Charlie's Holdings, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES   (a)   Evaluation of Disclosure Controls and Procedures.   Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”) as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.   Based on our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.   (b)   Management’s Annual Report on Internal Control over Financial Reporting.   Section 404(a) of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management's assessment of the effectiveness of our internal control over financial reporting.       -38- Table of Contents     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of our principal executive and financial officer , we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“ COSO ”). Based on that evaluation, our principal executive and financial officer concluded that our internal control over financial reporting was effective as of December 31, 2020.   As of December 31, 2019 we determined that we lacked segregation of duties, stemming from our early stage status and limited capital resources to hire additional financial and administrative staff. We lacked sufficient internal controls (including IT and general controls) that encompass our Company as a whole with respect to entity and transactions level controls in order to ensure complete documentation of complex and non-routine transactions and adequate financial reporting. During 2020, we hired additional qualified accounting department employees, strengthened IT and general controls, and began the process of preparing the required Sarbanes Oxley 404A internal testing.   This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financing reporting because we are not an “accelerated filer” or a “large accelerated filer”. Our management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.   (c) Changes in internal control over financial reporting.   During the year ended December 31, 2020, the Company took extensive measures towards remediating the material weaknesses disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, and other periodic reports filed with the SEC. These measures include, among other things, additional hiring in the accounting department to ensure appropriate segregation of duties, strengthening its controls over IT reporting and management, and the ongoing refinement of our enterprise resource planning system.  We determined that the design of internal control over financial statement processes is effective in relation to identified inherent risks for all significant processes, based on review of controls in whole, and testing of each control individually for effectiveness in meeting control objectives. As a result, it has been determined that there were no material weaknesses of internal control over financial reporting for the year ended December 31, 2020.   ITEM 9B. OT H ER INFORMATION   None.       -39- Table of Contents     PA R T III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   Directors and Executive Officers   The Company’s Board of Directors (the “ Board ”) and executive officers consist of the persons named in the table below. Each director serves for a one-year term, until his or her successor is elected and qualified, or until earlier resignation or removal. Our Bylaws provide that the authorized number of directors shall be fixed by the Board from time to time. The directors and executive officers are as follows:   Name   Age   Position Brandon Stump (1)   35   Chair and Chief Executive Officer (Principal Executive Officer) Scot Cohen   51   Director Jeffrey Fox (2)   57   Director Keith Stump (3)   59   Director Ryan Stump (4)   31   Chief Operating Officer and Director David Allen (5)   66   Chief Financial Officer and Secretary (Principal Financial Officer) Adam Mirkovich (6)   35   Chief Information Officer   (1) Mr. Stump was appointed to serve as a director and the Company’s Chief Executive Officer on April 26, 2019, in connection with the Share Exchange, effective immediately following Mr. Van Boerum’s resignation as Principal Executive Officer. The Company’s Board appointed Brandon Stump as Chair on May 8, 2019.     (2) Mr. Fox was appointed to the Company’s Board on July 16, 2019.     (3) Mr. Stump was appointed to the Company's Board on June 7, 2019.     (4) Mr. Stump was appointed to serve as a director and the Company’s Chief Operating Officer on April 26, 2019, in connection with the Share Exchange.     (5) Mr. Allen was appointed to serve as the Company’s Chief Financial Officer on April 26, 2019, in connection with the Share Exchange, effective immediately following Mr. Van Boerum’s resignation as Principal Financial Officer.     (6) Mr. Mirkovich was appointed to serve as the Company’s Chief Information Officer on May 20, 2019.   Brandon Stump and Ryan Stump are brothers, and Keith Stump is their father. Other than with the respect to the Stumps, there are no familial relationships between any of the Company’s executive officers and directors listed above.   The following biographical information regarding the foregoing directors and officers of the Company is presented below:   Brandon Stump, Chair and Chief Executive Officer. Mr. Stump was appointed as a director and Chief Executive Officer of the Company on April 26, 2019 in connection with the Share Exchange. The Board appointed Mr. Stump as Chair on May 8, 2019. Mr. Stump is a co-founder of Charlie’s, and has served as the Chief Executive Officer of Charlie’s since its inception in 2014. Prior to co-founding Charlie’s, Mr. Stump co-founded his first business, the Ohio House in 2011, with his brother Ryan Stump. Since then, he has gone on to co-found both The Chadwick House and Buckeye Recovery Network, both established in 2017, as well as The Mend California, established in 2018. These programs provide a continuum of care and services to men and women from around the country in promoting emotional, physical and spiritual development.       -40- Table of Contents     As a co-founder of Charlie’s, the Board of Directors believes that Mr. Stump’s substantial entrepreneurial, marketing, sales and industry experience provide the Board with valuable expertise that makes him a significant contributor to the Company’s continued growth in revenue and entering into new markets for its products.   Scot Cohen ,  Director .   Mr. Cohen was appointed to the Board in March 2013 and is the Founder and Managing Partner of V3 Capital Partners, a private investment firm focused on early-stage companies primarily in the consumer products industry, and Co-Manager of Red Fortune Fund, a private equity fund based in Hong Kong. Mr. Cohen also is the Founder of Petro River Oil, LLC and Chairman of Petro River Oil Corp. (OTCBB: PTRC), a publicly traded oil and gas producer with assets in Kansas and Oklahoma, and Petro Spring, a global oil and gas technology solutions provider. Prior to creating V3 Capital Partners, Mr. Cohen was the Founder and Managing Partner at Iroquois Capital Opportunity Fund, a special situations private equity investment fund, and a Co-Founder of Iroquois Capital, a hedge fund with investments in small and micro-cap private and public companies. Mr. Cohen currently serves as a director on the Board of Directors of Wrap Technologies, Inc. (NASDAQ: WRTC), and is active in philanthropic activities with numerous charities including the Jewish Enrichment Council. Mr. Cohen received a Bachelor of Science degree from Ohio University in 1991.   The Board of Directors believes Mr. Cohen’s success with multiple private investment firms, his extensive contacts within the investment community, and his financial expertise are a valuable resource to the Company’s efforts to expand and implement its business plan.   Jeffrey Fox, Director . Mr. Fox was appointed to the Board effective July 16, 2017. He has been a leading business strategist, brand marketing authority and general management executive for some of the world's largest restaurant and consumer companies including roles as Chief Brand & Concept Officer for Pizza Hut, Co-founder of Collider LLC, a cultural marketing strategy firm, Managing Director of the California office of advertising agency Foote, Cone and Belding (FCB), various positions with the Yum! Brands and within Sony's interactive and PlayStation video game divisions, and Hill & Knowlton Public Relations. He is currently a member of the board of directors of Cici’s Pizza and Flix Brewhouse. Mr. Fox holds a bachelor's degree in Journalism from San Diego State University and received a master's degree in Mass Communications from California State University, Northridge.    The Board of Directors believes that Mr. Fox’s strong experience in brand building across several diverse Fortune 100 consumer product companies will be significantly valuable to the Company as it continues to rapidly grow its product offerings and launch new brands and products around the world.   Keith Stump, Director. Mr. Stump has over 35 years of sales and management experience. He joined Charlie’s in January 2018 as a Strategic Advisor, where he has predominantly focused on sales, marketing and scaling the business, including through organizational alignments, process improvement, leadership/management training and development. Prior to joining Charlie’s, Mr. Stump served as a partner and Vice President of Sales in Blue Technologies, Inc., an office technology and Managed IT Service provider headquartered in Cleveland, Ohio, which he co-founded in 1995. While at Blue Technologies, Inc., Mr. Stump was responsible for the sales performance of the company’s five divisions, along with operational oversight. His duties included P&L responsibility for all product divisions, leadership training and development, new product and service offerings, enterprise account selling, amongst other duties. Mr. Stump was instrumental in helping Blue Technologies, Inc. become one of the Top 10 Konica Minolta providers in the country, as well as one of the Top 75 Office Technologies Dealers in the United States. Mr. Stump serves on several not-for-profit boards, which serve those in recovery from addiction and developmental disabilities.   The Board of Directors believes that Mr. Stump’s sales, marketing, management experience and industry experience, as well as entrepreneurial experience, is an asset to the Board as it manages the Company’s strategic objectives.   Ryan Stump, Director and Chief Operating Officer. Mr. Stump was appointed as a director and the Company’s Chief Marketing Officer on April 26, 2019 in connection with the Share Exchange. Mr. Stump has served as the Chief Operating Officer of Charlie’s since 2014, during which time he has been responsible for all global operations of Charlie’s. Prior to joining Charlie’s, Mr. Stump worked as an Associate Territory Manager and then as a Territory Manager for ConMed, a medical sales device company, from 2010 to 2013. Mr. Stump also co-founded and continues to be engaged with multiple companies, including The Ohio House since 2011, the Buckeye Recovery Network since 2017, and The Mend California since 2018. Mr. Stump earned a B.S. and B.A. in Sports Marketing and Marketing from Duquesne University   The Board of Directors believes that Mr. Stump’s experience operating high growth companies, as well as entrepreneurial experience, is valuable to the Board as it manages the Company’s anticipated continued growth.       -41- Table of Contents     David Allen, Chief Financial Officer and Secretary. Mr. Allen was appointed as the Company’s Chief Financial Officer on April 26, 2019, upon consummation of the Share Exchange. Mr. Allen brings over 22 years of experience as a Chief Financial Officer of public companies. From September 2018 to May 2019, Mr. Allen served as Chief Financial Officer of Iconic Brands, Inc. (OTCQB: ICNB). Prior to that, from December 2014 to January 2018, Mr. Allen served as the Chief Financial Officer of WPCS International, Inc., a design-build engineering firm focused on the deployment of wireless networks and related services. WPCS International was listed on Nasdaq, and Mr. Allen oversaw its financial reporting obligations and SEC compliance. From 2004 to 2017, Mr. Allen served as Chief Financial Officer of Bailey’s Express, Inc., a privately held trucking corporation, which filed for Chapter 11 bankruptcy in July 2017; he currently serves as the Chapter 11 Plan Administrator for the bankruptcy case. From June 2006 to June 2013, Mr. Allen served as the Chief Financial Officer and Executive Vice President of Administration at Converted Organics, Inc., a company organized to convert food waste into organic fertilizer. At Converted Organics, he was responsible for SEC reporting, audit, insurance and taxes. In June 2019, Mr. Allen was appointed to the Board of Directors and serves as the Audit Committee Chairman of MariMed, Inc. (OTC: MRMD). Mr. Allen is currently an Assistant Professor of Accounting at Southern Connecticut State University, a position he has held since 2017, and for the 12 years prior to that he was an Adjunct Professor of Accounting at SCSU and Western Connecticut State University. Mr. Allen is a licensed CPA and holds a Bachelor’s Degree in Accounting and a Master’s Degree in Taxation from Bentley College.   Adam Mirkovich, Chief Information Officer. Mr. Mirkovich was appointed as the Company’s Chief Information Officer on May 20, 2019. Mr. Mirkovich has over a decade of experience managing supply chains for consumer products. Mr. Mirkovich has served as an independent management consultant specializing in building and optimizing value chains for startups and growth stage companies in the beverage, nicotine vape, and nutritional supplements industries since 2013. Prior to joining the Company, Mr. Mirkovich served as the Chief Operating Officer of Orchid Ventures, Inc. (CSE: ORCD), a multi-state premium cannabis vape company, from September 2018 to April 2019. From December 2014 to February 2016, Mr. Mirkovich served as the Director of Supply Chain and Operations at Space Jam Juice, LLC, a distributor of premium vapor products. From November 2010 to April 2013, Mr. Mirkovich served as the Product Lifecycle Management Program Manager for Niagara Bottling, LLC, a leading bottled water manufacturer. While there, he led the product revision, introduction, and discontinuance practices for customers’ private labeled water, flavored, and carbonated beverages. Prior to that, Mr. Mirkovich served as a member of the Supply Chain Logistics team at Niagara Bottling, providing strategic support of company expansion activities and tactical support of purchasing, production planning, and multi-region logistics in North American operations. Mr. Mirkovich earned a Bachelor of Science degree in Business Administration and Economics from Chapman University.     Other than as described above, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or nominee set forth above during the past ten years.   Corporate Governance   Section 16(a) Beneficial Ownership Reporting Compliance   Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than ten percent of our common stock to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater-than-ten-percent stockholders are also required by the SEC to furnish us with copies of all Section 16(a) forms that they file.   Based solely upon a review of these forms that were furnished to us, we believe that each of our officers and directors failed to timely file at least one report due under Section 16(a) during the year ended December 31, 2020.   Code of Ethics   We have adopted a Code of Ethics that applies to all of our directors, officers and employees, a copy of which is attached as an exhibit to our Annual Report on Form 10-K, filed with the SEC on April 1, 2019.   Board Leadership Structure   The Board does not have a policy regarding the separation of the roles of the Chief Executive Officer and Chair of the Board, as the Board believes it is in the best interest of the Company’s and its stockholders to make that determination based on the position and director of the Company and the membership of the Board from time to time.   Upon consummation of the Share Exchange, Mr. Brandon Stump was appointed as a director and the Company’s Principal Executive Officer, and shortly thereafter was appointed by the Board to serve as Chair. The Board felt that this was in the best interest of the Company and its stockholders due to Mr. Stump’s knowledge and experience in the vapor market as well as the fact that he is the co-founder and Chief Executive Officer of Charlie’s. As of December 31, 2020, Mr. Stump continues to serve both as the Company’s Chief Executive Officer and as Chair of the Board.       -42- Table of Contents     Board Role in Risk Assessment   Management, in consultation with outside professionals, as applicable, identifies risks associated with the Company’s operations, strategies and financial statements. In addition, risk assessments were also performed through periodic reports received by the Audit Committee from management, counsel and the Company’s independent registered public accountants relating to risk assessment and management. Audit Committee members met privately in executive sessions with representatives of the Company’s independent registered public accountants during and prior to the year ended December 31, 2020. The Board also provides risk oversight through its periodic reviews of the financial and operational performance of the Company.   Director Nominations   The Board nominates directors for election at the Company’s annual meeting of stockholders and appoints new directors to fill vacancies when they arise, and has the responsibility to identify, evaluate and recruit qualified candidates to the Board for such nomination or appointment.   The Board of Directors identifies director nominees by first considering those current members of the Board who are willing to continue service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. Nominees for director are selected by a majority of the members of the Board. Although the Company does not have a formal diversity policy, in considering the suitability of director nominees, the Board considers such factors as it deems appropriate to develop a Board that is diverse in nature and comprised of experienced and seasoned advisors. Factors considered by the Board include judgment, knowledge, skill, diversity, integrity, experience with businesses and other organizations of comparable size, including experience in the software and/or technology industries, software, intellectual property, business, finance, administration or public service, the relevance of a candidate’s experience to our needs and experience of other Board members, experience with accounting rules and practices, the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members, and the extent to which a candidate would be a desirable addition to the Board and any committees of the Board.   A stockholder who wishes to recommend a prospective nominee for the Board may notify the Secretary of the Company in writing with any supporting material the stockholder considers appropriate. Nominees recommended by stockholders are considered in the same way as nominees suggested from other sources.    In addition, the Company’s Bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board at the Company’s annual meeting of stockholders. In order to nominate a candidate for director, a stockholder must give timely notice in writing to the Secretary of the Company and otherwise comply with the provisions of the Company’s Bylaws. Information required by the Company’s Bylaws to be in the notice include: the name, contact information and share ownership information for the candidate and the person making the nomination, and other information about the nominee that must be disclosed in proxy solicitations under Section 14 of the Exchange Act and its related rules and regulations. The Board may also require any proposed nominee to furnish such other information as may reasonably be required by the Board to determine the eligibility of such proposed nominee to serve as director of the Company. The recommendation should be sent to: Secretary, Charlie’s Holdings, Inc., 1007 Brioso Drive, Costa Mesa, California 92627.    Board of Directors; Attendance at Meetings   The Board held five meetings and acted by unanimous written consent three times during the year ended December 31, 2020. Each director attended at least 75% of Board meetings during the year ended December 31, 2020. We have no formal policy with respect to the attendance of Board members at annual meetings of shareholders, but encourage all incumbent directors and director nominees to attend each annual meeting of shareholders.   Board Committees and Charters   As of December 31, 2020, the Board had a standing Audit Committee. Currently, the Board does not have an active compensation committee or nominating and corporate governance committee. Instead, the full Board currently administers the duties of each of these committees, and will likely do so for the foreseeable future. Written charters for each of the Board’s active committees are available on the Company’s website at www.charliesholdings.com under “ Investors/Corporate Governance ”.       -43- Table of Contents     Audit Committee   As of December 31, 2020, the Audit Committee consisted of Messrs. Cohen (Chair) and Fox. The Audit Committee met four times during the year ended December 31, 2020.   The Audit Committee assisted the Board in fulfilling its legal and fiduciary obligations in matters involving the Company’s accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by the Company’s independent accountants and reviewing their reports regarding the Company’s accounting practices and systems of internal accounting controls. The Audit Committee was responsible for the appointment, compensation, retention and oversight of the independent accountants and for ensuring that the accountants are independent of management.   