What changed in this filing

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Item 1A. Risk Factors

2020-11-13 compared with 2020-08-14 · 265 added, 238 removed, 993 unchanged (34% of the section changed)

in our common stock involves a high degree of risk.

carefully consider the risks in our Annual Report on Form 10-K for

our fiscal year ended December 31, 2019, filed on April 14, 2020,

in addition to the other information contained in this Report,

before making an investment decision.

Our business, financial

condition or results of operations could be harmed by any of these

As a result, you could lose some or all of your investment

in our common stock.

These risks and uncertainties are not the only

ones we face.

Additional risks not currently known to us or other

factors not perceived by us to present significant risks to our

business at this time also may impair our business

Investing in our Common Stock) involves a high degree of risk.

should carefully consider the risks in our Annual Report on Form

10-K for our fiscal year ended December 31, 2019, filed on April

14, 2020, in addition to the other information contained in this

Report, before making an investment decision.

Our business,

financial condition or results of operations could be harmed by any

of these risks.

As a result, you could lose some or all of your

investment in our Common Stock.

These risks and uncertainties are

not the only ones we face.

Additional risks not currently known to

us or other factors not perceived by us to present significant

risks to our business at this time also may impair our business

Our operations are now primarily dependent on the business of

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cash flow under our new business plan is uncertain.

a result of the Share Exchange, our continued operations are now

primarily dependent on the business of Charlie’s and Don

Although Charlie’s and Don Polly generated net revenue

of approximately $8.6 million during the six months ended June 30,

2020 and $22.7 million for the year ended December 31, 2019, there

can be no guarantee that the Company will continue to grow revenue

or achieve positive cash flow in the future.

a result of the Share Exchange (as defined in Note 1 of Item 1,

Part 1 of this Report), our continued operations are now primarily

dependent on the business of Charlie’s and Don Polly.

Although Charlie’s and Don Polly generated net revenue of

approximately $12.5 million during the nine months ended September

30, 2020 and $22.7 million for the year ended December 31, 2019,

there can be no guarantee that the Company will continue to grow

revenue or achieve positive cash flow in the future.

Our operating results in the past will not reflect our operating

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include, without limitation, the following:

expected increase in revenue due to the addition of those products

developed and marketed by Charlie’s prior to the Share

Exchange, as well as any products that we may release in the

the expected increase in revenue due to the addition of those

products developed and marketed by Charlie’s prior to the

Share Exchange, as well as any products that we may release in the

future, to our revenue stream;

decision in early 2018 to discontinue the production and sale of

AquaBall®, that in the year ended December 31, 2018,

our decision in early 2018 to discontinue the production and sale

of AquaBall®, that in the year ended December 31, 2018,

contributed approximately $1,767,802 in revenue;

previous sole reliance on sales of Bazi®, that in the years

ended December 31, 2019 and 2018, contributed approximately $22,207

our previous sole reliance on sales of Bazi®, that in the

years ended December 31, 2019 and 2018, contributed approximately

$22,207 and $179,250 in revenue to the Company, respectively;

the restructuring of substantially all of our

previously outstanding debt and shares of preferred stock on

the restructuring of substantially all of our previously

outstanding debt and shares of Preferred Stock on

April 26, 2019, in connection with the

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requirements.

As of June 30, 2020, we had negative working

As of September 30, 2020, we had negative working

capital of approximately $10,599,000, which consisted of current

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approximately $15,594,000.

In addition, we expect the cost

associated with the preparation and submission of PMTAs with the

FDA will be approximately $4.4 million in total. 

We therefore currently believe that our cash

resources will be insufficient to fund our operations for the next

twelve months and prepare and submit our PMTA applications with the

FDA. As a result, we will be required to seek additional

financing in the future in order to fund our operations, complete

the PMTA application process and otherwise carry out our business

There can be no assurance that such 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 our best interests.

In addition, the cost associated

with the preparation and submission of Premarket Tobacco

Applications (" PMTAs ") with

the FDA is approximately $4.4 million in to date. 

