What changed in this filing

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Item 1. Financial Statements

2026-05-20 compared with 2025-11-19 · 197 added, 616 removed, 299 unchanged (73% of the section changed)

3 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

Current assets:

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Accounts payable and accrued expenses

Notes payable, net

Notes payable - related parties

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Note payable, net of current portion

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

Lease liabilities, net of current portion

Total non-current liabilities

Total liabilities

COMMITMENTS AND CONTINGENCIES (see Note 12)

Stockholders' equity (deficit):

Stockholders' Equity:

Convertible preferred stock ($ 0.001 par value);

1 unchanged sentence

Series A, 300,000 shares designated;

94,278 and 122,930 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

93,903 and 93,903 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively

Series B, 1,500,000 shares designated;

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

0 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively

Common stock ($ 0.001 par value);

500,000,000 shares authorized;

270,568,616 and 257,286,631 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively

274,203,242 and 270,653,242 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders' equity (deficit)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Total stockholders' equity

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

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

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For the three months ended

For the nine months ended

September 30,

Product revenue, net

Cost of goods sold

Cost of goods sold - product revenue

Operating costs and expenses:

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Interest expense

Debt extinguishment gain (loss)

Change in fair value of derivative liabilities

Gain on sale of intellectual property

Total other income (loss)

Income (loss) before provision for income taxes

Debt extinguishment loss

Total other loss

Loss before provision for income taxes

Income tax provision

Net income (loss)

Loss from continuing operations after income taxes

Discontinued operations:

Income from discontinued operations, net of tax

Net earnings (loss) per share:

Loss from continuing operations, basic and diluted

Income from discontinued operations, basic and diluted

Net loss per share, basic and diluted

Weighted average number of common shares outstanding

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(in thousands)

For the Three Months Ended September 30, 2025

Convertible Preferred Stock

Total Stockholders'

Paid-in Capital

Equity (Deficit)

Balance at July 1, 2025

Conversion of Series A convertible preferred stock

Warrants exercised for vendor credit

Stock compensation

Forfeiture of restricted stock awards

Balance at September 30, 2025

For the Three Months Ended September 30, 2024

Convertible Preferred Stock

Total Stockholders'

Paid-in Capital

Balance at July 1, 2024

Forfeiture of restricted stock awards

Stock compensation

Balance at September 30, 2024

For the Nine Months Ended September 30, 2025

For the Three Months Ended March 31, 2026

Convertible Preferred Stock

1 unchanged sentence

Paid-in Capital

Equity (Deficit)

Balance at January 1, 2026

Conversion of Series A convertible preferred stock

Warrants exercised for vendor credit

Issuance of common stock for cash

Issuance of common stock in lieu of redemption of notes payable to related parties

Stock compensation

Forfeiture of restricted stock awards

Issuance of warrant in connection with a settlement of accounts payable

Balance at September 30, 2025

For the Nine Months Ended September 30, 2024

Balance at March 31, 2026

For the Three Months Ended March 31, 2025

Convertible Preferred Stock

2 unchanged sentences

Balance at January 1, 2025

Issuance of common shares for cash

Issuance of common shares from debt redemption

Conversion of Series A convertible preferred stock

Forfeiture of restricted stock awards

Stock compensation

Balance at September 30, 2024

Issuance of warrant in connection with a settlement of accounts payable

Balance at March 31, 2025

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

2 unchanged sentences

(in thousands)

For the nine months ended

September 30,

For the three months ended

Cash Flows from Operating Activities:

Net income (loss)

loss from discontinued operations, net of tax

Net loss from continuing operations

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

2 unchanged sentences

Accretion of debt discount

Change in fair value of derivative liabilities

Debt extinguishment loss

1 unchanged sentence

Stock based compensation

Gain on sale of intellectual property

Subtotal of non-cash charges

5 unchanged sentences

Lease liabilities

Net cash used in operating activities - continuing operations

Net cash provided by operating activities - discontinued operations

Net cash used in operating activities

Cash Flows from Investing Activities:

Proceeds from sale of intellectual property

Net cash provided by investing activities

Cash Flows from Financing Activities:

1 unchanged sentence

Proceeds from issuance of notes payable

Repayment of notes payable

Proceeds from issuance of notes payable to related party

Repayment of notes payable

Repayment of notes payable to related party

Net cash (used in) provided by financing activities

Net increase in cash

Net cash provided by financing activities

Net decrease in cash

Cash, beginning of the period

5 unchanged sentences

Conversion of Series A convertible preferred stock

Exchange accounts payable with a note payable and warrants

Issuance of common shares from debt redemption

Issuance of warrant for settlement of accounts payable

Warrants exercised for vendor credit

Right-of-use asset recognized in exchange for lease liability

Issuance of common stock in lieu of redemption of notes payable to related parties

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

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Description of the Business

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

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

In Q4 2025 the Company intends to begin manufacturing certain of its products in a Company operated facility located in the United States.

Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries (collectively, the “ Company ”, “ we ”), 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.

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

In October 2025, the Company’s Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division.

(See Subsequent Events.)

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

Substantial Doubt to Continue as a Going Concern

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 nine months ended September 30, 2025, the Company’s revenue increased, the Company generated loss from operations of approximately $ 2,042,000 , and a consolidated net income of approximately $ 4,368,000 .

