Charlie's Holdings, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our President, the principal executive officer, and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs. Based on our evaluation, our President, the principal executive officer, and Chief Financial Officer concluded that, as of December 31, 2025, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President, the principal executive officer, and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. (b) Management ’ s Annual Report on Internal Control over Financial Reporting. Section 404(a) of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting. -31- Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of our principal executive and financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“ COSO ”). Based on that evaluation, our principal executive and financial officer concluded that our internal control over financial reporting was effective as of December 31, 2025. This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financing reporting because we are not an “accelerated filer” or a “large accelerated filer”. Our management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K. (c) Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the quarter ended December 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None . ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information concerning our executive officers, directors and corporate governance is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission. Set forth below is information regarding our directors, executive officers, and key personnel as of March 1, 2025: Name Age Position Henry Sicignano 58 President (Principal Executive Officer) Matthew P. Montesano 40 Chief Financial Officer Ryan Stump 37 Chief Operating Officer and Director Scot Cohen 56 Director Jeffrey Fox 62 Director Edward Carmines 71 Director Michael King 56 Director The following biographical information regarding the foregoing directors and officers of the Company is presented below: Henry Sicignano, III, President (Principal Executive Officer). Mr. Sicignano was appointed as President of the Company on April 1, 2021. Prior to joining the Company, Mr. Sicignano held multiple positions, including Chief Executive Officer of 22nd Century Group, Inc. (NASDAQ: XXII), a plant-based biotechnology company that is focused on tobacco harm reduction, very low nicotine content tobacco, and hemp/cannabis research from March 2015 through July 2019. He also served as President and as a member of the Board of Directors with 22nd Century from January 2011 through July 2019. In addition, from December 2014 to August 2018, Mr. Sicignano served on the Board of Directors of Anandia Laboratories, Inc., a cannabis-focused science company that was sold to Aurora Cannabis (NYSE: ACB). Mr. Sicignano holds a B.A. Degree in Government from Harvard College and an M.B.A. Degree from Harvard University. -32- Matthew P. Montesano, Interim Chief Financial Officer. Mr. Montesano was appointed as Chief Financial officer of the Company on May 10, 2021. Prior to his appointment, and since 2014, Mr. Montesano has served as Chief Financial Officer of Charlie’s Chalk Dust, LLC, the Company’s largest and most profitable operating division. Beginning in 2019, he also began serving as the Chief Financial Officer of Don Polly, LLC, the Company’s alternative products division. Mr. Montesano is the Founder and Managing Partner for Relay BPO, LLC, an outsourced accounting, and business process firm. Prior to joining the Company, Mr. Montesano worked for L’Oreal USA in a variety of corporate finance positions for the company’s Professional Products and Salon Centric divisions. Prior to L’Oreal USA, Mr. Montesano worked for KeyBanc Capital Markets as an investment banker where he focused on debt, equity and merger and acquisitions transactions in the industrials space. Ryan Stump, Director and Chief Operating Officer. Mr. Stump was appointed as a director and the Company’s Chief Marketing Officer on April 26, 2019 in connection with the Share Exchange. Mr. Stump has served as the Chief Operating Officer of Charlie’s since 2014, during which time he has been responsible for all global operations of Charlie’s. Prior to joining Charlie’s, Mr. Stump worked as an Associate Territory Manager and then as a Territory Manager for ConMed, a medical sales device company, from 2010 to 2013. Mr. Stump also co-founded and continues to be engaged with multiple companies, including The Ohio House since 2011, the Buckeye Recovery Network since 2017, and The Mend California since 2018. Mr. Stump earned a B.S. and B.A. in Sports Marketing and Marketing from Duquesne University The Board of Directors believes that Mr. Stump’s experience operating high growth companies, as well as entrepreneurial experience, is valuable to the Board as it manages the Company’s anticipated continued growth. Scot Cohen , Director . Mr. Cohen was appointed to the Board in March 2019 and is the Founder and Managing Partner of V3 Capital Partners, a private investment firm focused on early-stage companies primarily in the consumer products industry, and Co-Manager of Red Fortune Fund, a private equity fund based in Hong Kong. Mr. Cohen also is the Founder of Petro River Oil, LLC and Chairman of Petro River Oil Corp. (OTCBB: PTRC), a publicly traded oil and gas producer with assets in Kansas and Oklahoma, and Petro Spring, a global oil and gas technology solutions provider. Prior to creating V3 Capital Partners, Mr. Cohen was the Founder and Managing Partner at Iroquois Capital Opportunity Fund, a special situations private equity investment fund, and a Co-Founder of Iroquois Capital, a hedge fund with investments in small and micro-cap private and public companies. Mr. Cohen currently serves as the CEO and Executive Director of Wrap Technologies, Inc. (NASDAQ: WRTC), and is active in philanthropic activities with numerous charities including the Jewish Enrichment Council. Mr. Cohen received a Bachelor of Science degree from Ohio University in 1991. The Board of Directors believes Mr. Cohen’s success with multiple private investment firms, his extensive contacts within the investment community, and his financial expertise are a valuable resource to the Company’s efforts to expand and implement its business plan. Jeffrey Fox, Director . Mr. Fox was appointed to the Board effective July 16, 2019. He has been a leading business strategist, brand marketing authority and general management executive for some of the’ world's largest restaurant and consumer companies including roles as Chief Brand & Concept Officer for Pizza Hut, Co-founder of Collider LLC, a cultural marketing strategy firm, Managing Director of the California office of advertising agency Foote, Cone and Belding (FCB), various positions with the Yum! Brands and within Sony's interactive and PlayStation video game divisions, and Hill & Knowlton Public Relations. He is currently a member of the board of directors of Cici’s Pizza and Flix Brewhouse. Mr. Fox holds a bachelor’s degree in Journalism from San Diego State University and received a master's degree in Mass Communications from California State University, Northridge. The Board of Directors believes that Mr. Fox’s strong experience in brand building across several diverse Fortune 100 consumer product companies will be significantly valuable to the Company as it continues to rapidly grow its product offerings and launch new brands and products around the world. -33- Dr. Edward Carmines, Director. Dr. Carmines was appointed to the Board effective March 2, 2022. He is currently Chief Scientific Officer of Chemular, Inc., where he designs and directs scientific and regulatory programs for PMTAs for a host of contract clients across a wide range of tobacco product categories. He also currently serves as an Advisory Board Member of Sparq Life, Inc, focusing on the science of inhalation of non-tobacco products, and Principal for Carmines Consulting, LLC, where Dr. Carmines consults to the regulated tobacco industry in the field of toxicology and regulatory affairs. Previously, Dr. Carmines managed the safety of novel and oral tobacco products as a scientist with R.J. Reynolds Tobacco Co. From 1996-2009, Dr. Carmines served as a principal scientist for Philip Morris USA (Altria Client Services, Inc.), where he developed guidelines for safely testing cigarette ingredients and components based on the FDA Red Book. Dr. Carmines received a B.S. degree in Chemistry and a Ph.D. degree in Toxicology from the Medical College of Virginia (Virginia Commonwealth University). The Board of Directors believes that Dr. Carmines extensive experience within the nicotine industry and navigating the regulatory process relating to the nicotine industry is significantly valuable to the Company due to the ongoing and evolving nature of the Company’s industry. Michael D. King, Director . Mr. King was appointed as a director in June 2023 pursuant to the terms of a nomination and standstill agreement dated April 26, 2023. Mr. King is the Founder and current Chief Executive Officer of Wessner, Inc., a private company that has developed a supply network in Asia with world-class manufacturing companies that offer a wide variety of custom-made medical products, scientific instruments, consumer products, and food service devices. Operating