We therefore currently believe that

our cash resources will be insufficient to fund our operations for

the next twelve months.

As a result, we will be required to seek

additional financing in the future in order to fund our operations,

further invest in the PMTA application process and otherwise carry

out our business plan.

There can be no assurance that such

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 our best

The failure of the Company to pay a required one-time dividend on

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Company’s financial condition.

August 13, 2020, the Company received a formal notice of default

from a holder of its Series A Preferred requesting full payment of

dividends due and payable with respect to the Series A Preferred

held by such holder on or before August 23, 2020

Default ”).

As disclosed, the aggregate amount of

dividends due and payable to holders of the Series A Preferred is

result of the Dividend Default, all amounts due and payable under

the terms of the Amended Note (as defined in Note 14 of Item 1,

Part 1 of this Report) issued to Red Beard (as defined in Note 9 of

Item 1, Part 1 of this Report), shall, at the election of Red

Beard, bear interest at the lesser of a rate equal to 20% per annum

or the maximum lawful rate authorized under applicable law, until

the Amended Note is paid in full.

The Amended Note is due and

payable on or before the earlier date of (i) a Liquidity Event, as

defined under the terms of the Note, or (ii) December 1, 2020, as

defined in the Amended Note.

While no assurances can be given,

management is currently negotiating with the Lender regarding

repayment of the Note in full.

Our auditors have issued a going concern opinion on our financial

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Additionally, the

Company is required to apply for FDA approval to continue selling

and marketing its products used for the vaporization of nicotine in

the United States.

Company is required to obtain FDA approval to continue selling and

marketing its products used for the vaporization of nicotine in the

United States.

There is significant cost associated with the

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impact the Company’s supply chain and/or sales.

months ended June 30, 2020, the Company has incurred losses from

operations of $5,109,000 and a consolidated net loss of

months ended September 30, 2020, the Company has incurred losses

from operations of $6,030,000 and a consolidated net loss of

approximately $11,384,000, and the Company has negative

stockholders’

equity of $4,105,000.

These factors raise

substantial doubt about the Company’s ability to continue as

a going concern.

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

equity of $10,548,000 as of September 30, 2020.

These factors raise substantial doubt about the Company’s

ability to continue as a going concern.

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.

Our business is difficult to evaluate because we have recently

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disclosure controls and procedures were ineffective as of December

31, 2019 and 2018, as well as for the quarters ended June 30, 2020

and March 31, 2020.

These weaknesses were first identified in our

Annual Report on Form 10-K for the year ended December 31, 2012.

2018, we reduced our staff to one employee, and

outsourced our accounting and financial functions, further

exacerbating our weaknesses in our internal control over

financial reporting and our disclosure controls and procedures.

Although the number of employees has grown as a result of the Share

Exchange and the addition of Charlie’s operations, including

the hiring of a new Chief Executive Officer, Chief Financial

Officer and additional accounting and information technology staff,

no assurances can be provided that we will have sufficient

resources to resolve these material weaknesses.

31, 2019 and 2018, as well as for the quarters ended September 30,

2020, June 30, 2020 and March 31, 2020.

These weaknesses were first

identified in our Annual Report on Form 10-K for the year ended

December 31, 2012.

In 2018, we reduced our staff to one

employee, and outsourced our accounting and financial

functions, further exacerbating our weaknesses in our

internal control over financial reporting and our disclosure

controls and procedures.

Although the number of employees has grown

as a result of the Share Exchange and the addition of

Charlie’s operations, including the hiring of a new Chief

Executive Officer, Chief Financial Officer and additional

accounting and information technology staff, no assurances can be

provided that we will have sufficient resources to resolve these

material weaknesses.

These weaknesses have the

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manner or taking other actions that are detrimental to our

we had direct ownership of Don Polly, we would be able to exercise

our rights as a shareholder to effect changes in the board of

directors of Don Polly, which in turn could implement changes,

subject to any applicable fiduciary obligations, at the management

and operational level.

However, under the current contractual

arrangements, we rely on the performance by Don Polly, and its

shareholders of their obligations under the contracts.