Net cash used in operating activities was approximately $ 6,172,000 .

The Company had a stockholders’ equity of $ 3,239,000 at September 30, 2025.

During the nine months ended September 30, 2025, the Company’s working capital was increased to $ 3,079,000 from a deficit of $ 1,855,000 as of December 31, 2024.

Given these factors, there remains a substantial doubt about the Company’s ability to continue as a going concern.

During the nine months ended September 30, 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) and subsequent amendment with R.J.

Reynolds Vapor Company (the “ Buyer ”) pursuant to which the Buyer purchased 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.

Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management ’ s Plan of Operation

Our condensed 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 three months ended March 31, 2026, the Company’s revenue increased, the Company incurred a loss from operations of approximately $ 975,000 , and a net loss from continuing operations of approximately $ 1,050,000 .

Net cash used in continuing operating activities was approximately $ 1,105,000 .

The Company had a stockholders’ equity of $ 3,108,000 at March 31, 2026.

During the three months ended March 31, 2026, the Company’s working capital was increased to $ 4,843,000 from $ 3,137,000 as of December 31, 2025.

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.

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

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts.

The Company may require additional financing in the future to support the development of new product categories as well as general operations.

There can be no assurance that additional financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and, in the Company’s best interests.

The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations.

If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.

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.

Risks and Uncertainties

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Beginning in August 2021, the FDA began issuing Marketing Denial Orders (“ MDO ”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

The Company has not received an MDO for any of its 2020 submissions;

On April 1, 2026, the Company received an MDO from the FDA with respect to certain SKUs of our timely-submitted 2020 PMTAs.

On May 1, 2026, the Company filed a Petition for Review challenging the MDO with the U.S.

Court of Appeals for the Fifth Circuit.

On May 11, 2026 the Company moved to stay the MDO pending judicial review.

The Company anticipates the Court ruling on our opposed stay motion on or about the beginning of June 2026.

Though only a very small percentage of our current sales are related to these affected PMTA e-liquid products, we plan to vigorously defend our PMTA products on the merits while also continuing to amend our applications with the latest science.

Notably, the Company has not received an MDO for its 2020 “tobacco-flavor” PMTA submission;

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.

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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.

On December 24, 2025, a Fifth Circuit panel granted our motion to stay the MDOs pending judicial review.

As a result of the stay, the affected PMTAs revert to pending status and continue to be treated as timely filed (May 2022) while the case is litigated on the merits.

Accordingly, the subject products remain eligible, where permitted by state law, for listing on state vapor products directories (e.g.

Louisiana) that allow the sale of products associated with timely submitted synthetic nicotine PMTAs that are pending FDA's review, subject to satisfaction of all other applicable state requirements.

Though only a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs on the merits while also continuing to amend our applications with the latest science.

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

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The unaudited interim financial statements furnished in this document reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.

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 three months ended March 31, 2025.

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.

Use of Estimates

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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 quarterly condensed 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.

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 quarterly condensed consolidated financial statements.

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 adopted ASU 2024-04 effective January 1, 2026 on a prospective basis, as permitted by the standard.

The adoption of ASU 2024-04 did not have impact on the Company’s condensed consolidated financial statements.

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

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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 condensed consolidated financial statements and disclosures.

Induced Conversions of Convertible Debt Instruments

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.

The Company is currently assessing the impact of ASU 2025-06 on its consolidated financial statements and disclosures.

Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures

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

As of September 30, 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.

As of March 31, 2026 and December 31, 2025, the Company did not have any Level 1, 2 or 3 assets or liabilities measured on a recurring basis.

NOTE 4 – INVENTORY

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

September 30,

The components of inventory as of March 31, 2026 and December 31, 2025 are summarized as follows:

Finished goods

4 unchanged sentences

NOTE 5 – PROPERTY AND EQUIPMENT

Depreciation and amortization expense totaled $ 33,000 and $ 90,000 , respectively, during the nine months ended September 30, 2025 and 2024.

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

September 30,

Depreciation and amortization expense totaled $ 6,000 and $ 13,000 , respectively, during the three months ended March 31, 2026 and 2025.

Property and equipment as of March 31, 2026 and December 31, 2025, are as follows (dollar amounts in thousands):

Estimated Useful Life (in years)

Machinery and equipment

2 unchanged sentences

Leasehold improvements

Lesser of lease term or estimated useful life

Accumulated depreciation

2 unchanged sentences

For the three months

For the nine months

ended September 30,

During the three months ended September 30, 2025 and 2024, purchases from three vendors represented 79 % and four vendors represented 94 %, respectively, of total inventory purchases.

During the nine months ended September 30, 2025 and 2024, purchases from five vendors represented 77 % and 67 %, respectively, of total inventory purchases.

As of September 30, 2025, and December 31, 2024, amounts owed to these vendors totaled $ 1,210,000 and $ 539,000 respectively, which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

ended March 31,

During the three months ended March 31, 2026 and 2025, purchases from four vendors represented 82 % and four vendors represented 76 %, respectively, of total inventory purchases.

As of March 31, 2026, and December 31, 2025, amounts owed to these vendors totaled $ 2,065,000 and $ 2,229,000 respectively, which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Accounts Receivable

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

September 30, 2025

March 31, 2026

December 31, 2025

Four customers made up more than 36 % of net accounts receivable at September 30, 2025.