Compensation Committee   As noted above, the Board currently does not have an active compensation committee. Instead, t he full Board currently administers the duties that are typically allocated to the compensation committee, and will likely do so for the foreseeable future.   Nominating and Corporate Governance Committee   As noted above, the Board currently does not have an active nominating and corporate governance committee. Instead, t he full Board currently administers the duties that are typically allocated to the nominating and corporate governance committee, and will likely do so for the foreseeable future.   ITEM 11. EX E CUTIVE COMPENSATION    Summary Compensation Table   The following table sets forth the compensation paid to the following persons for our fiscal years ended December 31, 2020 and 2019:   (a) our principal executive officer;     (b) our most highly compensated executive officers who were serving as an executive officer at the end of the fiscal year ended December 31, 2020 and 2019 who had total compensation exceeding $100,000 (together, with the principal executive officer, the “ Named Executive Officers ”); and     (c) any additional individuals who would have been considered Named Executive Officers, but for the fact that they were not serving in such capacity at the end of our most recently completed fiscal year.   Name and   Principal Position     Year     Salary ($)       Bonus ($)     Option Awards ($) (1)       Total ($)                               Brandon Stump (2) 2020   $ 381,855     $ –     $ –     $ 381,855   Chief Executive Officer and Chair of the Board 2019   $ 333,330     $ 497,000     $ –     $ 830,330   David Allen (3) 2020   $ 122,115     $ 20,000     $ –     $ 142,115   Chief Financial Officer 2019   $ 93,750     $ –     $ 43,500     $ 137,250   Ryan Stump (4) 2020   $ 381,817     $ –     $ –     $ 381,817   Chief Operating Officer and Director 2019   $ 333,330     $ 497,000     $ –     $ 830,330   Former Named Executive Officers                                 Robert Van Boerum (5) 2020   $ 24,525     $ –     $ –     $ 24,525   Consultant 2019   $ 67,500     $ –     $ –     $ 67,500         -44- Table of Contents       (1) The amounts in the “Option Awards” columns do not represent any cash payments actually received by the individuals listed in the table with respect to any of such stock options awarded to them during the year ended December 31, 2020.  Rather, the amounts represent the aggregate grant date fair value of options awards to the individuals listed in the table during the years ended December 31, 2019 and 2020, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation.     (2) Mr. Stump was appointed to serve as the Company’s Chief Executive Officer and as a director on April 26, 2019, in connection with the Share Exchange, effective immediately following Mr. Van Boerum’s resignation as Principal Executive Officer.     (3)   Mr. Allen was appointed to serve as the Company’s Chief Financial Officer on April 26, 2019, in connection with the Share Exchange, effective immediately following Mr. Van Boerum’s resignation as Principal Financial Officer.     (4) Mr. Stump was appointed to serve as the Company’s Chief Operating Officer and as a director on April 26, 2019, in connection with the Share Exchange.     (5)   Mr. Van Boerum was appointed to serve as the Company’s Principal Executive Officer and Principal Financial Officer effective May 15, 2018, and resigned from such positions on April 26, 2019, effective upon consummation of the Share Exchange.   Outstanding Equity Awards at Fiscal Year-End 2020   The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2020:     Name     Number of Securities Underlying Unexercised Options and Warrants (#) Exercisable       Number of Securities Underlying Unexercised Options and Warrants (#) Unexercisable         Exercise Price ($)           Expiration Date   Brandon Stump     –       –       –       –   David Allen                                 Ryan Stump     –       –       –       –   Former Named Executive Officers                                 Robert VanBoreum                                         -45- Table of Contents     Executive Compensation Arrangements   Employment Agreements   Brandon Stump . On April 26, 2019, in connection with the Share Exchange and his appointment as Chief Executive Officer, the Company and Mr. Brandon Stump entered into an employment agreement (the “ B. Stump Employment Agreement ”) pursuant to which (i) Mr. Stump serves as the Company’s Chief Executive Officer, initially for a term of three years, renewable for one-year periods thereafter; (ii) Mr. Stump is subject to a non-competition requirement for three years after his termination; (iii) Mr. Stump is subject to a non-solicitation requirement for one year after his termination, and be entitled to receive the following compensation for his services as Chief Executive Officer: (a) an annual base salary of $500,000, which shall increase on an annual basis by an amount not less than $25,000 per year, as determined by the Compensation Committee of the Company’s Board, (b) an annual cash bonus of up to $750,000 per year, which cash bonus will be determined based on the Company’s achievement of audited gross revenue targets of $35.0 million per year, as more particularly set forth in the B. Stump Employment Agreement, (c) certain milestone based bonuses, (d) an annual award of shares of common stock having an aggregate value equal to one-half of Mr. Stump’s annual base salary in effect for such year, which shares shall vest quarterly in equal amounts over a three year period commencing on the issuance date, (e) participation in the Company’s retirement plan, if any, (f) reimbursement of all reasonable business-related expense incurred by Mr. Stump, (e) full health insurance coverage for he and his dependents, and at least $5.0 million of life insurance, (g) 21 paid vacation days per year, and (h) an automobile allowance of $750 per month.   The Company may terminate the B. Stump Employment Agreement in the event of Mr. Stump’s death or disability, or for Cause, as defined in the B. Stump Employment Agreement; provided, however , that at no time may the Company terminate him without Cause. Mr. Stump may terminate the B. Stump Employment Agreement at any time for any reason. In the event that his employment is terminated by him without Good Reason, as defined in the B. Stump Employment Agreement, or by the Company for Good Cause as a result of a Change in Control, he shall be entitled to the following compensation: (i) any earned but unpaid salary through the termination date, (ii) unpaid and unreimbursed expense, (iii) earned but unpaid bonuses, and (iv) any accrued vacation days; provided, however , that in the event that the B. Stump Employment Agreement is terminated by Mr. Stump for any reason, he shall also be entitled to one year’s severance, consisting of one year’s base salary, milestone bonuses and certain other benefits. In the event his employment is terminated by the Company without Cause or Mr. Stump terminates it for Good Reason, as defined in the B. Stump Employment Agreement, then he shall be entitled to the following compensation: (i) all amounts due to him through the termination date, (ii) full vesting of any and all previously granted equity-based incentive awards, and (iii) health insurance coverage for a period of 18 months after the termination date. In addition, effective upon a Change in Control, regardless of whether the B. Stump Employment Agreement is terminated, his base salary for the year in which the Change in Control occurred and any years thereafter shall automatically increase by 20% and the milestone bonuses shall automatically decrease by 30%.   Ryan Stump . On April 26, 2019, in connection with the Share Exchange and his appointment as Chief Operating Officer, the Company and Mr. Ryan Stump entered into an employment agreement (the “ R. Stump Employment Agreement ”), pursuant to which (i) Mr. Stump serves as the Company’s Chief Operating Officer for a term of three years, renewable for one-year periods thereafter, during which time he shall report to the Company’s Chief Executive Officer; (ii) Mr. Stump is subject to a non-competition requirement for three years after his termination; (iii) Mr. Stump is subject to a non-solicitation requirement for one year after his termination, and be entitled to receive the following compensation for his services as Chief Operating Officer: (a) an annual base salary of $500,000, which shall increase on an annual basis by amount that is not less than $25,000 per year, as determined by the Compensation Committee of the Company’s Board, (b) an annual cash bonus of up to $750,000 per year, which cash bonus will be determined based on the Company’s achievement of a gross revenue target of $35.0 million per year, as more particularly set forth in the R. Stump Employment Agreement, (c) certain milestone based bonuses, (d) an annual award of shares of Common Stock having an aggregate value equal to one-half of Mr. Stump’s annual base salary in effect for such year, which shares shall vest quarterly in equal amounts over a three year period commencing on the issuance date, (e) participation in the Company’s retirement plan, if any, (f) reimbursement of all reasonable business-related expense incurred by Mr. Stump, (e) full health insurance coverage for he and his dependents, and at least $5.0 million of life insurance, (g) 21 paid vacation days per year, and (h) an automobile allowance of $750 per month.         -46- Table of Contents     The Company may terminate the R. Stump Employment Agreement in the event of Mr. Stump’s death or disability, or for Cause, as defined in the R. Stump Employment Agreement; provided, however , that at no time may the Company terminate him without Cause. Mr. Stump may terminate the R. Stump Employment Agreement at any time for any reason. In the event that his employment is terminated by him without Good Reason, as defined in the R. Stump Employment Agreement, or by the Company for Good Cause as a result of a Change in Control, he shall be entitled to the following compensation: (i) any earned but unpaid salary through the termination date, (ii) unpaid and unreimbursed expense, (iii) earned but unpaid bonuses, and (iv) any accrued vacation days; provided, however , that in the event that the R. Stump Employment Agreement is terminated by Mr. Stump for any reason, he shall also be entitled to one year’s severance, consisting of one year’s base salary, milestone bonuses and certain other benefits. In the event that his employment is terminated by the Company without Cause or he terminates it for Good Reason, as defined in the R. Stump Employment Agreement, then Mr. Stump shall be entitled to the following compensation: (i) all amounts due to him through the termination date, (ii) full vesting of any and all previously granted equity-based incentive awards, and (iii) health insurance coverage for a period of 18 months after the termination date. In addition, effective upon a Change in Control, regardless of whether the R. Stump Employment Agreement is terminated, his base salary for the year in which the Change in Control occurred and any years thereafter shall automatically increase by 20% and the milestone bonuses shall automatically decrease by 30%.     