Charlie's Holdings, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS CHARLIE ’ S HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) March 31, December 31, 2026 2025 (Unaudited) ASSETS Current assets: Cash $ 640 $ 1,320 Accounts receivable, net 1,273 440 Inventories, net 10,098 6,719 Prepaid expenses and other current assets 2,106 2,288 Total current assets 14,117 10,767 Non-current assets: Property, plant and equipment, net 31 37 Right-of-use asset, net 569 632 Other assets 128 128 Total non-current assets 728 797 TOTAL ASSETS $ 14,845 $ 11,564 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses $ 8,751 $ 5,037 Notes payable - related parties - 2,280 Lease liabilities 263 275 Deferred revenue 260 38 Total current liabilities 9,274 7,630 Non-current liabilities: Note payable, net of current portion 150 150 Note payable, net - related party, net of current portion 2,000 - Lease liabilities, net of current portion 313 361 Total liabilities 11,737 8,141 COMMITMENTS AND CONTINGENCIES (see Note 12) Stockholders' Equity: Convertible preferred stock ($ 0.001 par value); 1,800,000 shares authorized Series A, 300,000 shares designated; 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 March 31, 2026 and December 31, 2025, respectively - - Common stock ($ 0.001 par value); 500,000,000 shares authorized; 274,203,242 and 270,653,242 shares issued and outstanding as of March 31, 2026 and December 31, 2025, respectively 274 271 Additional paid-in capital 12,084 11,352 Accumulated deficit ( 9,250 ) ( 8,200 ) Total stockholders' equity 3,108 3,423 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,845 $ 11,564 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 2 CHARLIE ’ S HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) (Unaudited) For the three months ended March 31, 2026 2025 Product revenue, net $ 4,804 $ 1,578 Cost of goods sold - product revenue 3,624 1,192 Gross profit 1,180 386 Operating costs and expenses: General and administrative 1,738 1,086 Sales and marketing 383 173 Research and development 34 6 Total operating costs and expenses 2,155 1,265 Loss from operations ( 975 ) ( 879 ) Other income (expense): Interest expense ( 75 ) ( 241 ) Debt extinguishment loss - ( 149 ) Total other loss ( 75 ) ( 390 ) Loss before provision for income taxes ( 1,050 ) ( 1,269 ) Income tax provision - - Loss from continuing operations after income taxes ( 1,050 ) ( 1,269 ) Discontinued operations: Income from discontinued operations, net of tax - 52 Net loss $ ( 1,050 ) $ ( 1,217 ) Net earnings (loss) per share: Loss from continuing operations, basic and diluted $ ( 0.00 ) $ ( 0.01 ) Income from discontinued operations, basic and diluted $ - $ 0.00 Net loss per share, basic and diluted $ ( 0.00 ) $ ( 0.01 ) Weighted average number of common shares outstanding Basic 268,129,712 253,571,912 Diluted 268,129,712 253,571,912 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 3 CHARLIE ’ S HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (DEFICIT) (in thousands) (Unaudited) For the Three Months Ended March 31, 2026 Series A Convertible Preferred Stock Common Stock Additional Accumulated Total Stockholders' Shares Par value Shares Par value Paid-in Capital Deficit Equity Balance at January 1, 2026 94 $ - 270,653 $ 271 $ 11,352 $ ( 8,200 ) $ 3,423 Issuance of common stock for cash - - 2,550 2 508 - 510 Issuance of common stock in lieu of redemption of notes payable to related parties - - 1,000 1 199 - 200 Stock compensation - - - - 25 - 25 Net loss - - - - - ( 1,050 ) ( 1,050 ) Balance at March 31, 2026 94 $ - 274,203 $ 274 $ 12,084 $ ( 9,250 ) $ 3,108 For the Three Months Ended March 31, 2025 Series A Convertible Preferred Stock Common Stock Additional Accumulated Total Stockholders' Shares Par value Shares Par value Paid-in Capital Deficit Deficit Balance at January 1, 2025 123 $ - 257,286 $ 257 $ 10,662 $ ( 12,699 ) $ ( 1,780 ) Conversion of Series A convertible preferred stock ( 1 ) - 127 - - - - Stock compensation - - - - 40 - 40 Issuance of warrant in connection with a settlement of accounts payable - - - - 148 - 148 Net loss - - - - - ( 1,217 ) ( 1,217 ) Balance at March 31, 2025 122 $ - 257,413 $ 257 $ 10,850 $ ( 13,916 ) $ ( 2,809 ) The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 4 CHARLIE ’ S HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the three months ended March 31, 2026 2025 Cash Flows from Operating Activities: Net loss $ ( 1,050 ) $ ( 1,217 ) Less: loss from discontinued operations, net of tax - ( 52 ) Net loss from continuing operations ( 1,050 ) ( 1,269 ) Reconciliation of net loss to net cash used in operating activities: Allowance for doubtful accounts ( 19 ) ( 82 ) Depreciation and amortization 6 13 Accretion of debt discount - 172 Debt extinguishment loss - 149 Amortization of operating lease right-of-use asset 63 42 Stock based compensation 25 40 Subtotal of non-cash charges 75 334 Changes in operating assets and liabilities: Accounts receivable ( 814 ) 413 Inventories ( 3,379 ) 24 Prepaid expenses and other current assets 182 235 Accounts payable and accrued expenses 3,719 ( 421 ) Deferred revenue 222 