Three customers made up more than 71 % of net accounts receivable at March 31, 2026.

Four customers made up more than 57 % of net accounts receivable at December 31, 2025.

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

NOTE 7 – DON POLLY, LLC

For the three months ended March 31, 2026, two customers individually accounted for more than 10% of the Company's net revenues.

These customers represented approximately 17 % and 11 % of net revenues, respectively, for the three months ended March 31, 2026, collectively representing approximately 28 % of net revenues for the period.

No customer exceeded 10% of total net sales for the three-period ended March 31, 2025.

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.

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

Under ASC 810-10-15, Variable Interest Entities, a VIE is an entity that:

(1) has an insufficient amount of equity investment at risk to permit the entity to finance its activities without additional subordinated financial support by other parties;

(2) the equity investors are unable to make significant decisions about the entity’s activities through voting rights or similar rights;

or (3) the equity investors do not have the obligation to absorb expected losses or the right to receive residual returns of the entity.

The Company is required to consolidate a VIE if it is determined to be the primary beneficiary, that is, the enterprise has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE.

The Company evaluates its relationships with a VIE to determine whether it is the primary beneficiary of a VIE at the time it becomes involved with the entity and it re-evaluates that conclusion each reporting period.

Effective April 25, 2019, the Company began consolidating the financial statements of Don Polly and it is still considered a VIE of the Company.

Don Polly operates under exclusive licensing and service contracts with the Company whereby the Company receives 100 % of the net income, or incurs 100 % of the net loss of the VIE.

There are no non-controlling interests recorded.

In October 2025, the Company’s Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division.

(See Subsequent Events.)

Until its operations were discontinued, Don Polly marketed and distributed third-party product lines.

In November 2025 the Company’s Board of Directors unanimously approved a resolution to discontinue sales of all hemp/CBD-related products and to close permanently its Don Polly division.

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 items constituting the loss from discontinued operations of Don Polly in the consolidated statements of operations for the three months ended March 31, 2026 and 2025 (amount in thousands):

For the Three Months Ended

Product revenue, net

Cost of goods sold - product revenue

Operating expenses:

General and administrative

Sales and marketing

Research and development

Total operating expenses

Loss from operations

Interest expense

Loss from discontinued operations, before income tax

Income tax provision

Income from discontinued operations, net of tax

NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

September 30,

Accounts payable and accrued expenses as of March 31, 2026 and December 31, 2025, are as follows (amounts in thousands):

Accounts payable

Accrued Purchases

Accrued compensation

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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 September 30, 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 nine months ended September 30, 2025.

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

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

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 nine months ended September 30, 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.

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

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

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

On April 28, 2025, Ryan Stump and Henry Sicignano III were each paid approximately $ 75,000 of accrued interest and 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 was extended to April 28, 2026.

As of September 30, 2025, approximately $ 238,000 of the Notes remained outstanding.

Secured Promissory Notes

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.

During the three months ended March 31, 2026, the Company made a $ 41,000 repayment to the Notes, including a $ 1,000 interest payment.

In addition, $ 100,000 was satisfied through debt conversions in the equity raise in February 2026 (see Note 11).

The Notes were fully satisfied as of March 31, 2026.

Secured Promissory Notes – April 2022 Note

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" ).

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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.

During the three months ended March 31, 2026, the Company made a $ 111,000 repayment to the Note, including a $ 10,000 interest payment.

In addition, $ 100,000 was satisfied through debt conversions in the equity raise in February 2026 (see Note 11).

The Note was fully satisfied as of March 31, 2026.

Secured Promissory Notes – August 2025 Note

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.

On March 24, 2026, the Company entered into an amendment to the August Note 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.

The amendment was accounted as a debt modification.

Economic Injury Disaster Loan

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

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

Three Months Ending December 31, 2025

The following summarizes the Company’s notes payable maturities as of March 31, 2026 ( amounts in thousands):

Remaining periods in 2026

Year Ending December 31, 2027

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

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

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

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

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

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

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

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

For the three months ended

For the nine months ended

September 30,

Net income (loss) - basic and diluted

Weighted average shares outstanding - basic

Diluted preferred shares

Weighted average shares outstanding - diluted

Basic earnings (loss) per share

Diluted earnings (loss) per share

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

For the nine months ended

September 30,

Series A convertible preferred shares

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

NOTE 11 – STOCKHOLDERS ’ EQUITY

Conversion of Series A Preferred Shares

During the nine months ended September 30, 2025, the Company issued approximately 6,465,000 shares of Common Stock upon conversion of 28,652 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 September 30, 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

Contractual term (years)

Volatility (annual)

Risk-free rate

Dividend yield (per share)

February 2026 Capital Raise

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 (see Note 9).