Wessner, Inc. (formerly OEM Solutions) has been Mr. King’s sole occupation and employment for the past 24 years. From 1998 until 2001, Mr. King worked as a Sales Representative at Allied Enterprises in Pittsburgh, Pennsylvania. From 1991 through 1998, Mr. King worked for the Ford Motor Company in the Finance Department as an analyst and eventually supervisor. Mr. King graduated with a Master of Business Administration degree from the State University of New York at Buffalo in 1991. The Board of Directors believes that Mr. King’s experience (i) sourcing, purchasing, and shipping products in China and other Asian countries; (ii) reducing costs of goods and improving quality; and (iii) operating a high growth company is valuable to the Board as it manages the Company’s anticipated continued growth. Other than as described above, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or nominee set forth above during the past ten years. Code of Ethics We have adopted a Code of Ethics that applies to all of our directors, officers and employees, a copy of which is attached as an exhibit to our Annual Report on Form 10-K, filed with the SEC on April 1, 2019. -34- ITEM 11. EXECUTIVE COMPENSATION Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with respect to its 2026 Annual Meeting of Stockholders ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with respect to its 2026 Annual Meeting of Stockholders ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with respect to its 2026 Annual Meeting of Stockholders ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with respect to its 2026 Annual Meeting of Stockholders -35- PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES Exhibit No. Description 3.1 Amended and Restated Bylaws of Charlie's Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on September 11, 2019. 3.2 Amended and Restated Articles of Incorporation of Charlie’s Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed July 2, 2019 3.2.1 Certificate of Change for Charlie’s Holdings, Inc., effective as of June 14, 2021, incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on June 16, 2021. 4.1 Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, dated April 25, 2019, incorporated by reference to Exhibit 3.7 to the Current Report on Form 8-K, filed April 30, 2019. 4.2 Description of Securities Registered Pursuant to Section 12 filed with the Form 10-K on May 29, 2025 and incorporated herein by reference. 4.3 Certificate of Amendment dated April 4, 2023 to Series A preferred stock, incorporated by reference to Form 8-K filed on April 4, 2023. 10.1 Form of Exchange Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed April 30, 2019. 10.2 Form of Registration Rights Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed April 30, 2019. 10.3 Subscription Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K, filed April 30, 2019. 10.4 Employment Agreement by and between the Company and Ryan Stump, dated June 15, 2023, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 20, 2023. 10.6 Commercial Lease Agreement, by and between Charlie’s Chalk Dust, LLC and Brandon Stump, Ryan Stump and Keith Stump, dated November 19, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 22, 2019. 10.7 Employment Agreement, dated April 1, 2021, by and between Charlie's Holdings, Inc. and Henry Sicignano III, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed April 6, 2021. 10.8 2019 Omnibus Equity Incentive Plan, as amended, incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14C filed with the Securities and Exchange Commission on May 28, 2019 10.9 Amendment to 2019 Omnibus Equity Incentive Plan, incorporated by reference to the Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on February 4, 2022 10.10 Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023 10.10.1 Modification Agreement dated September 29, 2022 related to Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023 10.10.2 Modification Agreement dated March 28, 2022 related to Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023 10.11 Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023 10.11.1 Amendment dated December 17, 2022 to Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023 10.11.2 Amendment dated April 13, 2023 to Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023 10.12 Form of July 2023 Promissory Note, incorporated by reference to Form 10-Q filed on November 14, 2023 10.13 Amended and Restated Promissory Notes – with Henry Sicignano III and Ryan Stump dated April 28, 2025 filed with the Form 10-K on May 29, 2025 and incorporated herein by reference. 10.14 Agreement for the Disposition of Assets, incorporated by reference to the Current Report on Form 8-K, filed April 17, 2025 10.14.1 Amendment to Agreement for the Disposition of Assets, incorporated by reference to the Current Report on Form 8-K, filed June 3, 2025 10.14.2 Amendment to Agreement for the Disposition of Assets, incorporated by reference to the Current Report on Form 8-K, filed August 11, 2025 10.15 Amended and Restated Promissory Note – with Michael King dated April 28, 2025 filed with the Form 10-K on May 29, 2025 and incorporated herein by reference. 10.15.1 Amendment to Amended and Restated Promissory Note – with Michael King dated March 24, 2025 (filed herewith) 14.1 Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference. 19.1 Charlie's Holdings, Inc. Insider Trading Policy, filed with the Form 10-K on May 29, 2025 and incorporated herein by reference. 21.1 Subsidiaries of Charlie's Holdings, Inc., filed with the Form 10-K on May 29, 2025 and incorporated herein by reference.. 23.1 Consent of Urish Popeck & Co., LLC filed herewith. -36- 31.1 Certification of Principal Executive Officer as Required by Rule 13a-14(a)/15d-14, filed herewith. 31.2 Certification of Principal Financial Officer as Required by Rule 13a-14(a)/15d-14, filed herewith. 32.1 Certification of Principal Executive Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith. 32.2 Certification of Principal Financial Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith. 101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH Inline XBRL Taxonomy Extension Schema 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB Inline XBRL Taxonomy Extension Label Linkbase 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ITEM 16. FORM 10-K SUMMARY None. -37- SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized. Date: March 31, 2026 CHARLIE’S HOLDINGS, INC. By: /s/ Henry Sicignano III Henry Sicignano III President (Principal Executive Officer) /s/ Matthew P. Montesano Matthew P. Montesano Chief Financial Officer (Principal Financial and Accounting Officer) In accordance with the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated. Signature Title Date /s/ Henry Sicignano III Henry Sicignano III President (Principal Executive Officer) March 31, 2026 /s/ Matthew P. Montesano Matthew P. Montesano Chief Financial Officer (Principal Financial and Accounting Officer) March 31, 2026 /s/ Ryan Stump Ryan Stump Chief Operating Officer and Director March 31, 2026 /s/ Scot Cohen Scot Cohen Director March 31, 2026 /s/ Jeffrey Fox Jeffrey Fox Director March 31, 2026 /s/ Edward Carmines Edward Carmines Director March 31, 2026 /s/ Michael King Michael King Director March 31, 2026 Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Charlie’s Holdings, Inc. Costa Mesa, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Charlie’s Holdings, Inc. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the years then ended , in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Going Concern The ability of the Company to continue as a going concern is dependent on their ability to increase revenues, procure cost-effective financing, and continue its business development efforts to support the PMTA process for the Company’s submissions to the FDA. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from related parties and private funding, in order satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. Management believes any substantial doubt has been alleviated as they expect increase revenues and profitability to continue. Management’s plans include (i) streamlining profitable product lines (ii) focusing on the procurement of the FDA approval on the nicotine product line (iii) increasing marketing efforts. The primary procedures we performed to address this critical audit matter included: The principal considerations for our determination that performing procedures relating to the Company’s liquidity and plans to meet future cash requirements is a critical audit matter are the significant judgments by management in determining future cash flows and ability to execute on its business strategy which led to a high level of auditor judgment, subjectivity and effort in performing procedures. ● Understood the process used to develop the Company’s expected cash inflows and outflows based upon recent operating results and evaluating the cash flow projections; ● Reviewed management plans for future events and conditions; ● Performed testing procedures such as analytical procedures to identify conditions and events; ● Reviewed and evaluated management's plans for dealing with adverse effect of these conditions and events. /s/ Urish Popeck & Co., LLC PCAOB ID: 1013 We have served as the Company's auditor since 2024 Pittsburgh, Pennsylvania