36 Lease liabilities ( 60 ) ( 43 ) Net cash used in operating activities - continuing operations ( 1,105 ) ( 691 ) Net cash provided by operating activities - discontinued operations - 282 Net cash used in operating activities ( 1,105 ) ( 409 ) Cash Flows from Financing Activities: Proceeds from issuance of common shares 510 - Proceeds from issuance of notes payable - 546 Proceeds from issuance of notes payable to related party - 100 Repayment of notes payable - ( 325 ) Repayment of notes payable to related party ( 85 ) ( 11 ) Net cash provided by financing activities 425 310 Net decrease in cash ( 680 ) ( 99 ) Cash, beginning of the period 1,320 211 Cash, end of the period $ 640 $ 112 Supplemental disclosure of cash flow information Cash paid for interest $ ( 2 ) $ ( 61 ) Cash paid for interest to related party $ ( 4 ) $ ( 146 ) Supplemental disclosure of cash flow information Conversion of Series A convertible preferred stock $ - $ 1 Issuance of common shares from debt redemption $ - $ 676 Issuance of common stock in lieu of redemption of notes payable to related parties $ 200 $ - The accompanying notes are an integral part of these unaudited condensed consolidated financial statements. 5 CHARLIE'S HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION Description of the Business Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries (collectively, the “ Company ”, “ we ”), formulates, markets and distributes premium, non-combustible nicotine-related products and alternative alkaloid vapor products. The Company’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States, and in select international markets. Charlie’s Chalk Dust, LLC (“ Charlie ’ s ” or “ CCD ”), is the Company’s wholly owned subsidiary which produces and sells nicotine-based and alternative alkaloid vapor products. The Company's common stock, par value $ 0.001 per share (the “ Common Stock ”), trades under the symbol "CHUC" on the OTCQB Venture Market. 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. 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. 6 Risks and Uncertainties The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in September 2022, the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive levels. The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating nicotine, flavored e-cigarette liquid and other electronic nicotine delivery system (“ ENDS ”) products, could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution. Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company may sell its products. In the event the prevalence of such bans and/or changes in laws and regulations increase across the United States, or internationally, the Company’s business, results of operations and financial condition could be adversely impacted. In addition, the Company is presently seeking to obtain marketing authorization for certain of its tobacco-derived nicotine e-liquid products. The Company’s applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States. Beginning in August 2021, the FDA began issuing Marketing Denial Orders (“ MDO ”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health. 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. 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. 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. The Company and its attorneys believe SBX products are not subject to FDA review. Based on the information provided by the Company’s contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company’s chemical supplier) in the Company’s SBX products does not meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as “tobacco products” under 21 U.S.C. § 321(rr). Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s SBX vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source. The documentary support for these facts, including a Certificate of Analysis (“ COA ”) for the Metatine used in the Company’s SBX products, corroborates these conclusions. However, should Congress bestow regulatory control over Metatine to the FDA, or should the FDA deem Metatine disposable vape devices “tobacco products” despite the facts that Metatine is not a salt or complex of nicotine, and is not itself derived from nicotine or tobacco, SBX products might then be subject to the FDA tobacco requirements, including, but not limited to, the requirement that all newly deemed tobacco products obtain premarket authorization before entering the U.S. market. If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization. More generally, FDA’s regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA’s priorities and/or potential jurisdiction over our products will prompt the Agency to attempt to require us to remove our products from the market and to cease selling them. 7 NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “ SEC ”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“ U.S. GAAP ”) have been omitted pursuant to SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented in this Report not misleading. 