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:

Shares Purchased

Independent Director

Edward Carmines

Independent Director

Director and Chief Operating Officer

Henry Sicignano III

Matthew Montesano

Chief Financial Officer

NOTE 12 – STOCK-BASED COMPENSATION

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Non-Qualified Stock Options

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

The following table summarizes stock option activities during the three months ended March 31, 2026 (all option amounts are in thousands):

Stock Options

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Options forfeited/expired

Outstanding at September 30, 2025

Options vested and exercisable at September 30, 2025

Outstanding at March 31, 2026

Options vested and exercisable at March 31, 2026

Restricted Stock Awards

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

The following table summarizes restricted stock awards activities during the three months ended March 31, 2026 (all share amounts are in thousands):

Number of Shares

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Nonvested at January 1, 2026

Restricted stock granted

Nonvested at September 30, 2025

During the nine months ended September 30, 2025, the Company granted 3,200,000 restricted stock awards (“ RSAs ”) to employees of the Company pursuant to the 2019 Plan, as amended.

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

The grant date fair value was approximately $ 126,000 .

During the nine months ended September 30, 2025, approximately 83,000 RSAs issued to employees were forfeited.

As of September 30, 2025, there was approximately $ 153,000 of total unrecognized compensation expense related to non-vested restricted share-based compensation arrangements granted under the 2019 Plan, as amended.

Nonvested at March 31, 2026

As of March 31, 2026, there was approximately $ 75,000 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 2.36 years.

The Company recorded total stock-based compensation of approximately $ 133,000 and $ 173,000 during the nine months ended September 30, 2025 and 2024 related to the RSAs, respectively.

The Company recorded total stock-based compensation of approximately $ 25,000 and $ 40,000 during the three months ended March 31, 2026 and 2025 related to the RSAs, respectively.

NOTE 13 – COMMITMENTS AND CONTINGENCIES

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 May 2022 and expires May 2025.

All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expired on September 30, 2024, and effective October 1, 2024, the lease has been 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.

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

The total rent paid to related parties for the nine months ended September 30, 2025 and 2024 was approximately $ 207,000 and $ 207,000 , respectively.

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.

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The renewal resulted in an additional $ 583,000 in right-of-use assets and $ 583,000 in lease liabilities.

At September 30, 2025, the Company had operating lease liabilities of approximately $ 570,000 and right of use assets of approximately $ 569,000 which were included in the condensed consolidated balance sheet.

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

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 March 31, 2026, the Company had operating lease liabilities of approximately $ 576,000 and right of use assets of approximately $ 569,000 which were included in the condensed consolidated balance sheet.

The following table summarizes quantitative information about the Company’s operating leases for the three months ended March 31, 2026 (amounts in thousands):

For the three months ended

For the nine months ended

September 30,

Operating leases

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Total rent expense

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

For the nine months ended

September 30,

Right of use assets exchanged for new operating lease liabilities

For the three months ended

Operating cash flows from operating leases

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Weighted-average discount rate – operating leases

Maturities of our operating leases as of March 31, 2026, excluding short-term leases, are as follows (amounts in thousands):

Legal Proceedings

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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 September 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.

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.

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.

NOTE 14 – INCOME TAXES

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

For the three months ended September 30, 2025, the Company did not record an income tax expense.

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

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

Our income tax provision may be affected by changes to our estimates.

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

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

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

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

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

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

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

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

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

If we undergo future ownership changes, many of which may be outside of our control, our ability to utilize our NOLs and tax credit carryforwards could be further limited by Sections 382 and 383 of the Code.

There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise become unavailable to offset future income tax liabilities.

Additionally, our NOLs and tax credit carryforwards could be limited under state law.

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

Charlie's Holdings, Inc.

and its subsidiaries are taxed as a C corporation and file a consolidated federal income tax return.

Income tax expense is comprised of domestic (U.S.

federal and state) income taxes at the applicable statutory rates, adjusted for non-deductible expenses, stock-based compensation, and other permanent differences.

The Company maintains a full valuation allowance against its deferred tax assets, as it is not more likely than not that such assets will be realized.

As a result, the net impact of changes in estimates on the Company's overall income tax expense is limited.

At December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $ 5.2 million and $ 9.9 million, respectively.

The federal net operating loss carryforwards can be carried forward indefinitely but are subject to an annual utilization limit of 80% of taxable income.

State net operating loss carryforwards expire at various dates through 2043, if not utilized.

At December 31, 2025, the Company had federal research and development tax credit carryforwards of approximately $ 0.1 million.

These credits expire by 2040, if not utilized.

The utilization of net operating loss carryforwards and research and development tax credit carryforwards may be subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code, and analogous state provisions, due to ownership changes that may have occurred previously or that could occur in the future.

In general, an ownership change, as defined under Section 382, occurs when the ownership of certain stockholders or public groups increases by more than 50 percentage points over a three-year period.

The Company experienced an ownership change in 2019.

The Company has not completed a formal Section 382 analysis;

however, it has assumed for purposes of these financial statements that net operating loss carryforwards generated prior to the 2019 ownership change are not available to offset taxable income arising after that date.

If a formal analysis were completed and pre-change losses were determined to be available, the Company's tax liabilities could be reduced.

Conversely, if a formal analysis were to identify additional ownership changes, the Company's net operating loss carryforwards and tax credit carryforwards could be subject to further limitation.

For the three months ended March 31, 2026 and 2025, the Company determined that income tax expense was not material to the condensed consolidated financial statements, and accordingly, no income tax provision has been recorded for either period.

NOTE 15 – SUBSEQUENT EVENTS

Discontinuation of Don Polly Business Operations

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.