March 31, 2026 F-2 CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) December 31, December 31, 2025 2024 ASSETS Current assets: Cash $ 1,320 $ 211 Accounts receivable, net 440 331 Inventories, net 6,719 2,131 Prepaid expenses and other current assets 2,288 465 Current assets in discontinued operations - 582 Total current assets 10,767 3,720 Non-current assets: Property, plant and equipment, net 37 53 Right-of-use asset, net 632 71 Other assets 128 101 Total non-current assets 797 225 TOTAL ASSETS $ 11,564 $ 3,945 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses $ 5,037 $ 3,242 Notes payable, net - 520 Notes payable - related parties 2,280 1,488 Lease liabilities 275 73 Deferred revenue 38 25 Current liabilities in discontinued operations - 227 Total current liabilities 7,630 5,575 Non-current liabilities: Note payable, net of current portion 150 - Lease liabilities, net of current portion 361 - Non-current liabilities in discontinued operations - 150 Total non-current liabilities 511 150 Total liabilities 8,141 5,725 COMMITMENTS AND CONTINGENCIES (see Note 12) Stockholders' equity (deficit): Convertible preferred stock ($ 0.001 par value); 1,800,000 shares authorized Series A, 300,000 shares designated; 93,903 and 122,930 shares issued and outstanding as of December 31, 2025 and 2024, respectively - - Series B, 1,500,000 shares designated; 0 shares issued and outstanding as of December 31, 2025 and 2024, respectively - - Common stock ($ 0.001 par value); 500,000,000 shares authorized; 270,653,242 and 257,286,631 shares issued and outstanding as of December 31, 2025 and 2024, respectively 271 257 Additional paid-in capital 11,352 10,662 Accumulated deficit ( 8,200 ) ( 12,699 ) Total stockholders' equity (deficit) 3,423 ( 1,780 ) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 11,564 $ 3,945 The accompanying notes are an integral part of these consolidated financial statements. F-3 CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) For the years ended December 31, 2025 2024 Product revenue, net $ 20,916 $ 7,765 Cost of goods sold - product revenue 15,261 4,888 Gross profit 5,655 2,877 Operating costs and expenses: General and administrative 6,374 5,611 Sales and marketing 1,327 638 Research and development 119 ( 68 ) Total operating costs and expenses 7,820 6,181 Loss from operations ( 2,165 ) ( 3,304 ) Other income (expense): Interest expense ( 692 ) ( 703 ) Debt extinguishment gain (loss) ( 50 ) ( 75 ) Change in fair value of derivative liabilities - 79 Gain on sale of intellectual property 7,500 - Total other income (loss) 6,758 ( 699 ) Income (loss) before provision for income taxes 4,593 ( 4,003 ) Income tax provision ( 275 ) - Income (loss) from continuing operations after income taxes 4,318 ( 4,003 ) Discontinued operations: Income (loss) from discontinued operations, net of tax 181 ( 156 ) Net income (loss) $ 4,499 $ ( 4,159 ) Net earnings (loss) per share: Income (loss) from continuing operations, basic $ 0.02 $ ( 0.02 ) Income (loss) from discontinued operations, basic $ 0.00 $ 0.00 Net earnings (loss) per share, basic $ 0.02 $ ( 0.02 ) Net earnings (loss) per share: Income (loss) from continuing operations, diluted $ 0.02 $ ( 0.02 ) Income (loss) from discontinued operations, diluted $ 0.00 $ 0.00 Net earnings (loss) per share, diluted $ 0.02 $ ( 0.02 ) Weighted average number of common shares outstanding Basic 257,353,423 234,798,277 Diluted 278,544,310 234,798,277 The accompanying notes are an integral part of these consolidated financial statements. F-4 CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (DEFICIT) (in thousands) Series A Convertible Preferred Stock Common Stock Additional Accumulated Total Stockholders' Shares Par value Shares Par value Paid-in Capital Deficit Equity (Deficit) Balance at January 1, 2024 128 $ - 228,535 $ 229 $ 8,204 $ ( 8,540 ) $ ( 107 ) Issuance of common shares for cash - - 19,750 19 1,561 - 1,580 Issuance of common shares from debt redemption - - 7,500 8 668 - 676 Conversion of Series A convertible preferred stock ( 5 ) - 1,185 1 ( 1 ) - - Forfeiture of restricted stock awards - - ( 209 ) - ( 2 ) - ( 2 ) Stock compensation - - 525 - 232 - 232 Net loss - - - - - ( 4,159 ) ( 4,159 ) Balance at December 31, 2024 123 - 257,286 257 10,662 ( 12,699 ) ( 1,780 ) Conversion of Series A convertible preferred stock ( 29 ) - 6,551 7 ( 7 ) - - Warrants exercised for vendor credit - - 3,700 4 366 - 370 Stock compensation - - 3,200 3 187 - 190 Forfeiture of restricted stock awards - - ( 84 ) - ( 4 ) - ( 4 ) Issuance of warrant in connection with a settlement of accounts payable - - - - 148 - 148 Net income - - - - - 4,499 4,499 Balance at December 31, 2025 94 $ - 270,653 $ 271 $ 11,352 $ ( 8,200 ) $ 3,423 The accompanying notes are an integral part of these consolidated financial statements. F-5 CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) For the years ended December 31, 2025 2024 Cash Flows from Operating Activities: Net income (loss) $ 4,499 $ ( 4,159 ) Less: income (loss) from discontinued operations, net of tax 181 ( 156 ) Net income (loss) from continuing operations 4,318 ( 4,003 ) Reconciliation of net loss to net cash used in operating activities: Allowance for doubtful accounts 17 75 Depreciation and amortization 39 102 Accretion of debt discount 465 352 Change in fair value of derivative liabilities - ( 79 ) Debt extinguishment loss 50 75 Amortization of operating lease right-of-use asset 145 353 Stock based compensation 186 230 Gain on sale of intellectual property ( 7,500 ) - Subtotal of non-cash charges ( 6,598 ) 1,108 Changes in operating assets and liabilities: Accounts receivable ( 126 ) ( 88 ) Inventories ( 4,588 ) 760 Prepaid expenses and other current assets ( 1,453 ) 192 Other assets ( 27 ) - Accounts payable and accrued expenses 2,290 436 Deferred revenue 13 ( 32 ) Lease liabilities ( 143 ) ( 355 ) Net cash used in operating activities - continuing operations ( 6,314 ) ( 1,982 ) Net cash provided by operating activities - discontinued operations 536 361 Net cash used in operating activities ( 5,778 ) ( 1,621 ) Cash Flows from Investing Activities: Proceeds from sale of intellectual property 7,500 - Purchase of property, plant and equipment ( 23 ) - Net cash provided by investing activities 7,477 - Cash Flows from Financing Activities: Proceeds from issuance of common shares - 1,580 Proceeds from issuance of notes payable 546 742 Proceeds from issuance of notes payable to related party 2,100 500 Repayment of notes payable ( 1,924 ) ( 1,272 ) Repayment of notes payable to related party ( 1,312 ) ( 85 ) Net cash (used in) provided by financing activities ( 590 ) 1,465 Net increase (decrease) in cash 1,109 ( 156 ) Cash, beginning of the year 211 367 Cash, end of the year $ 1,320 $ 211 Supplemental disclosure of cash flow information Cash paid for interest $ 9 $ 61 Cash paid for interest to related party $ 277 $ 146 Cash paid for income taxes $ - $ - Supplemental disclosure of cash flow information Conversion of Series A convertible preferred stock $ 7 $ 1 Exchange accounts payable with a note payable $ 495 $ - Issuance of common shares from debt redemption $ - $ 676 Warrants exercised for vendor credit $ 370 $ - Right-of-use asset recognized in exchange for lease liability $ 706 $ - The accompanying notes are an integral part of these consolidated financial statements. F-6 CHARLIE ’ S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION Description of the Business Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries (collectively, the “ Company ”, “ we ”), currently formulates, markets and distributes premium, non-combustible nicotine-related products and alternative alkaloid vapor products. The Company’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States, and in select international markets. 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. The Company's Common Stock, par value $ 0.001 per share (the " Common Stock "), trades under the symbol "CHUC" on the OTCQB Venture Market. Basis of Presentation The consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“ GAAP ”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “ SEC ”). On October 7, 2025, the Company’s Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division, the Company’s variable interest entity. On December 31, 2025, Don Polly entered into a Bill of Sale And Assignment Agreement (the “ Assignment Agreement ” ) with Charlie’s. Pursuant to the Assignment Agreement, Don Polly transferred ownership of all of its right, title, and interest in, as well as custody and control of, its assets to Charlie’s. The results of operations of Don Polly are reported as discontinued operations for the years ended December 31, 2025 and 2024. See Note 7 for additional information. Certain reclassifications have been made to the prior period financial information to reflect discontinued operations presentation. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations. Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management ’ s Plan of Operation Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended December 31, 2025, the Company’s revenue increased, the Company incurred a loss from operations of approximately $2,165,000, and a net income from continuing operations of approximately $4,318,000. Net cash used in continuing operating activities was approximately $6,314,000. The Company had a stockholders’ equity of $3,423,000 at December 31, 2025. During the year ended December 31, 2025, the Company’s working capital was increased to $3,137,000 from a deficit of $1,855,000 as of December 31, 2024. Management evaluated whether these conditions could raise a substantial doubt about the Company’s ability to continue as a going concern. During the year ended December 31, 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) and subsequent amendment with one of the world’s largest tobacco companies (the “ Buyer ”) pursuant to which the Buyer purchased 16 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, and an additional $1.0 million paid at closings in August 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. The proceeds from these transactions have significantly improved the Company’s liquidity position, reduced outstanding obligations, and strengthened working capital. In addition, management has implemented and continues to execute on initiatives designed to enhance operating performance and liquidity, including (i) focusing on growth in the Company’s non-combustible, alternative alkaloid (non-nicotine) products, (ii) advancing regulatory approval efforts for the Company’s nicotine product portfolio, and (iii) the continued development of intellectual property related to product access and compliance. The Company is also pursuing additional strategic transactions, including potential PMTA-related asset sales, which may provide incremental liquidity. Based on these factors, management believes the Company is adequately capitalized to support its operations and meet its obligations as they come due for at least the next twelve months. F-7 Risks and Uncertainties The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in September 2022, the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive levels. The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating nicotine, flavored e-cigarette liquid and other electronic nicotine delivery system (“ ENDS ”) products, could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution. Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company may sell its products. In the event the prevalence of such bans and/or changes in laws and regulations increase across the United States, or internationally, the Company’s business, results of operations and financial condition could be adversely impacted. In addition, the Company is presently seeking to obtain marketing authorization for certain of its tobacco-derived nicotine e-liquid products. The Company’s applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States. Beginning in August 2021, the FDA began issuing Marketing Denial Orders (“ MDO ”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health. The Company has not received an MDO for any of its 2020 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. On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. 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. On October 28, 2025, the Company received an MDO from the FDA with respect to certain of our timely-submitted PMTAs. On November 5, 2025, the Company filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted the Company’s opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. Though a very small percentage of our current sales are related to our affected PMTA Products, we intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation, and we plan to vigorously defend our PMTAs and pursue all available legal remedies. The FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our other pending applications at any time. More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA’s priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry. In the event the FDA denies our PMTAs, absent a court-ordered stay, 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. § 321(rr). 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 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. market. If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization. More generally, FDA’s regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA’s priorities and/or potential jurisdiction over our products will prompt the Agency to attempt to require us to remove our products from the market and to cease selling them. F-8 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation The consolidated financial statements include the accounts of the Company and its 100 % wholly owned subsidiary, Charlie’s Chalk Dust, LLC. All inter-company balances and transactions have been eliminated in consolidation. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Fair Value of Financial Instruments U.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. The fair value of derivative liabilities was estimated using a Monte Carlo simulation method, based on both observable and unobservable inputs. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. The Company determined that the carrying amounts of the current portion of outstanding notes payable approximate fair value due to the short-term nature of borrowings and current market interest rates. The Company determined the carrying amounts of the non-current portion of outstanding notes payable approximate fair value due to the current interest rates payable in relation to current market conditions. Revenue Recognition The Company recognizes revenues in accordance with Accounting Standards Codification (“ ASC ”) 606 – Contracts with Customers. Revenues are generated from contracts with customers that consist of sales to retailers and distributors. Contracts with customers are generally short term in nature with the delivery of product as a single performance obligation. Revenue from the sale of product is recognized at the point in time when the single performance obligation has been satisfied and control of the product has transferred to the customer. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, the right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are received by customers. Shipping generally occurs prior to the transfer of control to the customer and is therefore accounted for as a fulfillment expense. In circumstances where shipping and handling activities occur after the customer has obtained control of the product, the Company has elected to account for shipping and handling activities as a fulfillment cost rather than an additional promised service. Contract durations are generally less than one year and, therefore, costs paid to obtain contracts, which generally consist of sales commissions, are recognized as expenses in the period incurred. Revenue is measured by the transaction price, which is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers, volume rebates and promotional discounts on current orders. Our volume rebates are short-term in nature and reset on a quarterly basis. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very short-term durations. Amounts billed and due from customers are short term in nature and are classified as receivables since payments are unconditional and only the passage of time related to credit terms is required before payments are due. The Company does not grant payment financing terms greater than one year. Payments received in advance of revenue recognition are recorded as deferred revenue. Cash and Cash Equivalents The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents. Accounts Receivable Accounts receivable are recorded at the invoiced amount and do not bear interest. We determine the credit losses by regularly evaluating historical customer information and individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and establish an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2025 and 2024, the allowance for bad debt totaled $ 105,000 and $ 88,000 , respectively. F-9 Inventories Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2025 and 2024, the reserve for excess and obsolete inventories totaled $ 514,000 and $ 531,000 , respectively. Plant, Property and Equipment Property and equipment are stated at cost. Depreciation and amortization are provided for using the straight-line method, in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives. Repairs and maintenance costs are charged to operations as incurred. Costs for capital assets not yet placed into service are capitalized as construction in progress on the consolidated balance sheets and will be depreciated once placed into service. The Company assesses its long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected undiscounted net future cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets. Leases The Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement contains a lease at contract inception. Operating leases with a duration greater than one year are included in right-of-use assets, lease liabilities, and lease liabilities, net of current portion in the Company’s consolidated balance sheets. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset. The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred. Stock-Based Compensation The Company accounts for all stock-based compensation using a fair value-based method. The fair value of equity-classified awards granted to employees is estimated on the date of the grant using the Black-Scholes option-pricing model and the related stock-based compensation expense is recognized over the vesting period during which an employee is required to provide service in exchange for the award. Income Taxes Income taxes are computed under the asset and liability method. This method requires the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. A valuation allowance is recorded when it is more likely than not that some, or all of the deferred tax assets will not be realized. F-10 Financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that meets the more-likely-than-not threshold of being realized upon ultimate settlement with a taxing authority. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense. Research and Development We expense the cost of research and development as incurred. Research and development expenses include costs incurred in funding research and development activities, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made. Segments The Company’s chief operating decision maker ( "CODM" ) is the President. The CODM is the highest level of management responsible for assessing the Company’s overall performance, and making operational decisions such as resource allocations related to operations, product prioritization and delegations of authority. The CODM has determined that the Company operates in a single operating and reportable segment and manages segment profit (loss) based upon consolidated net income (loss). The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. Discontinued Operations The Company evaluates all disposal transactions to determine whether such disposal qualifies for reporting as discontinued operations in accordance with ASC Topic 205-20, “ Discontinued Operations .” A disposal of a component or a group of components is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to be classified as held for sale; (2) the component or group of components is disposed of by sale; or (3) the component or group of components is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spin-off). For any component classified as held for sale or disposed of by sale or other than by sale, qualifying for presentation as a discontinued operation, the Company reports the results of operations of the discontinued operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for sale of a discontinued operation), less applicable income taxes (benefit), as a separate component in the consolidated statement of operations for all prior periods presented. The Company also reports assets and liabilities associated with discontinued operations as separate line items on the consolidated balance sheet for prior periods. Recently Adopted Accounting Standards Improvements to Income Tax Disclosures In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. 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 consolidated financial statements. Scope Applications of Profits Interests and Similar Awards In March 2024, the FASB issued ASU No. 2024-01, “Compensation-Stock Compensation (Topic 718): Scope Applications of Profits Interests and Similar Awards” (ASU 2024-01). ASU 2024-01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S. GAAP. ASU 2024-01 is effective for annual periods beginning after December 15, 2024, although early adoption is permitted. The Company adopted this standard as of January 1, 2025. The adoption of ASU 2024-01 has no material impact on the Company’s consolidated financial statements. F-11 Recently Issued Accounting Standards Not Yet Adopted Interim Reporting In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270). The ASU improves the navigability of the required interim disclosures and clarifies when the guidance is applicable, as well as provides additional guidance on what disclosures should be provided in interim reporting periods. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods beginning after December 15, 2028. The Company is currently evaluating the impact of the new standard on its consolidated financial statements which is not expected to have a material impact. Accounting for Government Grants Received by Business Entities In December 2025, the FASB issued ASU 2025-10, Accounting for Government Grants Received by Business Entities . This ASU establishes the accounting and presentation for government grants received by a business entity under Government Grants (Topic 832). This ASU is effective for fiscal years beginning after December 15, 2028 and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures. Intangibles - Goodwill and Other - Internal-Use Software In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (“ASU 2025-06”), which amends the guidance for accounting for software costs to reflect current software development practices, including iterative and agile methodologies, by removing references to development stages. It also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed, and the software will be used to perform the function intended. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The amendments may be applied either prospectively, retrospectively, or utilizing a modified transition approach. The Company is currently assessing the impact of ASU 2025-06 on its consolidated financial statements and disclosures. 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. F-12 NOTE 3 – FAIR VALUE MEASUREMENTS In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below: Level 1 – Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date Level 2 – Quoted prices in markets that are not active or inputs which are either directly or indirectly observable Level 3 – Unobservable inputs for the instrument requiring the development of assumptions by the Company 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 December 31, 2025 and December 31, 2024, the Company did not have any Level 1, 2 or 3 assets, liabilities or debt instrument at fair value measured on a recurring basis. F-13 NOTE 4 – INVENTORY The components of inventory as of December 31, 2025 and 2024 are summarized as follows: December 31, December 31, 2025 2024 Finished goods 4,073 2,192 Raw materials 494 402 Overhead allocation 19 22 Inventory in transit 2,016 46 Less: inventory reserves ( 514 ) ( 531 ) Total $ 6,719 $ 2,131 NOTE 5 – PROPERTY AND EQUIPMENT Property and Equipment detail as of December 31, 2025 and 2024 are as follows (amounts in thousands): December 31, December 31, 2025 2024 Estimated Useful Life Machinery and equipment $ 41 $ 41 5 years Trade show booth 202 202 5 years Office equipment 550 539 5 years Leasehold improvements 266 254 Lesser of lease term or estimated useful life 1,059 1,036 Accumulated depreciation ( 1,022 ) ( 983 ) $ 37 $ 53 Depreciation and amortization expense totaled $ 39,000 and $ 104,000 , respectively, during the years ended December 31, 2025 and 2024. NOTE 6 – CONCENTRATIONS Vendors The Company’s concentration of purchases are as follows: For the years ended December 31, 2025 2024 Vendor A 9 % 35 % Vendor B 3 % 13 % Vendor C 64 % 10 % During the year ended December 31, 2025, purchases from three vendors represented 76 % of total inventory purchases. During the year ended December 31, 2024, purchases from two vendors represented 58 % of total inventory purchases As of December 31, 2025 and 2024, amounts owed to these vendors totaled $ 2,229,000 and $ 266,000 respectively, which are included in accounts payable in the accompanying condensed consolidated balance sheets. F-14 Accounts Receivable The Company’s concentration of accounts receivable are as follows: For the years ended December 31, 2025 2024 Customer A - $ 125,000 31 % Customer B $ 100,000 17 % $ 52,000 13 % Customer C - - % 85,000 21 % Customer D 89,000 14 % - - % Customer E - - % 66,000 16 % Customer F $ 100,000 16 % - - % Customer G $ 65,000 10 % - - % Four customers made up more than 10% of net accounts receivable at December 31, 2025, and four customers made up more than 10% of net accounts receivable as of December 31, 2024. For the year ended December 31, 2025, one customer accounted for approximately 17 %, of the Company’s total net sales. For the year ended December 31, 2024, no customers exceeded 10% of total net sales NOTE 7 – DISCONTINUED OPERATIONS - 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 markets and distributes third-party product lines. On December 31, 2025, Don Polly entered into the Assignment Agreement, pursuant to which Don Polly transferred ownership of all of its right, title, and interest in, as well as custody and control of, its assets to Charlie’s. The Company received no cash consideration related to the assignment. The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of Don Polly in the consolidated balance sheet as of December 31, 2024 (amount in thousands): December 31, 2024 Accounts receivable, net $ 33 Inventory, net 536 Prepaid expenses and other current assets 12 Total current assets in discontinued operations 582 Total assets in discontinued operations $ 582 Accounts payable $ 154 Deferred revenue 73 Total current liabilities in discontinued operations 227 Note payable 150 Total non-current liabilities in discontinued operations 150 Total liabilities in discontinued operations $ 377 F-15 The following information presents the major classes of line items constituting the loss from discontinued operations of Don Polly in the consolidated statements of operations for the years ended December 31, 2025 and 2024 (amount in thousands): For the Years Ended December 31, 2025 2024 Product revenue, net $ 3,120 $ 729 Cost of goods sold - product revenue 2,557 715 Gross profit 563 14 Operating expenses: General and administrative 199 107 Sales and marketing 166 55 Research and development 3 - Total operating expenses 368 162 Loss from operations 195 ( 148 ) Interest expense ( 5 ) ( 8 ) Loss from discontinued operations, before income tax 190 ( 156 ) Income tax provision ( 9 ) - Income (loss) from discontinued operations, net of tax $ 181 $ ( 156 ) NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses as of December 31, 2025 and 2024 are as follows (amounts in thousands): December 31, December 31, 2025 2024 Accounts payable $ 3,285 $ 2,104 Accrued compensation 800 555 Accrued income taxes 413 128 Customer deposits 182 86 Other accrued expenses 357 369 $ 5,037 $ 3,242 F-16 NOTE 9 – NOTES PAYABLE 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. The Loan was fully repaid in April 2025. 