On February 12, 2020, the Board of Directors (the “Board” ) of the Company, entered into a form of Amended and Restated Employment Agreement with both Brandon Stump and Ryan Stump, the Company’s Chief Executive Officer and Chief Operating Officer, respectively (together the “Amended Employment Agreements” ) effective February 12, 2020.   The terms of the Amended Employment Agreements have been amended as follows: (i) the annual equity awards based upon, among other conditions, the Company’s market capitalization and a percentage of base salary have been eliminated; however, the awards based on financial milestones remain in full force and effect; and (ii) payment of the 2019 bonuses have been deferred, resulting in the accrual of such bonuses on the books and records of the Company. All other terms of the respective Employment Agreements for Messrs. Stump and Stump will remain in full force and effect subject to further review by the Board as it deems necessary and appropriate.   Director Compensation   The Company’s Director Compensation Plan currently provides that non-employee directors receive (a) a $60,000 annual retainer, payable in equal monthly installments in cash and (b) reimbursement for expenses related to Board meeting attendance and committee participation. In addition, directors receive a one-time grant of an option to purchase 25 million shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on the date of issuance, as reported on the OTC Pink Market. Directors that were also employees of the Company did not receive additional compensation for serving on the Board.   The following table discloses certain information concerning the compensation of the Company’s non-employee directors for the year ended December 31, 2020:   Name     Fees Earned or Paid in Cash ($)       Option Awards ($) (1)       Total ($)   Scot Cohen (2)    $ –     $ –     $ –   Jeff Fox    $ 60,000     $ –     $ 60,000     (1) The amounts in the “Option Awards” columns do not represent any cash payments actually received by the individuals listed in the table with respect to any of such stock options awarded to them during the year ended December 31, 2020.  Rather, the amounts represent the aggregate grant date fair value of options awards to the individuals listed in the table during the year ended December 31, 2020, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation.     (2) Mr. Cohen did not receive any compensation from the Company in connection with his service on the Company’s Board of Directors during the year ended December, 31 2020.               -47- Table of Contents     Outstanding Equity Awards as of December 31, 2020   The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2020: Name     Number of Securities Underlying Unexercised Options and Warrants (#) Exercisable       Number of Securities Underlying Unexercised Options and Warrants (#) Unexercisable         Exercise Price ($)           Expiration Date   Brandon Stump     –       –       –       –   David Allen     5,000,000       –10,000,000     $ –0.0044313       –10/28/2029    Ryan Stump     –       –       –       –   Former Named Executive Officers                                 Robert VanBoreum     3,172,294       3,172,294     $ 0.02     05/20/2024      Equity Compensation Plan Information   The following table includes information as of December 31, 2020 for our equity compensation plans: Plan category     Number of securities to be issued upon exercise of outstanding options, warrants and rights       Weighted-average exercise price of outstanding options, warrants and rights       Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))         (a)       (b)       (c)   Equity compensation plans approved by stockholders     750,293,786     $ 0.0044313       367,754,205                             Equity compensation plans not approved by stockholders     –     $ –       –                             Total     750,293,786     $ 0.0044313       367,754,205     2013 Stock Incentive Plan . The 2013 Stock Incentive Plan (the “ 2013 Plan ”) was adopted by the Company’s Board of Directors on December 31, 2013. The 2013 Plan initially reserved for issuance 20.0 million shares of common stock for issuance to all employees (including, without limitation, officers and directors who are also employees) of the Company or any subsidiary of the Company (each a “ Subsidiary ”), any non-employee director, consultants and independent contractors of the Company or any Subsidiary, and any joint venture partners (including, without limitation, officers, directors and partners thereof) of the Company or any Subsidiary. Awards under the 2013 Plan may be made in the form of: (i) incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, once the 2013 Plan has been approved by a majority of the Company’s stockholders; (ii) stock options that do not qualify as incentive stock options; and/or (iii) awards of shares that are subject to certain restrictions specified in the 2013 Plan. On May 8, 2019, the Board of Directors authorized increasing the number of shares reserved for issuance under the plan to a total of 65.0 million shares of common stock and to ratify the issuance of any and all awards made prior to that date, subject to stockholder approval.        -48- Table of Contents     During the year ended December 31, 2018, the Company did not issue any restricted stock awards pursuant to the 2013 Plan; however, the Company issued an aggregate total of 34,652,903 stock option awards pursuant to the 2013 Plan during the 2018 fiscal year.   Subsequent to the year ended December 31, 2018, on May 16, 2019, the Board approved an amendment to all of the outstanding stock options held by Mr. Sherman that were issued under the 2013 Plan, in the aggregate amount of 35,971,988, to extend the expiration date of such stock options by five years.   As of the date of the Share Exchange, April 26, 2019, a total of approximately 91.7 million awards were issued under 2013 Plan, consisting entirely of outstanding stock options. As of December 31, 2020, approximately 56.6 million of these stock options remain vested and exercisable.   The Company will not grant any additional awards or shares of common stock under the Prior Plan beyond those that are currently outstanding.   2019 Omnibus Incentive Plan . The 2019 Omnibus Incentive Plan (the “ 2019 Plan ”) was adopted by the Company’s Board of Directors on May 8, 2019, subject to stockholder approval and registration or qualification of the shares subject to the 2019 Plan with the federal and state securities authorities. The 2019 Plan reserved for issuance approximately 1.1 billion shares of common stock for issuance to all employees (including, without limitation, officers and directors who are also employees) of the Company or any Subsidiary, any non-employee director, consultants and independent contractors of the Company or any Subsidiary, and any joint venture partners (including, without limitation, officers, directors and partners thereof) of the Company or any Subsidiary. Awards under the 2019 Plan may be made in the form of: (i) incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, once the 2019 Plan has been approved by a majority of the Company’s stockholders; (ii) stock options that do not qualify as incentive stock options; and/or (iii) awards of shares that are subject to certain restrictions specified in the 2019 Plan.   As of December 31, 2020, there were a total of 693,666,666 stock options outstanding pursuant to the 2019 Plan, 300,333,336 of which have vested.   Post-Employment Compensation, Pension Benefits, Nonqualified Deferred Compensation   There were no post-employment compensation, pension or nonqualified deferred compensation benefits earned by the Named Executive Officers during the year ended December 31, 2020.   ITEM 12. SECU R ITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS     The Company currently has two classes of voting securities issued and outstanding: (i) common stock and (ii) Series A Preferred. The following tables contain the beneficial ownership of our outstanding voting securities owned by:   (i) Each of our officers and directors;   (ii) All officer and directors as a group; and   (iii) Each person known by us to beneficially own five percent or more of the outstanding shares of our Series A Preferred and common stock.   Percent ownership is calculated based on 190,690 shares of Series A Preferred and 19,638,493,279 shares common stock outstanding as of March 23, 2021.   For purposes of this section, beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person and the percentage of ownership by that person in each table below, shares of voting common stock subject to rights held by that person to acquire such shares currently or within 60 days are deemed outstanding. Such shares are not deemed outstanding for the purpose of computing the percentage of ownership by any other person.       -49- Table of Contents     Beneficial Ownership of Series A Preferred   Name and Address   (1)     Series A Convertible Preferred Stock       % Ownership of Class   Executive Officers and Directors             Scot Cohen             Director     3,750       2.0 % Keith Stump                 Director     3,000       1.6 % Total Officers and Directors      6,750       3.5 % Greater Than 5% Stockholders                 Red Beard Holdings, LLC   (2)                 17595 Harvard Avenue, Suite C511                 Irvine, California 92614     33,750       17.7 % Iroquois Capital Management, LLC   (3)                 125 Park Avenue, 25th Floor                 New York, New York 10017     32,813       17.2 % Hudson Bay Capital Management, LP  (4)                 777 Third Avenue, 30th Floor                 New York, New York 10017     10,450       5.5 % SDS Capital Partners II, LLC  (5)                 500 Summer Street, Suite 405                 Stamford, Connecticut 06901     11,250       5.9 % Altium Growth Fund, LP  (6)                 551 Fifth Avenue, 19th Floor                 New York, New York 10176     11,025       5.8 %   (1) Each of the Company’s officers and directors who will not hold shares of Series A Preferred were excluded from this table. Unless otherwise indicated, the address for each stockholder is 1007 Brioso Drive, Costa Mesa, California 92627.     (2) Based on Company records as of March 23 , 2021. Mr. Smith is a manager of Red Beard, and has dispositive power and voting power over the securities reported herein.     (3) Based on Company records and ownership information from Schedule 13G filed by Iroquois Capital Management, LLC (“ Iroquois Capital Management ”), Mr. Richard Abbe and Ms. Kimberly Page on May 24, 2019. Mr. Abbe shares authority and responsibility for the investments made on behalf of Iroquois Master Fund with Ms. Kimberly Page, each of whom is a director of the Iroquois Master Fund. As such, Mr. Abbe and Ms. Page may each be deemed to be the beneficial owner of the shares of Series A Preferred reported herein.     (4) Based on Company records as of March 23, 2021. Sander Gerber, Authorized Signor for Hudson Bay Capital Management, LP may be deemed to be the beneficial owner of all shares of common stock underlying the common stock held by Hudson Bay Capital Management, LP.     (5) Based on Company records as of March 23, 2021. Steve Derby, Managing Member of SDS Capital Partners II, LLC may be deemed to be the beneficial owner of all shares of common stock underlying the common stock held by SDS Capital Partners II, LLC.     (6) Based on Company records as of March 23 , 2021. Jacob Gottlieb, Chief Executive Officer of Altium Growth Fund, LP may be deemed to be the beneficial owner of all shares of common stock underlying the common stock held by Altium Growth Fund, LP.       -50- Table of Contents     Beneficial Ownership of Common Stock Name, Address and Title (if applicable) (1)     Shares of Common Stock       Shares Issuable Upon Conversion of Preferred A Stock (2)       Shares Issuable upon Exercise of Warrants (3)       Shares Issuable upon Exercise of Vested Stock Options       Total Number of Shares Beneficially Owned       % Ownership of Class                                       Brandon Stump                                     Chief Executive Officer and Director     6,381,616,617       -       -       -       6,381,616,617       32.5 % Ryan Stump                                                 Chief Operating Officer and Director     2,734,978,608       -       -       -       2,734,978,608       13.9 % David Allen                                                 Chief Financial Officer     30,000,000       -       -       5,000,000       35,000,000       0.2 % Adam Mirkovich                                                 Chief Information Officer     810,000       -       -       3,333,333       4,143,333       0.0 % Scot Cohen (4)                                                 Director     202,632,203       84,625,280       56,416,355       7,244,826       350,918,664       1.8 % Keith Stump                                                 Director     213,086,946       67,700,224       45,133,084       16,666,667       342,586,921       1.7 % Executive Officers and Directors, as a group (6 persons)     9,563,124,374       152,325,504       101,549,439       32,244,826       9,849,244,143       49.4 %   Greater Than 5% Stockholders                               Vincent C. Smith (5)                                     17595 Harvard Avenue, Suite C511                                     Irvine, California 92614     2,216,559,416       761,627,520       513,130,526       -       3,491,317,462       16.7 % Red Beard Holdings, LLC (6)                                                 17595 Harvard Avenue, Suite C511                                                 Irvine, California 92614     4,012,825,315       761,627,520       513,130,526       -       5,287,583,361       25.3 % Iroquois Capital Management, LLC (7)                                                 125 Park Avenue, 25th Floor                                                 New York, New York 10017     514,000,002       740,471,200       493,643,101       -       1,748,114,303       8.4 %       -51- Table of Contents       (1)  Unless otherwise indicated, the address for each stockholder is 1007 Brioso Drive, Costa Mesa, California 92627.   (2)  Pursuant to the Certificate of Designation of the Series A Preferred (“ Series A COD ”), shares of Series A Preferred may not be converted or exercised, as applicable, to the extent that the holder and its affiliates would own more than 4.99% (or 9.99% upon the election of any holder of Series A Preferred) of the Company’s outstanding common stock after such conversion (the “ Series A Ownership Limitation ”); provided ,  however , that any holder of shares of Series A Preferred may waive the Conversion Limitation upon 61 days written notice to the Company .   The Series A COD also entitles each share of Series A Preferred to vote, on an as converted basis, along with the common stock;  provided, however,  that the Series A Preferred may not be voted to the extent that the holder and its affiliates would control more than 9.99% of the Company’s voting power (the “ Series A Voting Limitation ”).   Ownership percentages in this table were calculated in accordance with Section 13(d) of the Exchange Act, and do not reflect any adjustments due to the Series A Ownership Limitation or the Series A Voting Limitation.   (3)  Certain of the warrants included in this table are subject to blockers that prevent a holder from exercising Investor Warrants or Placement Agent Warrants in the event that such exercise would result in the holder and its affiliates beneficially owning in excess of 4.99% of the Company’s issued and outstanding common stock immediately thereafter, which limit may be increased to 9.99% at the election of the holder (the “ Warrant Exercise Limitation ”).   Ownership percentages in this table were calculated in accordance with Section 13(d) of the Exchange Act, and do not reflect any adjustments due to the Warrant Exercise Limitation.   (4)  Includes securities held by V3 Capital Partners and the Scot Jason Cohen Foundation. Mr. Cohen is the Managing Partner of V3 Capital Partners and an officer of the Scot Jason Cohen Foundation, and has dispositive and/or voting power over these shares.   (5)  Includes securities held by LB 2, LLC (“ LB 2 ”) and Red Beard Holdings, LLC (“ Red Beard ”), based on Company records and ownership information from Amendment No. 5 to Schedule 13D filed by Vincent C. Smith on April 25, 2016. Mr. Smith is manager of LB 2 and Red Beard. As such, Mr. Smith has dispositive power and voting power over, and may be deemed to be the beneficial owner of the securities held by each of these entities.   (6)  Based on Company records and ownership information from Amendment No. 5 to Schedule 13D filed by Vincent C. Smith on April 25, 2016. Mr. Smith is a manager of Red Beard, and has dispositive power and voting power over the securities reported herein.   (7) Based on Company records and ownership information from Schedule 13G filed by Iroquois Capital Management, LLC (“ Iroquois Capital Management ”), Mr. Richard Abbe and Ms. Kimberly Page on May 24, 2019. Mr. Abbe shares authority and responsibility for the investments made on behalf of Iroquois Master Fund with Ms. Kimberly Page, each of whom is a director of the Iroquois Master Fund. As such, Mr. Abbe and Ms. Page may each be deemed to be the beneficial owner of all shares of common stock underlying the common stock held by Iroquois Master Fund.    ITEM 13. CERTAIN R ELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE     Certain Relationships and Related Transactions   On November 19, 2019, Charlie’s entered into commercial lease for the Company’s corporate headquarters in Costa Mesa, California (the “ Lease ”) with Brandon Stump, Ryan Stump and Keith Stump. Messrs. Stump, Stump and Stump 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, and executed by Mr. Allen, the Company’s Chief Financial Officer after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant.       -52- Table of Contents       Director and Executive Officer Compensation   See “Executive Compensation” and “Director Compensation” for information regarding compensation of directors and executive officers.   Employment Agreements   We have entered into employment agreements with our executive officers. For more information regarding these agreements, see “ Executive Compensation — Narrative to Summary Compensation Table and Outstanding Equity Awards at 2020 Fiscal Year End ”.   Independent Directors   The Board has determined that Messrs. Cohen and Fox may be considered independent directors as defined by the rules and regulations of the Nasdaq Stock Market.   In addition, the Board has determined that Mr. Cohen satisfies the definition of an “audit committee financial expert” under SEC rules and regulations. This designation does not impose any duties, obligations or liabilities on Mr. Cohen that are greater than those generally imposed on them as members of the Audit Committee and the Board, and his designation as an audit committee financial expert does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.    ITEM 14. PRI N CIPAL ACCOUNTANT FEES AND SERVICES   On November 1, 2020, the Company was notified that the audit practice of Squar Milner, an independent register public accounting firm, was combined with Baker Tilly US, LLP ( “Baker Tilly” ) in a transaction pursuant to which Squar Milner combined its operations with Baker Tilly and certain of the professional staff and partners of Squar Milner joined Baker Tilly either as employees or partners of Baker Tilly. The following table presents approximate aggregate fees and other expenses for professional services rendered by Baker Tilly, our independent registered public accounting firm, for the audit of the Company’s annual financial statements for the years ended December 31, 2020 and 2019 and fees and other expenses for other services rendered during those periods.       2020     2019                 Audit Fees  (1)   $ 140,000     $ 165,500   Audit-Related Fees (2)   $ 7,500     $ -   Tax Fees  (3)   $ -     $ -   All Other Fees     $ -     $ -   Total   $ 147,500     $ 165,500     (1) Audit services in 2020 and 2019 consisted of the audit of our annual consolidated financial statements, and other services related to filings and filed by us and our subsidiaries, and other pertinent matters.     (2) Audit-related fees consist of fees billed for services that are normally provided by our independent registered public accountants in connection with registration statements and other regulatory filings that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.”     (3) For permissible professional services related to income tax return preparation and compliance.             -53- Table of Contents     PA R T IV   ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES   Exhibit No     Description 2.1   Agreement and Plan of Merger among Bazi International, Inc., Bazi Acquisition Sub, Inc., GT Beverage Company, Inc. and MKM Capital Advisors, LLC dated as of June 7, 2012, incorporated herein by reference from Exhibit 2.1 to the Current Report on Form 8-K filed on June 21, 2012. 3.1   Articles of Incorporation, incorporated herein by reference from Exhibit 3.01 to Form SB-2 filed on February 27, 2001. 