If we had direct ownership of Don Polly, we would

be able to exercise our rights as a shareholder to effect changes

in the board of directors of Don Polly, which in turn could

implement changes, subject to any applicable fiduciary obligations,

at the management and operational level.

However, under the current

contractual arrangements, we rely on the performance by Don Polly,

and its shareholders of their obligations under the contracts.

shareholders of Don Polly may not act in the best interests of our

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Therefore, our contractual arrangements with Don Polly, our

consolidated variable interest entity, may not be as effective in

ensuring our control over the relevant portion of our business

operations as direct ownership would be.

consolidated variable interest entity (" VIE "), may not be as effective in ensuring our

control over the relevant portion of our business operations as

direct ownership would be.

The shareholders of Don Polly, our consolidated variable interest

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materially and adversely affect our business and financial

equity interests of Don Polly, our consolidated variable interest

entity, are held by entities controlled by Brandon Stump, our Chief

Executive Officer, and Ryan Stump, our Chief Operating Officer.

Their interests in Don Polly may differ from the interests of our

company as a whole.

These shareholders may breach, or cause Don

Polly to breach, the existing contractual arrangements we have with

them and Don Polly, which would have a material adverse effect on

our ability to effectively control Don Polly and receive economic

benefits from it.

For example, the shareholders may be able to

cause our agreements with Don Polly to be performed in a manner

adverse to us by, among other things, failing to remit payments due

under the contractual arrangements to us on a timely basis.

cannot assure you that when conflicts of interest arise, any or all

of these shareholders will act in the best interests of our company

or such conflicts will be resolved in our favor.

equity interests of Don Polly, our consolidated VIE, are held by

entities controlled by Brandon Stump, our Chief Executive Officer,

and Ryan Stump, our Chief Operating Officer.

Their interests in Don

Polly may differ from the interests of our company as a whole.

These shareholders may breach, or cause Don Polly to breach, the

existing contractual arrangements we have with them and Don Polly,

which would have a material adverse effect on our ability to

effectively control Don Polly and receive economic benefits from

For example, the shareholders may be able to cause our

agreements with Don Polly to be performed in a manner adverse to us

by, among other things, failing to remit payments due under the

contractual arrangements to us on a timely basis.

We cannot assure

you that when conflicts of interest arise, any or all of these

shareholders will act in the best interests of our Company or such

conflicts will be resolved in our favor.

we do not have any arrangements to address potential conflicts of

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decreases in revenue.

The business that we conduct outside the U.S.

may be adversely

affected by international risk and uncertainties.

The business that we conduct outside the United States may be

adversely affected by international risk and

uncertainties.

our operations are based in the United States, we conduct business

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international markets, including, without limitation:

reduced protection for intellectual property rights;

changes in tariffs, trade barriers and regulatory

Potentially reduced protection for intellectual property

Unexpected changes in tariffs, trade barriers and regulatory

requirements;

weakness, including inflation or political instability, in

Economic weakness, including inflation or political instability, in

particular foreign economies and markets;

interruptions resulting from geo-political actions, including war

and terrorism or natural disasters, including earthquakes,

hurricanes, typhoons, floods and fires;

Failure to comply with Office of Foreign Asset

Control rules and regulations and the Foreign Corrupt Practices Act

Business interruptions resulting from geo-political actions,

including war and terrorism or natural disasters, including

earthquakes, hurricanes, typhoons, floods and fires;

Failure to comply with Office of Foreign Asset Control rules and

regulations and the Foreign Corrupt Practices Act (“

FCPA ”).

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actions that may have a material adverse effect on our

As a result of the Share Exchange, our current

business is primarily involved in the sale of products that contain

nicotine and/or CBD. The general market in which our products

are sold faces significant governmental and private sector actions,

including efforts aimed at reducing the incidence of use in minors

and efforts seeking to hold the makers and sellers of these

products responsible for the adverse health effects associated with

More broadly, new regulatory actions by the Food and Drug

Administration (“

FDA ”) and other federal, state or local

governments or agencies, may impact the consumer acceptability of

or access to our products, including regulations promulgated by the

FDA which will require us to file PMTA(s) for any of our products

that are identified as “Deemed Tobacco Products”

FDA that we intend to market and sell after September 9, 2020.