Company Secures More Than $6MM in Sales During NACS Show;

$4.4 million SBX purchase is the single largest sale in Charlie's history

On October 23, 2025, we reported that the Company secured more than $ 6 million in purchase orders during the National Association of Convenience Stores ("NACS") National Show in Chicago;

one customer placed a cash deposit with a $ 4.4 million SBX purchase order.

This is the single largest sale in Charlie's history.

SBX is greatly expanding Charlie's retail distribution through chain convenience stores that wish to carry flavored disposable vapes that are not in violation of the FDA's PMTA review process.

Early SBX sales continue to exceed Company expectations.

Marketing Denial Orders and Court-granted Administrative Stay on Certain Premarket Tobacco Applications

On October 28, 2025, we received a Marketing Denial Order (“MDO”) from the U.S.

Food and Drug Administration with respect to certain of our timely-submitted Premarket Tobacco Product Applications (“PMTAs”).

On November 5, 2025, we 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 our opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion.

We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation.

Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies.

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

The following discussion of the financial condition and results of operations of Charlie ’ s Holdings, Inc.

should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this Quarterly Report on Form 10-Q (this “ Report ” ) and without audited financial statements and other information presented in our Annual Report on Form 10-K for the year ended December 31, 2024 (the “ 2024 Annual Report ”) .

Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties.

Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements.

Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report, and in our other filings with the Securities and Exchange Commission ( “ SEC ” ), including particularly matters set forth under Part I, Item 1A (Risk Factors) of the 2024 Annual Report.

Furthermore, such forward-looking statements speak only as of the date of this Report.

Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

As used in this Report, unless otherwise stated or the context otherwise requires, references to the “ Company ” , “ we ” , “ us ” , “ our ” , or similar references mean Charlie ’ s Holdings, Inc., its subsidiaries and consolidated variable interest entity on a consolidated basis.

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

(i) non-combustible nicotine-related products, and (ii) alternative alkaloid (non-nicotine) vapor products.

Through our Charlie’s subsidiary, we formulate, market, and distribute premium, nicotine-based and alternative alkaloid (non-nicotine) vapor products.

Charlie’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States and in select international markets.

In Q4 2025 the Company intends to begin manufacturing certain of its products in a Company operated facility located in the United States.

Operational Plan

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

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

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

Our key initiatives include:

Product Innovation:

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

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

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

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

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

On October 28, 2025, we received a Marketing Denial Order (“MDO”) from the U.S.

Food and Drug Administration with respect to CERTAIN OF our timely-submitted Premarket Tobacco Product Applications (“PMTAs”).

On November 5, 2025, we 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 our opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion.

We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation.

Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies.

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

Age-Gating Technology:

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

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

Cost Structure Optimization:

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

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

Headcount Reduction:

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

Sales Team Improvement:

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

Uplist to a National Securities Exchange:

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

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

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

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

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

Over the last two years, we initiated a plan and began to invest substantial time and resources to develop various proprietary products and new technologies in order to achieve competitive advantages in the vapor and alternative products marketplace.

Marshaling very significant internal and external research and development resources, we endeavored to identify a nicotine substitute (“ Metatine ™”) to be used in lieu of tobacco-based and synthetically derived nicotine.

We believe adult consumers will enjoy Metatine alternative alkaloid vapor products in much the same way that they enjoy traditional vapor products.

Notably, because Metatine is not made or derived from tobacco, and because Metatine does not consist of or contain nicotine from any source, the FDA's Center for Tobacco Products does not have jurisdiction to regulate Metatine.

Accordingly, if the Company is successful utilizing Metatine in a viable commercial product, such a product will allow us additional flexibility in offering both flavored and non-flavored vapor products to adult consumers looking to transition away from traditional combustible and smokeless tobacco products.

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

This initiative demonstrated that adult consumers:

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

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

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

conventional disposable vapes (with single use batteries).

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

SBX Disposables.

SBX Disposables feature:

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

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

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

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

Of 306 survey participants, 287 preferred SBX over Juul.

In Company marketing materials, SBX advantages are highlighted:

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

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

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

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

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

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

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

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

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

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

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

These innovative product formats continue to represent an important product category for Charlie’s and we intend to develop new distribution partnerships in order to grow our nicotine disposable business in 2025-26.

As evidenced by our PMTA Products sales for $7.5 million plus $4.2 million in contingent payments with one of the world’s largest “Big Tobacco” companies, we believe that our substantial investments in FDA regulatory compliance make Charlie’s an attractive partner in this space.

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

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

On October 28, 2025, we received a Marketing Denial Order (“MDO”) from the U.S.

Food and Drug Administration with respect to certain of our timely-submitted PMTAs.

On November 5, 2025, we 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 our opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion.

We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation.

Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies.

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

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

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

More than 80% of adults in the United States prefer flavored vapor products over plain tobacco vapor products, Accordingly, while we continue in the FDA review process, we are continuing to seek out strategic partners to monetize our PMTAs .

We believe that Charlie’s PMTA portfolio represents an asset of significant strategic and monetary value.

The Company continues to develop intellectual property around, and to seek strategic partnerships for, technologies designed to prevent youth access to nicotine vapor products.

