in 2024.

This change was primarily due to decreases of approximately $359,000 in certain professional fees and $85,000 of other general and administrative costs, and offset by an increase of $22,000 in non-sales related payroll and benefits costs.

The decrease in professional fees was primarily the result of reductions in audit costs as well as fees paid 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 expense.

The increase in payroll and benefits costs was primarily driven by bonuses awarded to certain key employees during the period.

Sales and Marketing Expense

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.

For the six months ended June 30, 2025, total sales and marketing expense decreased by approximately $112,000 to approximately $339,000 as compared to approximately $451,000 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.

Research and Development Expense

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 $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:

For the six months ended June 30, 2025, research and development expense was approximately $10,000 as compared to income of approximately $20,000 for the same period in 2024.

The income in 2024 period was primarily due to a vendor refund of approximately $26,000.

Income (Loss) from Operations

We incurred loss from operations of approximately $1,703,000 for the six months ended June 30, 2025, compared to a loss of approximately $1,677,000 for the six months ended June 30, 2024, due primarily to decreased sales and gross profit.

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

Gain on sale of PMTA assets.

For the six months ended June 30, 2025, we recorded a $6,500,000 gain related to the sales agreement entered with R.J.

Reynolds Vapor Company.

Interest Expense.

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.

For the six months ended June 30, 2025, and 2024, we recorded interest expense related to notes payable of approximately $577,000 and $339,000, 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).

For the six months ended June 30, 2025 and 2024, we recorded approximately $50,000 and $75,000 debt extinguishment loss related to various debt amendments, respectively.

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.

For the six months ended June 30, 2024, the gain in fair value of derivative liabilities was $79,000.

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

Income Taxes Provision

For the six months ended June 30, 2025, the Company recorded an income tax provision of approximately $426,000.

Net Income (Loss)

For the six months ended June 30, 2025, we incurred a net income of $3,744,000 as compared to a net loss of $2,012,000 for the same period in 2024.

Effects of Inflation

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Liquidity and Capital Resources

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 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.

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.

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.

As of June 30, 2025, we had working capital of approximately $2,211,000, which consisted of current assets of approximately $5,846,000 and current liabilities of approximately $3,635,000, as compared to working capital deficit of approximately $1,855,000 at December 31, 2024.

The current liabilities include approximately $2,591,000 of accounts payable and accrued expenses, notes payable notes payable from related parties of $675,000, and approximately $369,000 of deferred revenue associated with product shipped but not yet received by customers.

Our cash and cash equivalents balance at June 30, 2025 was approximately $1,453,000.

As of June 30, 2025, we have the following notes outstanding:

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.

As of June 30, 2025, $336,000 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 28, 2026.

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.

As of June 30, 2025, approximately $339,000 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 April 28, 2026.

For the six months ended June 30, 2025, net cash used in operating activities was approximately $3,063,000, resulting from a net income of $3,744,000, and offset by a change in net non-cash activity of $5,870,000 and operating assets and liabilities of $937,000.

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

For the six months ended June 30, 2025, cash provided by investing activities included $6,500,000 in proceeds from the sale of intellectual property related to certain of our PMTA products.

For the six months ended June 30, 2025, we used approximately $2,195,000 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 $2,841,000 in notes payable, including $917,000 to a related party.

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

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

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

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

There was 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 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 $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.

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.

For the six months ended June 30, 2025, the Company’s revenue declined, the Company generated loss from operations of approximately $1,703,000, and a consolidated net income of approximately $3,744,000.

Net cash used in operating activities was approximately $3,063,000.

The Company had a stockholders’ equity of $2,190,000 at June 30, 2025.

During the six months ended June 30, 2025, the Company’s working capital was increased to $2,211,000 from deficit of $1,855,000 as of December 31, 2024.

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

During the second quarter of 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) and a 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.

These asset sales have substantially improved the Company’s debt and working capital short-term concerns, and 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 related to our PMTA process for obtaining FDA approval.

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.

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

What changed 10-Q

Item 1. Financial Statements