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 September 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. On September 24, 2025, the Vendor exercised the Warrants entirely. The Vendor issued the Company a $ 370,000 vendor credit as the purchase price consideration for the warrant exercise. The Company recognized the $ 370,000 vendor credit in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2025. 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 year ended December 31, 2025. As part of the closing of the Asset Purchase Agreement on April 16, 2025, the Buyer 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 purchased from the Company its future accounts receivable and contracted rights arising from the sale of goods or services to the Company’s customers. The purchase price, as defined by the Pinnacle Receivables Financing Agreement, was $ 750,000 which was paid to the Company on September 12, 2024, net of a 1 % origination fee. The Pinnacle Receivables Financing Agreement required 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. 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 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 was to 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 in a debt extinguishment loss of approximately $ 126,000 during the year ended December 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 , which was recognized as a gain from debt extinguishment. January 2024 Note Financing On January 24, 2024, the Company issued an unsecured promissory note (the “ Red Beard Note ”) to one of its largest stockholders Red Beard Holdings LLC (the “ Red Beard Lender "), in the principal amount of $ 500,000 . Red Beard Note shall bear interest at twenty-one percent ( 21 %) per annum and have maturity through July 24, 2024. On May 31, 2024, as part of the May 2024 capital raise (see Note 11), the holder of the Red Beard Note (the “ Holder ”) converted the principal amount of $ 500,000 in lieu of cash payment for the subscription agreement. Separately, the Holder was paid $ 52,500 in interest on the maturity date of July 24, 2024. F-17 July 2023 Note Financing Between July 17, 2023 and August 1, 2023, the Company issued unsecured promissory notes (the “ Notes ”) to several of its executives and employees, Ryan Stump, Henry Sicignano III, Keith Stump, and Jessica Greenwald, and to three of its largest stockholders, Brandon Stump, Red Beard Holdings LLC, and Michael King (the “ Lenders "), in the cumulative principal amount of $ 1,400,000 . Notes shall bear interest at twenty-one percent ( 21 %) per annum and have maturity dates ranging from November 17, 2023 to December 10, 2023. 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 December 31, 2024, $ 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 December 31, 2024. On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $ 75,000 of accrued interest and have agreed to modify the Notes to include a 10 % interest rate, with monthly payments of principal and interest of approximately $ 18,000 . The maturity date has been extended to April 28, 2026. As of December 31, 2025, approximately $ 138,000 of the Notes remained outstanding. Secured Promissory Notes On April 6, 2022, the Company issued a secured promissory note (the “ Note ”) to one of its large individual stockholders, Michael King (the “ Lender "), in the principal amount of $ 1,000,000 , which Note was secured by accounts receivable of the Company pursuant to the terms of a Security Agreement entered into by and between the Company and the Lender (the " Note Financing "). On September 28, 2022, the Company and the Lender entered into a modification to the Note to extend the maturity date to March 28, 2023 and the Company paid all accrued interest under the Note through such date. On March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to 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 was to be paid 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 would be paid. Interest would accrue on the aggregate outstanding principal amount at a rate equal to 20 % simple interest per annum and would be payable on the same day as the installments of principal are payable. The Company could 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 were due the earlier of March 28, 2025, or upon a liquidity event. 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, the Lender converted his next four debt repayments for the period from June to September 2024, for a total amount of $ 100,000 , in lieu of cash payment for the subscription agreement. On April 28, 2025 the Lender agreed to accept a payment of approximately $ 420,000 and entered into a further modification for the remaining balance that includes monthly payments of approximately $ 37,000 and a maturity date of April 28, 2026. As of September 30, 2025, approximately $ 243,000 of the Note remained outstanding. On August 6, 2025, the Company issued an additional secured promissory note (the “ August Note ”) to the Lender in the principal amount of $ 2,000,000 , which is secured by accounts receivable of the Company pursuant to the terms in the same Note Financing. The August Note bears an annual interest rate of 13 % and has a term of one year. August 2022 Note Financing – Related Party On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the " Stump Lender ") entered into a loan agreement (the “ Loan ”) in the principal amount of $ 300,000 . The Loan was due in full in 120 days or sooner if, before the end of term, the Company secured (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan bore 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 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 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 nineth 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 On June 24, 2020, SBA authorized (under Section 7(b) of the Small Business Act, as amended) an Economic Injury Disaster Loan (“ EID Loan ”) to Don Polly in the amount of $ 150,000 . 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. F-18 The following summarizes the Company’s notes payable maturities as of December 31, 2025 ( amounts in thousands): Year Ending December 31, 2026 2,280 Year Ending December 31, 2027 - Year Ending December 31, 2028 - Year Ending December 31, 2029 - Year Ending December 31, 2030 - Thereafter 150 Total $ 2,430 NOTE 10 – LOSS PER SHARE BASIC AND FULLY DILUTED 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 is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net loss per share (in thousands): For the years ended December 31, 2025 2024 Income (loss) from continuing operations after income taxes $ 4,318 $ ( 4,003 ) Income (loss) from discontinued operations, net of tax 181 ( 156 ) Net income (loss) - basic and diluted $ 4,499 $ ( 4,159 ) Weighted average shares outstanding - basic 257,353,423 234,798,277 Diluted preferred shares 21,190,885 - Weighted average shares outstanding - diluted 278,544,310 234,798,277 Net earnings (loss) per share: Income (loss) from continuing operations, basic $ 0.02 $ ( 0.02 ) Income (loss) from discontinued operations, basic $ 0.00 $ 0.00 Net earnings (loss) per share, basic $ 0.02 $ ( 0.02 ) Net earnings (loss) per share: Income (loss) from continuing operations, diluted $ 0.02 $ ( 0.02 ) Income (loss) from discontinued operations, diluted $ 0.00 $ 0.00 Net earnings (loss) per share, diluted $ 0.02 $ ( 0.02 ) F-19 The following securities were not included in the diluted loss per share calculation because their effect was anti-dilutive as of the periods presented (amounts in thousands):​ For the years ended December 31, 2025 2024 Options 4,408 4,648 Series A convertible preferred shares - 27,741 Total 4,408 32,389 All common stock options outstanding as of December 31, 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 For the year ended December 31, 2023, the Company issued approximately 1,183,000 shares of Common Stock upon conversion of 29,027 shares of Series A Preferred. Common Stock Warrants On January 7, 2025, the Company issued 3,700,000 warrants (the “Warrants”) along with a promissory note to a third-party vendor (the “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. On September 24, 2025, the Vendor exercised the Warrants entirely. The Vendor issued the Company a $ 370,000 vendor credit as the purchase price consideration for the warrant exercise. The Company recognized the $ 370,000 vendor credit in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2025. 