Additionally, on January 2, 2020 the FDA issued an enforcement

policy effectively banning the sale of flavored cartridge-based

e-cigarettes marketed primarily by large manufacturers in the

United States without prior authorization from the FDA.

to the FDA, it is expected that the new policy will have minimal

impact on small manufacturers, such as vape shops, that sell

non-cartridge based products.

We believe that any ban on

flavored e-cigarettes, or similar enforcement action by the FDA,

would have a significant material adverse impact on Charlie’s

products, which would, in turn, have a material adverse impact on

our overall business.

a result of the Share Exchange, our current business is primarily

involved in the sale of products that contain nicotine and/or

CBD. The general market in which our products are sold faces

significant governmental and private sector actions, including

efforts aimed at reducing the incidence of use in minors and

efforts seeking to hold the makers and sellers of these products

responsible for the adverse health effects associated with them.

More broadly, new regulatory actions by the FDA and other federal,

state or local governments or agencies, may impact the consumer

acceptability of or access to our products, including regulations

promulgated by the FDA which will require us to file PMTA(s) for

any of our products that are identified as “Deemed Tobacco

Products”

by the FDA that we intend to market and sell after

September 9, 2020.

Additionally, on January 2, 2020 the

FDA issued an enforcement policy effectively banning the sale

of flavored cartridge-based e-cigarettes marketed primarily by

large manufacturers in the United States without prior

authorization from the FDA.

According to the FDA, it is expected

that the new policy will have minimal impact on small

manufacturers, such as vape shops, that sell non-cartridge based

We believe that any ban on flavored e-cigarettes, or

similar enforcement action by the FDA, would have a significant

material adverse impact on Charlie’s products, which would,

in turn, have a material adverse impact on our overall

regulatory challenges may come in future months and years,

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United States without prior authorization from the FDA. 

addition, Utah, Washington, Rhode Island, New York and

Massachusetts have temporarily banned the sale of flavored

e-cigarettes, while previously imposed bans in Michigan and Oregon

have been temporarily halted by judicially imposed injunctions.

addition, other states and municipalities are considering

implementing similar restrictions, and some cities have implemented

more restrictive measures than their state counterparts, such as

San Francisco, which in June 2019, approved a new ban on the sale

of flavored nicotine products, including vaping liquids and menthol

Any ban of on the sale of flavored e-cigarettes

directly limits the markets in which we may sell Charlie’s

In the event the prevalence of such bans increases across

the United States, our business, results of operations and

financial condition will be materially harmed.

addition, Utah,

Washington, Rhode Island, New York and Massachusetts

have temporarily banned the sale of

flavored e-cigarettes, while previously imposed bans in Michigan

and Oregon have been temporarily halted by judicially imposed

In addition, other states and municipalities are

considering implementing similar restrictions, and some cities have

implemented more restrictive measures than their state

counterparts, such as San Francisco, which in June 2019, approved a

new ban on the sale of flavored nicotine products, including vaping

liquids and menthol cigarettes.

Any ban of on the sale of flavored

e-cigarettes directly limits the markets in which we may sell

Charlie’s products.

In the event the prevalence of such bans

increases across the United States, our business, results of

operations and financial condition will be materially

There is uncertainty related to the regulation of flavored

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regulations that prohibit vaping in public places, and, as of

January 21, 2020, Utah, Washington, Rhode Island, New York and

Massachusetts have temporarily banned the sale of flavored

e-cigarettes, while previously imposed bans in Michigan and Oregon

have been temporarily halted by judicially imposed injunctions.

Many states, provinces, and some cities have passed laws

restricting the sale of e-cigarettes and certain other nicotine

vaporizer products.