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 The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant Accounting Policies There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2025 Annual Report. Recently Adopted Accounting Standards 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. 8 Accounting for Government Grants Received by Business Entities In December 2025, the FASB issued ASU 2025-10, Accounting for Government Grants Received by Business Entities . This ASU establishes the accounting and presentation for government grants received by a business entity under Government Grants (Topic 832). This ASU is effective for fiscal years beginning after December 15, 2028 and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures. Intangibles - Goodwill and Other - Internal-Use Software In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (“ASU 2025-06”), which amends the guidance for accounting for software costs to reflect current software development practices, including iterative and agile methodologies, by removing references to development stages. It also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed, and the software will be used to perform the function intended. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The amendments may be applied either prospectively, retrospectively, or utilizing a modified transition approach. The Company is currently assessing the impact of ASU 2025-06 on its consolidated financial statements and disclosures. Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date to clarify the effective date of ASU 2024-03. The amendments require disclosure of additional information about specific expense categories in the notes to the financial statements. This standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments are to be applied either prospectively to financial statements issued for reporting periods after the effective date of this Update or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that the adoption of this standard will have on the consolidated financial statements. 9 NOTE 3 – FAIR VALUE MEASUREMENTS In accordance with Accounting Standards Codification (“ ASC ”) Topic 820 “ Fair Value Measurements and Disclosures ” (“ ASC 820 ”), the Company uses various inputs to measure the outstanding warrants on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below: Level 1 – Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date. Level 2 – Quoted prices in markets that are not active or inputs which are either directly or indirectly observable. Level 3 – Unobservable inputs for the instrument requiring the development of assumptions by the Company. The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The valuation of assets and liabilities recognized in business combinations are considered level 3 fair value measurements on the closing date of the acquisition. These assets and liabilities are not remeasured at each reporting period. As of 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 March 31, 2026 and December 31, 2025 are summarized as follows: March 31, December 31, 2026 2025 Finished goods $ 6,015 $ 4,704 Raw materials 3,891 494 Overhead allocation 20 19 Inventory in transit 790 2,016 Less: inventory reserves ( 618 ) ( 514 ) Total $ 10,098 $ 6,719 NOTE 5 – PROPERTY AND EQUIPMENT 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): March 31, December 31, 2026 2025 Estimated Useful Life (in years) Machinery and equipment $ 41 $ 41 5 Trade show booth 202 202 5 Office equipment 550 550 5 Leasehold improvements 266 266 Lesser of lease term or estimated useful life 1,059 1,059 Accumulated depreciation ( 1,028 ) ( 1,022 ) $ 31 $ 37 10 NOTE 6 – CONCENTRATIONS Vendors The Company’s concentration of inventory purchases is as follows: For the three months ended March 31, 2026 2025 Vendor A 49 % 35 % Vendor B - 16 % Vendor C 9 % 14 % Vendor D - 11 % Vendor E 13 % - Vendor F 11 % - 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: March 31, 2026 December 31, 2025 Amount Percentage Amount Percentage Customer A $ 557,000 4 % $ 100,000 17 % Customer B $ 657,000 50 % $ 89,000 14 % Customer C $ - - $ 100,000 16 % Customer D $ - - $ 65,000 10 % Customer E $ 216,000 17 % $ - - 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. 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. 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. 11 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 March 31, 2026 2025 Product revenue, net $ - $ 728 Cost of goods sold - product revenue - 586 Gross profit - 142 Operating expenses: General and administrative - 48 Sales and marketing - 41 Research and development - - Total operating expenses - 89 Loss from operations - 53 Interest expense - ( 1 ) Loss from discontinued operations, before income tax - 52 Income tax provision - - Income from discontinued operations, net of tax $ - $ 52 NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses as of March 31, 2026 and December 31, 2025, are as follows (amounts in thousands): March 31, December 31, 2026 2025 Accounts payable $ 3,373 $ 3,285 Accrued Purchases 3,017 74 Accrued compensation 562 800 Accrued income taxes 413 413 Customer deposits 283 182 Other accrued expenses 1,103 283 $ 8,751 $ 5,037 NOTE 9 – NOTES PAYABLE July 2023 Note Financing Between July 17, 2023 and August 1, 2023, the Company issued unsecured promissory notes (the “ Notes ”) to several of its executives and employees, Ryan Stump, Henry Sicignano III, Keith Stump, and Jessica Greenwald, and to three of its largest stockholders, Brandon Stump, Red Beard Holdings LLC, and Michael King (the “ Lenders "), in the cumulative principal amount of $ 1,400,000 . Notes shall bear interest at twenty-one percent ( 21 %) per annum and have maturity dates ranging from November 17, 2023 to December 10, 2023. 