3.1.1   Certification of Amendment to the Articles of Incorporation incorporated herein by reference from Exhibit 3.1.1 to Form 10-QSB filed on November 14, 2003. 3.1.2   Amended and Restated Articles of Incorporation of Charlie’s Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed July 2, 2019. 3.2   Amended and Restated By-laws, incorporated herein by reference from Exhibit 3.2 to Form 10-KSB filed on March 3, 2005. 3.3   Amendment to the Amended and Restated Bylaws of Bazi International, Inc., incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on October 17, 2012. 3.3   Amended and Restated Articles of Incorporation incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on August 2, 2010. 3.4   Certification of Amendment to the Article of Incorporation incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K on filed May 20, 2011. 3.5   Certificate of Amendment to the Articles of Incorporation, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on January 22, 2013. 3.6   Certificate of Amendment to the Articles of Incorporation of True Drinks Holdings, Inc., dated February 6, 2014, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on February 6, 2014. 3.7   Certificate of Amendment to the Articles of Incorporation of True Drinks Holdings, Inc., dated June 10, 2015, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on June 25, 2015. 3.8   Amended and Restated By-laws, incorporated herein by reference from Exhibit 3.2 to the Quarterly Report on Form 10-Q filed on August 13, 2015. 3.9   Certificate of Amendment to the Articles of Incorporation of True Drinks Holding, Inc. dated December 30, 2015, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K, filed on January 7, 2016. 3.10   Certificate of Amendment of the Articles of Incorporation of True Drinks Holding, Inc. dated November 13, 2018, incorporated herein by reference from Exhibit 3.1 to the Quarterly Report on Form 10-Q filed on November 20, 2018. 3.11   Amended and Restated Bylaws of Charlie's Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on September 11, 2019. 4.1   Certificate of Designation, Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Bazi International, Inc., incorporated herein by reference from Exhibit 4.2 to the Current Report on Form 8-K filed on October 17, 2012. 4.2   Certificate of Withdrawal of the Series A Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.3 to the Current Report on Form 8-K filed on February 23, 2015. 4.3   Certificate of Designation, Preferences, Rights, and Limitations of Series B Convertible Preferred Stock of True Drinks Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K, filed November 26, 2013. 4.4   First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K filed on February 23, 2015.  4.5   Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on February 23, 2015. 4.6   First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated March 26, 2015, incorporated by reference from Exhibit 4.1 to the Current Report on Form 8-K filed on April 1, 2015.     -54- Table of Contents       4.7   Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc., dated August 12, 2015, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed August 18, 2015. 4.8   Amendment No. 1 to the Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated November 24, 2015, incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K filed December 1, 2015. 4.8   Third Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated April 12, 2016, incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K filed April 19, 2016. 4.9   Certificate of Designation, Preferences, Rights and Limitations of the Series D Convertible Preferred Stock of True Drinks Holdings, Inc., dated January 24, 2017, incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K filed February 15, 2017. 4.10   Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred stock, dated April 26, 2019, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K, filed April 30, 2019. 4.11   Fourth Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred stock, dated April 26, 2019, incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K, filed April 30, 2019. 4.12   First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series D Convertible Preferred stock, dated April 26, 2019, incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K, filed April 30, 2019. 4.13   Certificate of Withdrawal of the Series B Convertible Preferred Stock, dated April 26, 2019, incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K, filed April 30, 2019. 4.14   Certificate of Withdrawal of the Series C Convertible Preferred Stock, dated April 26, 2019, incorporated by reference to Exhibit 3.5 to the Current Report on Form 8-K, filed April 30, 2019. 4.15   Certificate of Withdrawal of the Series D Convertible Preferred Stock, dated April 26, 2019, incorporated by reference to Exhibit 3.6 to the Current Report on Form 8-K, filed April 30, 2019. 4.16   Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, dated April 25, 2019, incorporated by reference to Exhibit 3.7 to the Current Report on Form 8-K, filed April 30, 2019. 4.17   Certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock, dated April 26, 2019, incorporated by reference to Exhibit 3.9 to the Current Report on Form 8-K, filed April 30, 2019. 4.18   Form of Investor Warrant, dated April 26, 2019, incorporated by reference to Exhibit 3.8 to the Current Report on Form 8-K, filed April 30, 2019. 10.1   Employment agreement with Dan Kerker, incorporated by reference to Exhibit 10.4 filed with the Annual Report on Form 10-K, filed April 5, 2013. 10.2   Employment agreement with Kevin Sherman, incorporated by reference from Exhibit 10.3 filed with the Annual Report on Form 10-K, filed March 31, 2014. 10.3   Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed November 26, 2013. 10.4   2013 Stock Incentive Plan, incorporated by reference from Exhibit 10.17 to the Annual Report on Form 10-K, filed March 31, 2014. 10.5   Form of Securities Purchase Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed February 23, 2015. 10.6   Form of Amendment No. 1 to Securities Purchase Agreement, dated March 27, 2015, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed on April 1, 2015. 10.7   Form of Common Stock Purchase Warrant, dated February 20, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed February 23, 2015. 10.8   Form of Registration Rights Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed February 23, 2015. 10.9   Form of Indemnification Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed February 23, 2015. 10.10   Form of Note Exchange Agreement, dated March 27, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed on April 1, 2015.     -55- Table of Contents       10.11   Form of Securities Purchase Agreement, dated August 13, 2015 incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed August 18, 2015. 10.12   Form of Common Stock Purchase Warrant, dated August 13, 2015 incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed August 18, 2015. 10.13   Form of Registration Rights Agreement, dated August 13, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed August 18, 2015. 10.14   Form of Senior Subordinated Secured Promissory Note, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed September 11, 2015. 10.15   Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed September 11, 2015. 10.16   Employment Agreement, by and between the Company and Robert Van Boerum, dated September 9, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed September 11, 2015. 10.17   Senior Secured Promissory Note, dated October 9, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed October 27, 2015. 10.18   Personal Guaranty Warrant, dated October 9, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed October 27, 2015. 10.19   Amendment No.1 to Securities Purchase Agreement, dated October 16, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed October 27, 2015. 10.20   Amendment No. 1 to Registration Rights Agreement, dated October 16, 2015, incorporated by reference from Exhibit 10.5 to the Current Report on Form 8-K, filed October 27, 2015. 10.21   Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed December 1, 2015. 10.22   Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed December 1, 2015. 10.23   Form of Registration Rights Agreement, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed December 1, 2015. 10.24   Employment Agreement, by and between True Drinks Holdings, Inc. and Kevin Sherman, dated November 25, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed December 1, 2015. 10.25   Form of Note Exchange Agreement, incorporated by reference to the Annual Report on Form 10-K, filed March 31, 2017. 10.26   Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed April 19, 2016. 10.27   Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed April 19, 2016. 10.28   Debt Conversion Agreement by and between True Drinks Holdings, Inc. and Red Beard, LLC, dated April 26, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed April 30, 2019. 10.29   Form of Exchange Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed April 30, 2019. 10.30   Form of Registration Rights Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed April 30, 2019. 10.31   Engagement Letter by and between True Drinks Holdings, Inc., Charlie’s Chalk Dust LLC and Katalyst Securities LLC, dated February 15, 2019, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed April 30, 2019. 10.32   Amendment to Engagement Letter, dated April 16, 2019, incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, filed April 30, 2019. 10.33   Subscription Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K, filed April 30, 2019. 10.34   Employment Agreement by and between True Drinks Holdings, Inc. and Brandon Stump, dated April 26, 2019, incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K, filed April 30, 2019. 10.35   Employment Agreement by and between True Drinks Holdings, Inc. and Ryan Stump, dated April 26, 2019, incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K, filed April 30, 2019.       -56- Table of Contents       10.36   License Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 11, 2019. 10.37   Services Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed June 11, 2019. 10.38   Commercial Lease Agreement, by and between Charlie’s Chalk Dust, LLC and Brandon Stump, Ryan Stump and Keith Stump, dated November 19, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 22, 2019. 10.39   Promissory Note issued to Red Beard Holdings, LLC dated April 8, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on April 14, 2020). 10.40   Security Agreement by and among the Company and Red Beard Holdings, LLC dated April 8, 2020, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed April 14, 2020. 10.41   Amendment No. 1 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated August 27, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed September 1, 2020. 