Edward Carmines, Ph.D., a member of Charlie’s Board of Directors and an accomplished scientist and regulatory affairs expert, is spearheading Charlie's development of patented "age-gating technology" for both Charlie's and potential licensees of the Company.

Currently, there is a need for age-gated product technologies that can satisfy or accommodate concerns the FDA has related to under-age youth access in the ENDS market.

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

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

vapor products market.

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

Reynolds, three of the largest competitors in our industry.

In July 2023 JUUL announced that it had submitted a PMTA with the FDA for a new e-cigarette device that also included information on novel, data-driven technologies to restrict underage access.

JUUL’s chief product officer explained, “With our next-generation platform, we have designed a technological solution for two public-health problems:

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

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

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

We are in the process of launching a U.S.-filled product line to meet domestic manufacturing requirements of large states.

Most notably, Texas implemented a new law, Senate Bill 2024, effective September 1, 2025, that bans the sale and possession of certain vape products, including those manufactured or marketed as coming from China or certain other "adversary countries." Tennessee and other states have similar legislation pending.

To sell and distribute products in these markets, Charlie's plans to launch a U.S.-filled vapor product line in Q4 2025.

The Company's new line will meet new domestic manufacturing requirements and will appeal, broadly, to adult consumers who prefer "Made in America" products.

In order to mitigate FDA regulatory risk in the domestic market and to capture what management continues to believe is a significant commercial opportunity, we have dedicated additional resources to efforts focused on growing our market share internationally.

Presently, approximately 10% of our vapor product sales come from the international market and we are well positioned to increase sales in countries where we already have presence and, in additional overseas markets, as we have already built an international distribution platform.

Risks and Uncertainties and Ability to Continue as a Going Concern

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 PMTA submissions;

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

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.

We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation.

Though a very small percentage of our current sales are related to our affected PMTA Products, 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.

In the event the FDA denies our PMTAs, absent a court-ordered stay, we would be required to remove products and cease selling them.

The Company recently launched new alternative alkaloid Metatine-based disposable vape products, under the “SBX™” brand, that the Company expects will (i) replace a significant portion of its legacy products and (ii) become the single largest, most important commercial opportunity in Charlie’s history.

The Company and its attorneys believe Metatine-based products are not subject to FDA review.

Based on the information provided by the Company’s contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company’s chemical supplier) in the Company’s alternative alkaloid products does not meet the definition of nicotine set forth in 21 U.S.C.

§ 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as “tobacco products” under 21 U.S.C.

Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s alternative alkaloids vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source.

The documentary support for these facts, including a Certificate of Analysis (COA) for the Metatine used in the Company’s alternative alkaloid products, corroborates these conclusions.

However, should Congress bestow regulatory control over Metatine to the FDA, or should the FDA deem Metatine disposable vape devices “tobacco products” despite the facts that Metatine is not a salt or complex of nicotine, and is not itself derived from nicotine or tobacco, Metatine-based products might then be subject to the FDA tobacco requirements, including, but not limited to, the requirement that all newly deemed tobacco products obtain premarket authorization before entering the U.S.

If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization.

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.

As discussed below, our financial statements and working capital raise substantial doubt about the Company’s ability to continue as a going concern.

Our 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.

See Liquidity and Capital Resources below for additional information.

Recent Developments

Entry into a Material Definitive Agreement for the Disposition of Assets

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

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

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

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

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

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

On August 8, 2025, the Company entered into and closed on another Amendment to the Agreement with the Buyer pursuant to which the Buyer purchased one additional PACHA synthetic product and related asset (the “ August Additional Assets ”) that are covered by a PMTA first submitted by the Company in 2022, bringing the total purchased by the Buyer to sixteen.

The purchase price for the August Additional Assets was $1.0 million paid at closing.

$2.0 Million Credit Facility with Independent Board Member

In order to facilitate increased SBX inventory purchases and to fuel the Company's growth in the mass market convenience store channel, on August 26, 2025 the Company announced that, it signed a very favorable $2 million credit facility with Michael D.

King, one of the independent members of Charlie's Board of Directors.

King agreed to loan the Company up to $2,000,000 (in three separate tranches) at an interest rate of 13% for a period of 12 months per tranche, with a balloon payment for interest and principal to be paid at the one-year anniversary of each tranche.

Accordingly, with an initial $1 million loan, and two subsequent $500,000 tranches, this debt/credit facility gave the Company the discretion to borrow funds, as needed, as demand continues to grow for the SBX product line.

This credit facility is not convertible to equity, does not include warrants, and is exceptionally "company friendly."

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

Regarding results from operations for the quarter ended September 30, 2025, we generated revenue of approximately $7,084,000, as compared to revenue of $1,624,000 for the three months ended September 30, 2024.

This $5,460,000 increase in revenue was due primarily to an increase of $4,683,000 in sales of nicotine and nicotine alternative products and $777,000 in other alternative products distributed through Don Polly.

We generated a net income for the three months ended September 30, 2025, of approximately $624,000 as compared to a net loss of $1,022,000 for the three months ended September 30, 2024.