January 21, 2020, Utah,

Washington, Rhode Island, New York and Massachusetts

have temporarily banned the sale of

flavored e-cigarettes, while previously imposed bans in Michigan

and Oregon have been temporarily halted by judicially imposed

Many states, provinces, and some cities have passed

laws restricting the sale of e-cigarettes and certain other

nicotine vaporizer products.

to the application of existing laws and regulations, and/or the

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is pending as of the September 9, 2020 deadline.

at the date of this Report, we are preparing to submit three PMTAs

for certain of our traditional nicotine vapor products, including,

but not limited to menthol and/or tobacco products with the

assistance of Avail, pursuant to the terms of the Avail Agreement.

We estimate the cost associated with these PMTAs to be

approximately $4.4 million in total.

We are also evaluating the

potential market perception and clinical studies that may be

required in connection with each PMTA.

If we do not submit

a PMTA for any Charlie’s products considered to be

Deemed Tobacco Products prior to the lapse of the grace period or

if any PMTA submitted by the Company is denied, we will

be required to cease the marketing and distribution of such

Charlie’s products, which, in turn, would have a material

adverse effect on the Company’s business, results of

operations and financial condition. Furthermore, there can be

no assurance that if the Company were to complete a PMTA for any of

the affected Charlie's products, that any application would be

approved by the FDA.

at the date of this Report, we have submitted PMTAs for certain of

our traditional nicotine vapor products, including, but not limited

to menthol and/or tobacco products with the assistance of Avail,

pursuant to the terms of the Avail Agreement.

We estimate the cost

associated with these PMTAs to be approximately $4.4 million in

We are also evaluating the potential market perception and

clinical studies that may be required in connection with each PMTA.

If we do not submit a PMTA for any Charlie’s

products considered to be Deemed Tobacco Products prior to the

lapse of the grace period or if any PMTA submitted by the

Company is denied, we will be required to cease the marketing and

distribution of such Charlie’s products, which, in turn,

would have a material adverse effect on the Company’s

business, results of operations and financial

condition. Furthermore, there can be no assurance that if the

Company were to complete a PMTA for any of the affected Charlie's

products, that any application would be approved by the

There is substantial concern regarding the effect of long-term use

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The active ingredient in Epidiolex is CBD.

December 20, 2018, after the passage of the 2018 Farm Bill,

FDA Commissioner Scott Gottlieb issued a statement in which he

December 20, 2018, after the passage of the 2018 Farm Act, FDA

Commissioner Scott Gottlieb issued a statement in which he

reiterated the FDA’s position that, among other things, the

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new product selection;

sales and marketing efforts;

delivery of new products;

of raw materials;

allowance of the products;

acceptance of new products.

successful sales and marketing efforts;

timely delivery of new products;

availability of raw materials;

pricing of raw materials;

regulatory allowance of the products;

customer acceptance of new products.

If we are not able to adequately protect our intellectual property,

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trade names and trademarks used for our products by registering

them with the U.S.

Patent and Trademark Office, but we must rely on

common law trademark rights to protect our unregistered trademarks.

Common law trademark rights do not provide the same remedies as are

granted to federally registered trademarks, and the rights of a

common law trademark are limited to the geographic area in which

the trademark is actually used.

Our inability to protect our

intellectual property could have a material adverse impact on our

ability to compete and could make it difficult for us to achieve a

them with the United States Patent and Trademark Office, but we

must rely on common law trademark rights to protect our

unregistered trademarks.

Common law trademark rights do not provide

the same remedies as are granted to federally registered

trademarks, and the rights of a common law trademark are limited to

the geographic area in which the trademark is actually used.

inability to protect our intellectual property could have a

material adverse impact on our ability to compete and could make it

difficult for us to achieve a profit.

Compliance with changing corporate governance regulations and

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Common Stock .

of a substantial number of shares of our common stock in the public

market could occur at any time.

These sales, or the perception that

such sales may occur, may adversely impact the price of our common

stock, even if there is no relationship between such sales and the

performance of our business.