10.42   Amendment No. 2 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated September 30, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed October 2, 2020. 10.43   Amendment No. 3 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated October 29, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 3, 2020. 10.44   Amendment No. 4 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, executed as of December 12, 2020 but effective as of December 1, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed December 15, 2020. 10.45   Amendment No. 5 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated January 19, 2021 and effective as of January 1, 2021, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed January 20, 2021. 10.46   Satisfaction and Release 14.1   Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference. 14.2   Board Charter filed with Form 10-K on March 31, 2011 and incorporated herein by reference. 21.1   Subsidiaries of True Drinks Holdings, Inc., incorporated by reference from Exhibit 21.1 to the Annual Report on Form 10-K, filed April 2, 2015. 23.1   Consent of Baker Tilly US, LLP, dated April 2, 2021, filed herewith. 31.1   Certification of Principal Executive Officer as Required by Rule 13a-14(a)/15d-14, filed herewith. 31.2   Certification of Principal Financial Officer as Required by Rule 13a-14(a)/15d-14, filed herewith. 32.1   Certification of Principal Executive Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith. 32.2   Certification of Principal Financial Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith. 101.INS   XBRL Instance Document 101.SCH   XBRL Taxonomy Extension Schema 101.CAL   XBRL Taxonomy Extension Calculation Linkbase 101.DEF   XBRL Taxonomy Extension Definition Linkbase 101.LAB   XBRL Taxonomy Extension Label Linkbase 101.PRE   XBRL Taxonomy Extension Presentation Linkbase   ITEM 16. FO R M 10-K SUMMARY   None.     -57- Table of Contents     SIGNA T URES   In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.   Date: April 2 , 2021   CHARLIE’S HOLDINGS, INC.               By: /s/ Brandon Stump       Brandon Stump Chief Executive Officer and Chair of the Board (Principal Executive Officer)               /s/ David Allen       David Allen Chief Financial Officer (Principal Financial and Accounting Officer)         In accordance with the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.   Signature     Title     Date   /s/ Brandon Stump Brandon Stump   Chief Executive Officer and Director (Principal Executive Officer)   April 2 , 2021           /s/ David Allen David Allen   Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer)   April 2 , 2021           /s/ Ryan Stump Ryan Stump   Chief Operating Officer and Director   April 2 , 2021           /s/ Scot Cohen Scot Cohen   Director   April 2 , 2021           /s/ Jeffrey Fox Jeffrey Fox   Director   April 2 , 2021           /s/ Keith Stump Keith Stump   Director   April 2 , 2021     -58- Table of Contents     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     To the Stockholders and the Board of Directors Charlie’s Holdings, Inc. and Subsidiaries   Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Charlie’s Holdings, Inc. and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.   Going Concern Uncertainty The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, negative operating cash flows, and its total liabilities exceed its total assets. In addition, the Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States. There can be no assurance the FDA will approve the application(s) and the Company could incur additional cost in its attempt to gain FDA approval. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.   Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.   Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.         F-1   Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.   Fair Value of Derivative Liabilities – Refer to Note 10 to the Financial Statements   Critical Audit Matter Description As described in Note 10 to the consolidated financial statements, pursuant to the Share Exchange on April 26, 2019, the Company issued warrants to purchase approximately 4 billion shares of common stock, consisting of the Investor Warrants issued to the new investors and the Direct Investors, and warrants issued to a placement agent. The warrants have a 5-year term and an exercise price of $0.0044313, subject to adjustment for anti-dilution events. Due to the exercise features of these warrants, they are not considered to be indexed to the Company’s own stock and are therefore not afforded equity treatment in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). ASC 815 requires the Company to assess the fair value of warrant liabilities at each reporting period and recognize any change in the fair value as items of other income or expense.   In accordance with 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, giving highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. The Company has classified the derivative liabilities within the Level 3 category of the fair value hierarchy, and both observable and unobservable inputs were used to determine the fair value of the liability.   Auditing the Company's subsequent accounting for the derivative liabilities was complex due to the significant judgment required in the fair value measurement of the warrants and related changes in fair value recorded in other income or expense. The Company estimated the fair value of the warrants using a Monte Carlo simulation model, which included several assumptions involving estimates of the Company's equity volatility, market risk free rate, and the probability of an anti-dilution triggering event.   How We Addressed the Matter in Our Audit We obtained an understanding and evaluated the design effectiveness of controls over the Company's accounting for the derivative liabilities. This process included obtaining an understanding of management's review of the key assumptions and inputs utilized in the estimate of the fair value of the warrants.   Our audit testing of the Company's subsequent accounting for the derivative liabilities and the related estimate of fair value of the warrants included, among other procedures, evaluating the Company's selection of the valuation methodology and significant assumptions used by the Company, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. Specifically, when assessing the key assumptions, we evaluated the appropriateness of the Company's estimates of its volatility, market risk free rate and the probability of an anti-dilution triggering event, as well as its analysis of the equity volatilities of comparable guideline public companies. In addition, we involved a valuation specialist with specialized skill and knowledge to assist in our evaluation of the methodology used by the Company and the appropriateness of significant assumptions, including independent recalculation and comparison to the Company’s valuation.    /s/ Baker Tilly US LLP   We have served as the Company's auditor since 2018.   Irvine, California April 2, 2021     F-2 Table of Contents     CHARLIE’S HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)     December 31,     December 31,       2020     2019   ASSETS             Current assets:             Cash   $ 1,422     $ 2,448   Accounts receivable, net     1,258       918   Inventories, net     1,593       1,516   Prepaid expenses and other current assets     450       729   Total current assets     4,723       5,611                     Non-current assets:                 Property, plant and equipment, net     531       543   Right-of-use asset, net     1,200       1,623   Other assets     71       71   Total non-current assets     1,802       2,237                     TOTAL ASSETS   $ 6,525     $ 7,848                     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                 Current liabilities:                 Accounts payable and accrued expenses   $ 2,525     $ 2,516   Derivative liability     4,444       4,144   Lease liabilities     456       426   Notes payable     1,400       -   Dividends payable     1,650       -   Deferred revenue     268       91   Total current liabilities     10,743       7,177                     Non-current liabilities:                 Notes payable, net of current portion     1,016       -   Lease liabilities, net of current portion     762       1,218   Total non-current liabilities     1,778       1,218                     Total liabilities     12,521       8,395                     COMMITMENTS AND CONTINGENCIES (see Note 14)                                   Stockholders' equity (deficit):                 Convertible preferred stock ($0.001 par value); 1,800,000 shares authorized                 Series A, 300,000 shares designated, 203,811 and 204,561 shares issued and outstanding as of December 31, 2020 and 2019, respectively     -       -   Series B, 1.5 million shares designated, 0 shares issued and outstanding as of December 31, 2020 and 2019, respectively     -       -   Common stock ($0.001 par value); 50 billion shares authorized; 18,991 million shares and 18,974 million shares issued and outstanding as of December 31, 2020 and 2019, respectively     18,991       18,974   Additional paid-in capital     (15,324 )     (17,045 ) Accumulated deficit     (9,663 )     (2,476 ) Total stockholders' deficit     (5,996 )     (547 ) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)   $ 6,525     $ 7,848     The accompanying notes are an integral part of these consolidated financial statements.   F-3 Table of Contents     CHARLIE’S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS   (in thousands, except share and per share amounts)       For the years ended       December 31,       2020     2019   Revenues:             Product revenue, net   $ 16,692     $ 22,740   Total revenues     16,692       22,740   Operating costs and expenses:                 Cost of goods sold - product revenue     7,478       10,071   General and administrative     10,873       15,017   Sales and marketing     1,733       2,314   Research and development     3,378       1,102   Total operating costs and expenses     23,462       28,504   Loss from operations     (6,770 )     (5,764 ) Other income (expense):                 Interest expense     (134 )     -   Change in fair value of derivative liabilities     (300 )     3,618   Other income     17       -   Total other income (expense)     (417 )     3,618   Net loss   $ (7,187 )   $ (2,146 )                   Net loss per share, basic and diluted   $ (0.00 )   $ (0.00 ) Weighted average number of common shares outstanding     18,984,487,000       10,648,129,000       The accompanying notes are an integral part of these consolidated financial statements.   