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

For the three months ended

September 30,

($ in thousands)

Product revenue, net

Cost of goods sold

Operating costs and expenses:

General and administrative

Sales and marketing

Research and development

Total operating costs and expenses

Loss from operations

Other income (expense):

Interest expense

Gain on sale of intellectual property

Total other income (loss)

Income (loss) before provision for income taxes

Income tax provision

Net income (loss)

Revenue for the three months ended September 30, 2025, increased by approximately $5,460,000 or 336.2%, to approximately $7,084,000, as compared to approximately $1,624,000 for same period in 2024 due to an increase of $4,683,000 in sales of nicotine and nicotine alternative products.

Sales of SBX, a non-nicotine, disposable vapor product which is not subject to FDA review, experienced a significant increase during the quarter ended September 30, 2025.

The $777,000 increase in sales for Don Polly primarily consisted of other alternative products distributed on behalf of other companies’ brands.

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

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $4,328,000 or 435.4%, to approximately $5,322,000, or 75.1% of revenue, for the three months ended September 30, 2025, as compared to approximately $994,000, or 61.2% of revenue, for the same period in 2024.

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

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

General and Administrative Expenses

For the three months ended September 30, 2025, total general and administrative expenses were $1,685,000 as compared to approximately $1,420,000 for the same period in 2024.

The increase was primarily comprised of an increase of approximately $190,000 of non-commission wages and benefits, $60,000 of merchant processing fees, as well as $91,000 in other general and administrative expenses, and offset by a decrease of $40,000 of bad debt expense and certain professional fees of $36,000.

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

Sales and Marketing Expense

For the three months ended September 30, 2025, total sales and marketing expense was approximately $398,000 as compared to approximately $169,000 for the same period in 2024.

The increase was primarily due to increased sales commissions paid and display costs for “first-order” sales of the Company’s SBX product as roll-out continued during the quarter.

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

Research and Development Expense

For the three months ended September 30, 2025, total research and development expense was approximately $18,000 as compared to an income of $83,000 for the same period in 2024.

The income in 2024 period was primarily due to a vendor refund of approximately $83,000.

Income (Loss) from Operations

We incurred a loss from operations of approximately $339,000 for the three months ended September 30, 2025, compared to a loss of approximately $876,000 for the three months ended September 30, 2024, due primarily to increased sales and gross profit.

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

Gain on sale of PMTA assets.

For the three months ended September 30, 2025, we recorded a $1,000,000 gain related to the sales agreement entered with R.J.

Reynolds Vapor Company.

Interest Expense.

For the three months ended September 30, 2025, and 2024, we recorded interest expense related to notes payable of approximately $37,000 and $146,000, respectively.

The decrease was primarily due to the payoff of a significant amount of outstanding notes payable.

Net Income (Loss)

For the three months ended September 30, 2025, we incurred a net income of $624,000 as compared to a net loss of $1,022,000 for the same period in 2024.

Results of Operations for the Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024

Regarding results from operations for the nine months ended September 30, 2025, we generated revenue of approximately $11,934,000, as compared to revenue of $6,718,000 for the nine months ended September 30, 2024.

This $5,216,000 increase in revenue was due primarily to an increase of $3,230,000 in sales of our nicotine and nicotine-alternative vapor products, and an increase of $1,987,000 in sales of other alternative products distributed through Don Polly.

We generated a net income for the nine months ended September 30, 2025, of approximately $4,368,000 as compared to a net loss of $3,034,000 for the nine months ended September 30, 2024.

A review of the nine months ended September 30, 2025, follows:

For the nine months ended

September 30,

($ in thousands)

Product revenue, net

Cost of goods sold

Operating costs and expenses:

General and administrative

Sales and marketing

Research and development

Total operating costs and expenses

Loss from operations

Other income (expense):

Interest expense

Debt extinguishment loss

Change in fair value of derivative liabilities

Gain on sale of intellectual property

Total other income (loss)

Income (loss) before provision for income taxes

Income tax provision

Net income (loss)

Revenue for the nine months ended September 30, 2025, increased by approximately $5,216,000 or 77.6%, to approximately $11,934,000, as compared to approximately $6,718,000 for same period in 2024 due primarily to of $3,230,000 in sales of nicotine and nicotine alternative products.

Sales of SBX, a non-nicotine, disposable vapor product which is not subject to FDA review, experienced a significant increase during the quarter ended September 30, 2025.

The $1,987,000 increase in sales for Don Polly primarily consisted of other alternative products distributed on behalf of other companies’ brands.

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

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $4,614,000 or 105.7%, to approximately $8,980,000, or 75.2% of revenue, for the nine months ended September 30, 2025, as compared to approximately $4,366,000, or 65.0% of revenue, for the same period in 2024.

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

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

General and Administrative Expenses

For the nine months ended September 30, 2025, total general and administrative expenses decreased by approximately $157,000 to $4,231,000 as compared to approximately $4,388,000 for the same period in 2024.

This change was primarily due to decreases of approximately $395,000 in certain professional fees and $108,000 of bad debt expense, and offset by an increase of $306,000 in non-commission wages and benefits and $40,000 of other general and administrative costs.

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

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

Sales and Marketing Expense

For the nine months ended September 30, 2025, total sales and marketing expense increased by approximately $117,000 to approximately $737,000 as compared to approximately $620,000 for the same period in 2024.

The increase was primarily due to increased sales commissions paid and display costs for “first-order” sales of the Company’s SBX product as roll-out continued during the nine-month period ended September 30, 2025.