12 During the year ended December 31, 2023, the Company made a $ 1,070,000 repayment to the Notes, including a $ 70,000 interest payment. As of December 31, 2024, $ 400,000 of Notes remained outstanding with Ryan Stump and Henry Sicignano III, and the maturity dates of the outstanding notes had been extended to December 31, 2024. On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $ 75,000 of accrued interest and have agreed to modify the Notes to include a 10 % interest rate, with monthly payments of principal and interest of approximately $ 18,000 . The maturity date has been extended to April 28, 2026. As of December 31, 2025, approximately $ 138,000 of the Notes remained outstanding. 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" ). On September 28, 2022, the Company and the Lender entered into a modification to the Note to extend the maturity date to March 28, 2023 and the Company paid all accrued interest under the Note through such date. On March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to March 28, 2025, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note. Principal was to be paid on the 28th day of each month in installments of $ 25,000 , commencing April 28, 2023, continuing up to and including March 28, 2025 whereby a balloon payment for the remaining principal balance would be paid. Interest would accrue on the aggregate outstanding principal amount at a rate equal to 20 % simple interest per annum and would be payable on the same day as the installments of principal are payable. The Company could prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty. All outstanding principal and interest were due the earlier of March 28, 2025, or upon a liquidity event. The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing. On May 31, 2024, as part of the May 2024 capital raise, the Lender converted his next four debt repayments for the period from June to September 2024, for a total amount of $ 100,000 , in lieu of cash payment for the subscription agreement. On April 28, 2025 the Lender agreed to accept a payment of approximately $ 420,000 and entered into a further modification for the remaining balance that includes monthly payments of approximately $ 37,000 and a maturity date of April 28, 2026. 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. 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. 13 Economic Injury Disaster Loan On September 24, 2020, SBA authorized (under Section 7(b) of the Small Business Act, as amended) an Economic Injury Disaster Loan (“ EID Loan ”) to Don Polly in the amount of $ 150,000 . The balance of principal and interest will be payable thirty years from the date of the EID Loan and interest will accrue at the rate of 3.75 % per annum. 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 2,000 Year Ending December 31, 2028 - Year Ending December 31, 2029 - Year Ending December 31, 2030 - Thereafter 150 Total $ 2,150 NOTE 10 – EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS Basic (loss) per common share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted (loss) per common share is computed similar to basic (loss) per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Diluted weighted average common shares include common stock potentially issuable under the Company’s convertible preferred stock, warrants and vested and unvested stock options. The following securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands): For the three months ended March 31, 2026 2025 Options 4,408 4,648 Warrants - 3,700 Series A convertible preferred shares 21,191 27,614 Total 25,599 35,962 NOTE 11 – STOCKHOLDERS ’ EQUITY 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: Name Title Shares Purchased Michael King Independent Director 500,000 Edward Carmines Independent Director 250,000 Ryan Stump Director and Chief Operating Officer 250,000 Henry Sicignano III President 250,000 Matthew Montesano Chief Financial Officer 100,000 14 NOTE 12 – STOCK-BASED COMPENSATION On May 8, 2019, our Board of Directors approved the Charlie’s Holdings, Inc. 2019 Omnibus Incentive Plan (the “ 2019 Plan ”), and the 2019 Plan was subsequently approved by holders of a majority of our outstanding voting securities on the same date. Up to 11,072,542 stock options were originally grantable under the 2019 Plan. On December 22, 2021, our Board of Directors unanimously adopted resolutions by written consent approving an amendment to increase the number of shares of Common Stock available for issuance under the 2019 Plan by 15.0 million