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 $ 0.10 Contractual term (years) 2.98 Volatility (annual) 131.5 % Risk-free rate 4.3 % Dividend yield (per share) 0 % November 2024 Capital Raise On November 22, 2024, the Company entered into subscription agreements with investors for the sale of an aggregate of 6,875,000 shares of its common stock, par value $ 0.001 per share, at a purchase price per share of $ 0.08 (the “ November Offering ”). The Offering generated gross proceeds to the Company of approximately $ 550,000 , which will be used for working capital purposes. The November Offering was undertaken in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering. May 2024 Capital Raise On May 31, 2024, the Company entered into subscription agreements with investors for the sale of an aggregate of 20,375,000 shares of its common stock, par value $ 0.001 per share, at a purchase price per share of $ 0.08 (the “ May Offering ”). The May Offering generated gross proceeds of approximately $ 1.63 million, which will be used for working capital purposes. The May Offering was undertaken in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering. 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 9). The Company recognized a $ 75,000 debt extinguishment loss for the year ended December 31, 2024. NOTE 12 – STOCK-BASED COMPENSATION On May 8, 2019, our Board of Directors approved the Charlie’s Holdings, Inc. 2019 Omnibus Incentive Plan (the “ 2019 Plan ”), and the 2019 Plan was subsequently approved by holders of a majority of our outstanding voting securities on the same date. Up to 11,072,542 stock options were originally grantable under the 2019 Plan. On December 22, 2021, our Board of Directors unanimously adopted resolutions by written consent approving an amendment to increase the number of shares of Common Stock available for issuance under the 2019 Plan by 15,000,000 shares, from 11,072,542 to 26,072,542 shares (the “ 2019 Plan Amendment ”). Furthermore, the Company received written consents approving the 2019 Plan Amendment from holders of approximately 50.3 % of our outstanding voting securities. In accordance with Rule 14c of the Exchange Act, our Board of Directors’ authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders. F-20 Non-Qualified Stock Options The following table summarizes stock option activities during the year ended December 31, 2025 and 2024 (all option amounts are in thousands): Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at January 1, 2024 5,272 $ 0.58 5.3 $ - Options forfeited/expired ( 624 ) 1.44 - - Outstanding at December 31, 2024 4,648 0.46 4.8 $ - Options forfeited/expired ( 240 ) 0.44 - - Outstanding at December 31, 2025 4,408 $ 0.46 3.8 $ - Options vested and exercisable at December 31, 2025 4,408 $ 0.46 3.8 $ - As of December 31, 2025, all stock options were fully vested and no stock-based compensation expense related to the issuance of stock options was recognized. Restricted Stock Awards The following table summarizes restricted stock awards activities during the years ended December 31, 2025 and 2024 (all share amounts are in thousands). Number of Shares Weighted Average Grant Date Fair Value per Share Nonvested at January 1, 2024 10,095 0.055 Restricted stock granted 525 0.041 Vested ( 4,781 ) - Forfeited ( 209 ) - Nonvested at December 31, 2024 5,630 $ 0.054 Restricted stock granted 3,200 0.027 Vested ( 4,055 ) - Forfeited ( 83 ) - Nonvested at December 31, 2025 4,692 $ 0.054 During the years ended December 31, 2025 and 2024, the Company granted 3,200,000 and 525,000 restricted stock awards (“ RSAs ”) to employees and contractors of the Company pursuant to the 2019 Plan, as amended, respectively. 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 for the years ended December 31, 2025 and 2024 was approximately $ 126,000 and $ 77,000 , respectively. During the years ended December 31, 2025 and 2024, approximately 83,000 and 209,000 RSAs issued to employees were forfeited, respectively. F-21 As of December 31, 2025, there was approximately $ 101,000 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 2.6 years. The Company recorded total stock-based compensation of approximately $ 187,000 and $ 230,000 during the years ended December 31, 2025 and 2024 related to the RSAs, respectively. NOTE 13 – SEGMENT AND GEOGRAPHICAL INFORMATION In November 2023, the Financial Accounting Standards Board, or FASB, issued ASU 2023-07, Segment Reporting: Improvements in Reportable Segment Disclosures (“ASU No. 2023-07”). The amendments in the ASU are expected to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 requires public companies to disclose, on an annual and interim basis, significant expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments in the ASU require that a public company provide all annual disclosures about a reportable segment’s profit or loss and assets currently required under ASC 280 in interim periods. The amendments in the ASU also require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss. The amendments in the ASU, among other items, also requires that a public company disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The Company adopted ASU 2023-07 effective with the 2024 10-K and the adoption only impacted its disclosures with no impacts to the Company's results of operations, cash flows, or financial condition. The Company's CODM is its President. The CODM has determined that the Company operates in a single operating and reportable segment and manages segment performance and resource allocation based upon consolidated net income (loss). The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. Significant expenses reviewed by the CODM include those that are presented in the Consolidated Statements of Operations and Comprehensive Income (Loss). The following table disaggregates revenue from our single operating segment by geographic market and customer type for the periods ending December 31, 2025 and 2024, respectively: December 31, 2025 December 31, 2024 Geographic Market International $ 920 $ 620 United States $ 19,995 $ 7,145 Total $ 20,916 $ 7,765 Customer Type Retailer $ 2,112 $ 1,942 Distribution $ 18,804 $ 5,823 Total $ 20,916 $ 7,765 F-22 NOTE 14 - COMMITMENTS AND CONTINGENCIES Leases The Company leases office space under agreements classified as operating leases that expire on various dates through 2028. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expired on September 30, 2024, and effective October 1, 2024, the lease will be on a month-to-month basis, and its warehouse in Huntington Beach, California, which was renewed in August 2025 and expires May 2028. On April 29, 2022, the Company entered into a commercial lease agreement for the Company’s sales and marketing operations in Williamsville, New York (“ Williamsville Lease ”) with Henry Sicignano Jr., a relative of the Company’s President, Henry Sicignano III. The Williamsville Lease, which became effective on May 1, 2022, had a term of one year and a base rent of $ 1,650 per month. The Williamsville Lease has been subsequently extended for additional one -year periods, with the same terms. The Williamsville Lease is considered a modified gross lease and therefore the Company is also responsible for additional monthly expenses including gas, electricity, and internet. The Williamsville Lease was evaluated and approved by the Company’s Board of Directors. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not act as a lessor or have any leases classified as financing leases. The Company excludes short-term leases having initial terms of 12 months or less from ASC Topic 842, “ Leases ”, as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company entered into a commercial lease for the Company’s corporate headquarters (the “ Lease ”) in Costa Mesa, California with Brandon Stump, the Company’s former Chief Executive Officer, Ryan Stump, the Company’s Chief Operating Officer, and Keith Stump, a former member of the Company’s Board of Directors. The Stumps purchased the property that is the subject of the Lease in July 2019. The Lease, which was effective as of September 1, 2019, on a month-to-month basis, was then formalized on November 1, 2019 to have a term of five years and a base rent rate of $ 22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease. 