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

Research and Development Expense

For the nine months ended September 30, 2025, research and development expense was approximately $28,000 as compared to income of approximately $103,000 for the same period in 2024.

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

Income (Loss) from Operations

We incurred loss from operations of approximately $2,042,000 for the nine months ended September 30, 2025, compared to a loss of approximately $2,553,000 for the nine months ended September 30, 2024, due primarily to decreased sales and gross profit.

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

Gain on sale of PMTA assets.

For the nine months ended September 30, 2025, we recorded a $7,500,000 gain related to the sales agreement entered with R.J.

Reynolds Vapor Company.

Interest Expense.

For the nine months ended September 30, 2025, and 2024, we recorded interest expense related to notes payable of approximately $614,000 and $485,000, respectively.

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

Debt Extinguishment Loss.

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

Change in Fair Value of Derivative Liabilities.

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

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

Income Taxes Provision

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

Net Income (Loss)

For the nine months ended September 30, 2025, we incurred a net income of $4,368,000 as compared to a net loss of $3,034,000 for the same period in 2024.

Effects of Inflation

Inflation has not had a material impact on our business.

Liquidity and Capital Resources

As of September 30, 2025, we had working capital of approximately $3,079,000, which consisted of current assets of approximately $9,841,000 and current liabilities of approximately $6,762,000, as compared to working capital deficit of approximately $1,855,000 at December 31, 2024.

The current liabilities include approximately $3,744,000 of accounts payable and accrued expenses, notes payable from related parties of $2,481,000, $163,000 of lease liabilities and approximately $374,000 of deferred revenue associated with product shipped but not yet received by customers.

Our cash and cash equivalents balance at September 30, 2025 was approximately $1,150,000.

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

August 2025 Notes.

As of September 30, 2025, $2,000,000 notes payable plus accrued interest held by Michael King remained outstanding.

July 2023 Notes.

As of September 30, 2025, $238,000 notes payable plus accrued interest held by Ryan Stump and Henry Sicignano III remained outstanding and the maturity dates of the outstanding notes had been extended to April 28, 2026.

April 2022 Note .

As of September 30, 2025, approximately $243,000 of principal plus accrued interest held by Michael King remained outstanding and the maturity dates of the outstanding notes had been extended to April 28, 2026.

For the nine months ended September 30, 2025, net cash used in operating activities was approximately $6,172,000, resulting from a net income of $4,368,000, and offset by a change in net non-cash activity of $6,772,000 and operating assets and liabilities of $3,768,000.

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

For the nine months ended September 30, 2025, cash provided by investing activities included $7,500,000 in proceeds from the sale of intellectual property related to certain of our PMTA products.

For the nine months ended September 30, 2025, we used approximately $389,000 in cash from financing activities related to the issuance of notes payable of $2,546,000, notes payable to a related party of $100,000 and the repayment of $3,036,000 in notes payable, including $1,111,000 to related parties.

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

Substantial Doubt to Continue as a Going Concern

For the nine months ended September 30, 2025, the Company’s revenue increased, the Company generated loss from operations of approximately $2,042,000, and a consolidated net income of approximately $4,368,000.

Net cash used in operating activities was approximately $6,172,000.

The Company had a stockholders’ equity of $3,239,000 at September 30, 2025.

During the nine months ended September 30, 2025, the Company’s working capital was increased to $3,079,000 from a deficit of $1,855,000 as of December 31, 2024.

Given these factors, remains a substantial doubt about the Company’s ability to continue as a going concern.

During the nine months ended September 30, 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) and subsequent amendment with R.J.

The combined purchase price for the Assets was $6.5 million paid at closings in April and May 2025, 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.

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

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts.

The Company may require additional financing in the future to support the development of new product categories as well as general operations.

The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements other than operating lease commitments.

Critical Accounting Policies

The condensed consolidated financial statements are prepared in conformity with U.S.

GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expense in the periods presented.

We believe that the accounting estimates employed are appropriate and resulting balances are reasonable;

however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods.

The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of our Annual Report on the 2024 Annual Report.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Food and Drug Administration Expands Market Access – May 5, 2026

On May 5, 2026, The U.S.

Food and Drug Administration (“ FDA ”) authorized the marketing of four Glas Inc.’s age-gated electronic nicotine delivery systems (“ ENDS ”) through the premarket tobacco product application (“ PMTA ”) pathway.

Each product is an e-liquid pod containing 50mg/ml (or 5%) of tobacco-derived nicotine.

The authorized pods include Classic Menthol and Fresh Menthol, as well as two “fruit flavors,” Gold, and Sapphire.

This action marks the FDA’s first authorization of non-tobacco, non-menthol “fruit flavored” ENDS products.

Industry officials view these developments – combined with the May 12, 2026 resignation of FDA Commissioner Marty Makary – as a sign that the FDA’s long-standing resistance to broader flavored vape approvals may be starting to soften.

Private Placement – May 20, 2026

On May 20, 2026, the Company completed a private placement of 6,350,000 shares of its common stock at a purchase price of $ 0.20 per share, resulting in aggregate consideration of $ 1,270,000 .

Of the total consideration, $ 270,000 was received in cash and $ 1,000,000 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.

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

What changed 10-Q

Item 1. Financial Statements