As of August 14, 2020, we had

Sales of a substantial number of shares of our

Common Stock in the public market could occur at any time.

sales, or the perception that such sales may occur, may adversely

impact the price of our Common Stock, even if there is no

relationship between such sales and the performance of our

As of November 13, 2020, we had

18,990,752,596 shares of Common Stock outstanding, as well as

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exercise price of $0.0044313 per share, up to

shares of common stock issuable upon conversion of outstanding

shares of Series A Preferred and outstanding warrants to purchase

up to an aggregate of 4,033,769,340 shares of our common stock at a

weighted average exercise price of $0.0044313 per share.

exercise and/or conversion of such outstanding derivative

securities may result in further dilution to our

stockholders.

4,599,343,033 shares of Common Stock

issuable upon conversion of outstanding shares of Series A

Preferred and outstanding warrants to purchase up to an aggregate

of 4,033,769,340 shares of our Common Stock at a weighted average

exercise price of $0.0044313 per share.

The exercise and/or

conversion of such outstanding derivative securities may result in

further dilution to our stockholders.

If we issue additional shares of Common Stock in the future, it

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of our corporation.

Holders of Series A Convertible Preferred Stock have substantial

rights and ranks senior to our common stock.

Holders of Series A Convertible Preferred have substantial rights

and ranks senior to our Common Stock.

Common Stock ranks junior as to dividend rights, redemption rights,

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triggered, could cause substantial dilution to our then-existing

common stock holders which could adversely affect our stock

holders of Common Stock which could adversely affect our stock

outstanding Series A Preferred contains certain anti-dilution

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price could result in substantial dilution to our then-existing

common stockholders as well as give rise to a beneficial conversion

feature reported on our statement of operations.

Either or both of

which could adversely affect the price of our common

holders of Common Stock as well as give rise to a beneficial

conversion feature reported on our statement of operations.

or both of which could adversely affect the price of our Common

The price of our securities could be subject to wide fluctuations

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Charter authorizes the issuance of up to

5.0 million shares of preferred stock, par value $0.001

per share, without stockholder approval and on terms established by

our directors, of which 300,000 shares have been designated as

Series A Preferred and 1.5 million shares have been designated

as Series B Preferred. We may issue additional shares of

preferred stock in the future in order to consummate a financing or

other transaction, in lieu of the issuance of shares of our common

5.0 million shares of Preferred Stock without stockholder

approval and on terms established by our Board of Directors, of

which 300,000 shares have been designated as Series A Preferred and

1.5 million shares have been designated as Series B

Preferred. We may issue additional shares of Preferred Stock

in the future in order to consummate a financing or other

transaction, in lieu of the issuance of shares of our Common

Stock. The rights and preferences of any such class or series

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be the sole and exclusive forum for each of the

derivative action or proceeding brought on behalf of the

action asserting a claim of breach of a fiduciary duty owed by any

director or officer or other employee of the Company to the Company

or the Company’s stockholders;

action asserting a claim against the Company or any director or

any derivative action or proceeding brought on behalf of the

any action asserting a claim of breach of a fiduciary duty owed by

any director or officer or other employee of the Company to the

Company or the Company’s stockholders;

any action asserting a claim against the Company or any director or

officer or other employee of the Company arising pursuant to any

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Amended and Restated Bylaws;

action asserting a claim against the Company or any director or

any action asserting a claim against the Company or any director or

officer or other employee of the Company governed by the internal

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that the exclusive forum provision would not apply to suits brought

to enforce any duty or liability created by the Securities Exchange

Act of 1934, as amended (“

Act ”), or any other claim

for which the federal courts have exclusive jurisdiction, and that

federal courts have concurrent jurisdiction over all suits brought

to enforce any duty or liability created by the Securities Act of

1933, as amended (“

to enforce any duty or liability created by the Exchange Act, or

any other claim for which the federal courts have exclusive

jurisdiction, and that federal courts have concurrent jurisdiction

over all suits brought to enforce any duty or liability created by

the Securities Act of 1933, as amended (“

Act ”).

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uncertain and unpredictable.

REGISTERED SALES OF EQUITY SECURITIES AND USE OF

SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

DEFAULTS UPON SENIOR SECURITIES

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

What changed 10-Q

Item 1A. Risk Factors