shares, from 11,072,542 to 26,072,542 shares (the “2019 Plan Amendment ”). Furthermore, the Company received written consents approving the 2019 Plan Amendment from holders of approximately 50.3 % of our outstanding voting securities. In accordance with Rule 14c of the Exchange Act, our Board of Directors’ authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders. Non-Qualified Stock Options The following table summarizes stock option activities during the three months ended March 31, 2026 (all option amounts are in thousands): Stock Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding at January 1, 2026 4,408 0.46 3.8 $ - Options forfeited/expired - - - - Outstanding at March 31, 2026 4,408 $ 0.46 3.6 $ - Options vested and exercisable at March 31, 2026 4,408 $ 0.46 3.6 $ - Restricted Stock Awards 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 Weighted Average Grant Date Fair Value per Share Nonvested at January 1, 2026 4,692 $ 0.054 Vested ( 467 ) - Nonvested at March 31, 2026 4,225 $ 0.054 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 $ 25,000 and $ 40,000 during the three months ended March 31, 2026 and 2025 related to the RSAs, respectively. 15 NOTE 13 – COMMITMENTS AND CONTINGENCIES Leases The Company leases office space under agreements classified as operating leases that expire on various dates through 2028. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expired on September 30, 2024, and effective October 1, 2024, the lease 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. The Williamsville Lease, which became effective on May 1, 2022, had a term of one year and a base rent of $ 1,650 per month. The Williamsville Lease has been subsequently extended for additional one -year periods, with the same terms. The Williamsville Lease is considered a modified gross lease and therefore the Company is also responsible for additional monthly expenses including gas, electricity, and internet. The Williamsville Lease was evaluated and approved by the Company’s Board of Directors. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not act as a lessor or have any leases classified as financing leases. The Company excludes short-term leases having initial terms of 12 months or less from ASC Topic 842, “Leases”, as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company entered into a commercial lease for the Company’s corporate headquarters (the “Lease”) in Costa Mesa, California with Brandon Stump, the Company’s former Chief Executive Officer, Ryan Stump, the Company’s Chief Operating Officer, and Keith Stump, a former member of the Company’s Board of Directors. The Stumps purchased the property that is the subject of the Lease in July 2019. The Lease, which was effective as of September 1, 2019, on a month-to-month basis, was then formalized on November 1, 2019 to have a term of five years and a base rent rate of $ 22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease. The terms of the Lease were negotiated and approved by the independent members of the Board of Directors, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. Effective October 1, 2024, the lease was on a month-to-month basis. The total rent paid to related parties for the years ended December 31, 2025 and 2024 was approximately $ 275,000 and $ 275,000 , respectively. Effective June 2, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025. On August 12, 2025, the Company renewed this lease for an additional three years commencing on September 1, 2025 and ending August 31, 2028. The renewal resulted in an additional $ 583,000 in right-of-use assets and $ 583,000 in lease liabilities. In September 2025, the Company entered into a lease agreement commencing on October 1, 2025 (the “October Lease”), pursuant to which the Company leases certain premises located at 15902-06 Manufacture Lane, Huntington Beach, CA for purposes of filling and assembling certain of its nicotine and alternative alkaloid vapor products. The October Lease has a term of 1.5 years concluding March 31, 2027. The Company recognized $ 123,000 in right-of-use assets and $ 123,000 in lease liabilities on the consolidated balance sheet as of the commencement date. At 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 March 31, 2026 2025 Operating leases Operating lease cost $ 81 $ 44 Variable lease cost - - Operating lease expense 81 44 Short-term lease rent expense 74 5 Total rent expense $ 155 $ 49 16 For the three months ended March 31, 2026 2025 Operating cash flows from operating leases $ 78 $ 45 Weighted-average remaining lease term – operating leases (in years) 2.21 0.17 Weighted-average discount rate – operating leases 12.0 % 12.0 % Maturities of our operating leases as of March 31, 2026, excluding short-term leases, are as follows (amounts in thousands): Legal Proceedings As of the date hereof, the Company is not a party to any material legal or administrative proceedings. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention. NOTE 14 – INCOME TAXES 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 U.S. 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. 17