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. Effective October 1, 2024, the lease was on a month-to-month basis. The total rent paid to related parties for the years ended December 31, 2025 and 2024 was approximately $ 275,000 and $ 275,000 , respectively. Effective June 2, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025. On August 12, 2025, the Company renewed this lease for an additional three years commencing on September 1, 2025 and ending August 31, 2028. The renewal resulted in an additional $ 583,000 in right-of-use assets and $ 583,000 in lease liabilities. In September 2025, the Company entered into a lease agreement commencing on October 1, 2025 (the “ October Lease ”), pursuant to which the Company leases certain premises located at 15902-06 Manufacture Lane, Huntington Beach, CA for purposes of filling and assembling certain of its nicotine and alternative alkaloid vapor products. The October Lease has a term of 1.5 years concluding March 31, 2027. The Company recognized $ 123,000 in right-of-use assets and $ 123,000 in lease liabilities on the consolidated balance sheet as of the commencement date. At December 31, 2025, the Company had operating lease liabilities of approximately $ 636,000 and right of use assets of approximately $ 632,000 which were included in the consolidated balance sheet. F-23 The following summarizes quantitative information about the Company’s operating leases (amounts in thousands): For the years ended December 31, 2025 2024 Operating leases Operating lease cost $ 173 $ 382 Variable lease cost - - Operating lease expense 173 382 Short-term lease rent expense 340 772 Total rent expense $ 513 $ 1,154 For the years ended December 31, 2025 2024 Right of use assets exchanged for new operating lease liabilities $ 706 $ - Operating cash flows from operating leases $ 171 $ 385 Weighted-average remaining lease term – operating leases (in years) 2.23 0.42 Weighted-average discount rate – operating leases 12.0 % 12.0 % Maturities of our operating leases, excluding short-term leases, are as follows (amounts in thousands): Year ended December 31, 2026 316 Year ended December 31, 2027 259 Year ended December 31, 2028 163 Total 738 Less present value discount ( 103 ) Operating lease liabilities as of December 31, 2025 $ 636 Legal proceedings As of the date hereof, the Company is not a party to any material legal or administrative proceedings. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. New Executive Employment Agreement On June 15, 2023, the Company entered into a new employment agreement with Ryan Stump (the “ New Agreement ”). Pursuant to the New Agreement, Mr. Stump will earn a base salary of $ 300,000 per year and serve as Chief Operating Officer for a term of two years, renewable on an annual basis unless earlier terminated by the Company or Mr. Stump. In the event that Mr. Stump is terminated by the Company without Cause (as defined therein) or for Good Reason (as defined therein), he will be entitled to receive his base salary and benefits for a period of one year. In the event of a change in control, all unvested equity awards will immediately vest. Mr. Stump has elected to reduce his current compensation to the rate of $ 225,000 annually. As a point of reference, all the Company’s other executives have also elected to reduce their current compensation. It is anticipated that, when financial circumstances permit, executive base salaries will revert to their previous levels. F-24 NOTE 15- INCOME TAXES The Company is taxed as a C corporation and files a consolidated return with Charlie's Holdings, Inc. This tax footnote also includes the tax impact of the Company's VIE, Don Polly LLC, which is also taxed as a C corporation, but which files a separate return from Charlie's Holdings, Inc. The table below presents the components of the (benefit) for income taxes. The Company's (benefit) is driven primarily by operating income, nontaxable derivative fair value adjustments, and state taxes (in thousands). As of December 31, 2025 2024 Current US Federal $ 33 $ - US State 242 - Total current provision 275 - Deferred US Federal - - US State - - Total deferred provision - - Total provision for income taxes $ 275 $ - The tax effects of temporary differences and tax loss carryovers that give rise to significant portions of deferred tax assets and liabilities at December 31, 2025 and 2024 are comprised of the following (in thousands): As of December 31, 2025 2024 Deferred tax assets: Bad debt $ 25 $ 27 Inventory 55 271 Accrued expenses 189 188 Lease liability 141 19 Research and development credits 92 141 Stock compensation 176 149 Net operating loss carryovers 1,718 3,107 Capitalized R&D - 155 Other - 3 Derivatives - - Depreciation 28 24 Gross deferred income tax assets 2,427 4,084 Deferred income tax liabilities: ROU assets ( 140 ) ( 19 ) Total deferred income tax liabilities 2,287 4,065 Net deferred income tax assets Valuation allowance ( 2,287 ) ( 4,065 ) Deferred tax asset, net of allowance $ - $ - The Company recognizes federal and state deferred tax assets or liabilities based on the Company's estimate of future tax effects attributable to temporary differences and carryovers. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. As of December 31, 2025, as a result of a three-year cumulative loss and lack of sufficient positive evidence, we concluded that a full valuation allowance was necessary to offset our deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized. F-25 At December 31, 2025, the Company had Federal and state net operating loss carryovers for income tax purposes of approximately $ 5.2 million and $ 9.9 million, respectively. The Federal net operating losses can be carried forward indefinitely but are limited to offsetting only 80% of taxable income each year. The state net operating losses expire at various dates through 2043, if not utilized beforehand. At December 31, 2025, the Company had federal research and development credit carryovers of approximately $ 0.1 million. The federal research credits expire by 2040 if not utilized beforehand. The utilization of net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions, due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has not conducted an analysis of an ownership change under section 382. The Company experienced an ownership change in 2019. Absent an analysis, the Company has assumed that net operating losses generated prior to the change are not available to offset income subsequent to the ownership change date. To the extent that a study is completed, and certain pre-acquisition losses are deemed to be available to be utilized to offset taxable income, the Company's tax liabilities could be reduced. To the extent that a study is completed and additional or future ownership changes are deemed to occur, the Company's net operating losses and tax credits could be further limited. A reconciliation of the statutory income tax rates and the Company's effective tax rate for the years ended December 31, 2025 and 2024, are as follows (dollars in thousands): Year ended Year ended December 31, 2025 December 31, 2024 Statutory federal income tax rate $ 996 21.0 % $ ( 840 ) 21.0 % State taxes, net of federal tax benefit 191 4.0 %* - - %* Tax Credits Research credits ( 77 ) ( 1.6 )% - - % Nontaxable or Nondeductible Items Stock compensation 3 0.1 % 2 - % Other permanent items 8 0.2 % 5 ( 0.1 )% Other Adjustments 16 0.3 % ( 14 ) 0.3 % Change in valuation allowance ( 862 ) ( 18.2 )% 847 ( 21.2 )% Total $ 275 5.8 % $ - - % * The following state and local tax jurisdictions make up the majority of the effect of the state and local income tax line item: California. ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2025 and 2024 (in thousands): Year ended December 31, 2025 Year ended December 31, 2024 Gross unrecognized tax benefits at the beginning of the year $ 109 $ 109 Increases related to current year positions - - Increases related to prior year positions - - Decreases related to prior year positions - - Expiration of unrecognized tax benefits ( 77 ) - Gross unrecognized tax benefits at the end of the year $ 32 $ 109 The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by an equal corresponding adjustment in the deferred tax asset valuation allowance. The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months. F-26 The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2025 and 2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations. The Company’s tax years from 2022 and 2021 remain open for examination by the Federal and state taxing authorities, respectively. In addition, to the extent that the Company's tax attributes are utilized in future years to offset income or income taxes, those years which generated the tax attributes are open and subject to examination by the taxing authorities. The Company is not aware of any examinations that are currently taking place by federal or state taxing authorities. NOTE 16 - SUBSEQUENT EVENTS The Company has evaluated subsequent events for recognition and disclosure through the date these financial statements were issued, in accordance with ASC 855, Subsequent Events. Private Placement – February 13, 2026 On February 13, 2026, the Company completed a private placement of 3,550,000 shares of its common stock at a purchase price of $ 0.20 per share, resulting in aggregate consideration of $ 710,000 . Of the total consideration, $ 510,000 was received in cash and $ 200,000 was satisfied through the forgiveness of certain outstanding indebtedness owed by the Company. The issuance of shares increased the Company’s liquidity and reduced a portion of its outstanding debt obligations. Charlie’s management and directors purchased 1,350,000 shares of the 3,550,000 total shares that were sold, as follows: Michael King, Independent Director: 500,000 shares Dr. Ed Carmines, Independent Director: 250,000 shares Ryan Stump, Director and Chief Operating Officer: 250,000 shares Henry Sicignano, President: 250,000 shares Matthew Montesano, Chief Financial Officer: 100,000 shares Amended Promissory Note With Michael King On March 24, 2026, we entered into an amendment to the loan to extend the maturity date of the loan to June 1, 2027 with a balloon principal payment due on maturity with interest only paid monthly until maturity. F-27