F-4 Table of Contents     CHARLIE’S HOLDINGS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)   (in thousands)       Series A     Series B                   Additional             Total Stockholders'       Convertible Preferred Stock     Convertible Preferred Stock     Common Stock     Paid-in     Accumulated     Equity        Shares      Par value      Shares      Par value      Shares      Par value     Capital     Deficit      (Deficit)   Balance at January 1, 2019     -     $ -       1,396     $ 1       141,041     $ 141     $ -     $ 649     $ 791    Effect of reverse merger      -       -       -       -       2,377,530       2,378       (2,378 )     -       -    Conversion of Series A convertible preferred stock     (2 )     -       -       -       38,081       38       (38 )     -       -    Conversion of Series B convertible preferred stock     -       -       (1,396 )     (1 )     13,963,048       13,963       (13,962 )     -       -    Issuance of preferred stock, common stock and warrants in a private offering, net of $7,762 warrant liability     206       -       -       -       1,551,466       1,551       18,186       -       19,737    Offering cost related to private offering     -       -       -       -       -       -       (4,339 )     -       (4,339 )  Cash distributions to CCD Members     -       -       -       -       -       -       (17,430 )     (979 )     (18,409 )  Stock compensation     -       -       -       -       902,662       903       2,916       -       3,819    Net income     -       -       -       -       -       -       -       (2,146 )     (2,146 ) Balance at December 31, 2019     204     $ -       -     $ -       18,973,828     $ 18,974     $ (17,045 )   $ (2,476 )   $ (547 )  Conversion of Series A convertible preferred stock     -       -       -       -       16,925       17       (17 )     -       -    Reclassification of liability awards to equity     -       -       -       -       -       -       1,638       -       1,638    Accrue dividends payable on Series A convertible preferred stock     -       -       -       -       -       -       (1,650 )     -       (1,650 )  Stock compensation     -       -       -       -       -       -       1,750       -       1,750    Net loss     -       -       -       -       -       -       -       (7,187 )     (7,187 ) Balance at December 31, 2020     204     $ -       -     $ -       18,990,753     $ 18,991     $ (15,324 )   $ (9,663 )   $ (5,996 )   The accompanying notes are an integral part of these consolidated financial statements.   F-5 Table of Contents     CHARLIE’S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)       For the years ended       December 31,       2020     2019   Cash Flows from Operating Activities:             Net loss   $ (7,187 )   $ (2,146 ) Reconciliation of net loss to net cash used in operating activities:                 Provision for bad debt expense     60       573   Depreciation and amortization     181       73   Change in fair value of derivative liabilities     300       (3,618 ) Amortization of operating lease right-of-use asset     423       190   Stock based compensation     3,072       3,819   Subtotal of non-cash charges     4,036       1,037   Changes in operating assets and liabilities:                 Accounts receivable     (400 )     (780 ) Inventories     (77 )     (858 ) Prepaid expenses and other current assets     279       (302 ) Other assets     -       (29 ) Accounts payable and accrued expenses     325       1,300   Deferred revenue     177       (89 ) Lease liabilities     (426 )     (169 ) Net cash used in operating activities     (3,273 )     (2,036 ) Cash Flows from Investing Activities:                 Purchase of property, plant and equipment     (169 )     (571 ) Net cash used in investing activities     (169 )     (571 ) Cash Flows from Financing Activities:                 Proceeds from issuance of common stock and warrants in a private offering, net     -       23,160   Proceeds from issuance of notes payable     2,416       -   Cash distributions to CCD Members     -       (18,409 ) Net cash provided by financing activities     2,416       4,751   Net (decrease) increase in cash     (1,026 )     2,144                     Cash, beginning of the year     2,448       304   Cash, end of the year   $ 1,422     $ 2,448                     Supplemental disclosure of cash flow information                 Cash paid for interest   $ -     $ -   Cash paid for income taxes   $ -     $ -                     Supplemental disclosure of cash flow information                 Conversion of Series A convertible preferred stock   $ 17     $ -   Reclassification of liability awards to equity   $ 1,638     $ -   Accrue dividends payable on Series A convertible preferred stock   $ 1,650     $ -   Effect of reverse merger    $ -     $ 2,378   Conversion of Series B convertible preferred stock   $ -     $ 1       The accompanying notes are an integral part of these consolidated financial statements.     F-6 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION   Description of the Business    Charlie’s Holdings, Inc., (formerly True Drinks Holdings, Inc.) a Nevada corporation, together with its wholly owned subsidiaries and consolidated variable interest entity (collectively, the “ Company ”, “ we ”), currently formulates, markets and distributes branded e-cigarette liquid for use in both open and closed consumer e-cigarette and vaping systems. The Company’s products are produced domestically through contract manufacturers for sale by select distributors, specialty retailers and third-party online resellers throughout the United States, as well as over 80 countries worldwide. The Company’s primary international markets include the United Kingdom, Italy, Spain, Belgium, Australia, Sweden and Canada. In June 2019, The Company launched distribution, through Don Polly, a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, the Company’s Chief Executive Officer and Chief Operating Officer, respectively, and a consolidated variable interest for which the Company is the primary beneficiary (“ Don Polly ”), of certain premium vapor, ingestible and topical products containing hemp-derived cannabidiol (“ CBD ”). Our CBD based products are produced, marketed and sold through, Don Polly, and the Company currently intends to develop and launch additional products containing hemp-derived CBD in the future.    In addition to Don Polly, we are also the holding company for two wholly-owned subsidiaries, Charlie’s Chalk Dust, LLC (“ Charlie’s ” or “ CCD ”), which activity includes production and sale of our branded nicotine-based e-cigarette liquid, and Bazi, Inc., which activity includes sales of all-natural energy drink Bazi® All Natural Energy. At this time, we do not intend to continue sales of the Bazi product in its current form.   The Company's Common Stock, par value $0.001 per share (the " Common Stock "), trades under the symbol "CHUC" on the OTC: PINK market.   Acquisition of True Drinks Holdings, Inc.     On April 26, 2019 (the “ Closing Date ”), we entered into a Securities Exchange Agreement with each of the former members (“ Members ”) of Charlie’s, and certain direct investors in the Company (“ Direct Investors ”), pursuant to which we acquired all outstanding membership interests of Charlie’s beneficially owned by the Members in exchange for the issuance by the Company of units, with such units consisting of an aggregate of (i) 15,655,538,349 shares of Common Stock on an as-converted basis (which includes the issuance of an aggregate of 1,396,305 shares of a newly created class of Series B Convertible Preferred Stock, par value $0.001 per share (“ Series B Preferred ”), convertible into an aggregate of 13,963,047,716 shares of Common Stock, issued to certain individuals in lieu of Common Stock); (ii) 206,249 shares of a newly created class of Series A Convertible Preferred Stock, par value $0.001 per share (“ Series A Preferred ”), convertible into an aggregate of 4,654,349,239 shares of Common Stock; and (iii) warrants to purchase an aggregate of 3,102,899,493 shares of Common Stock (the “ Investor Warrants ”) (the “ Share   Exchange ”). As a result of the Share Exchange, Charlie’s became a wholly owned subsidiary of the Company.   Immediately prior to, and in connection with, the Share Exchange, Charlie’s consummated a private offering of membership interests that resulted in net proceeds to Charlie’s of approximately $27.5 million (the “ Charlie’s Financing ”). Katalyst Securities LLC (“ Katalyst ”) acted as the sole placement agent in connection with the Charlie’s Financing pursuant to an Engagement Letter entered into by and between Katalyst, Charlie’s and the Company on February 15, 2019. As consideration for its services in connection with the Charlie’s Financing and the Share Exchange, the Company issued to Katalyst and its designees five-year warrants to purchase an aggregate of 930,869,848 shares of Common Stock at a price of $0.0044313 per share (the “ Placement Agent Warrants ”). The Placement Agent Warrants have substantially the same terms as those set forth in the Investor Warrants.   As additional consideration for advisory services provided in connection with the Charlie’s Financing and the Share Exchange, the Company issued an aggregate of 902.7 million shares of Common Stock (the “ Advisory Shares ”), including to a member of the Company’s Board of Directors, pursuant to a subscription agreement. The fair value of a share of common stock was $0.0032 which is based upon a valuation prepared by the Company on the date of the Share Exchange.       F-7 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS       The Share Exchange resulted in a change of control of the Company, with the Members and Direct Investors owning approximately 86.1% of the Company’s outstanding voting securities immediately after the Share Exchange, and the Company’s current stockholders beneficially owning approximately 13.9% of the issued and outstanding voting securities, which includes the Advisory Shares. Following the Share Exchange, Ryan Stump and Brandon Stump, the founders of Charlie’s and the Company’s Chief Executive Officer and Chief Operating Officer, respectively, held in excess of 50% of the Company’s issued and outstanding voting securities.   The Share Exchange is accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (“ U.S. GAAP ”) because the primary assets of the Company were nominal at the consummation of the Share Exchange. Charlie’s was determined to be the accounting acquirer based upon the terms of the Share Exchange and other factors including: (i) Charlie’s stockholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for Charlie’s membership units now own approximately 49%, on a fully diluted basis, of the Company’s outstanding securities immediately following the effective time of the Merger, (ii) individuals associated with Charlie’s now hold a majority of the seats on the Company’s Board of Directors and (iii) Charlie’s management holds all key positions in the management of the combined Company. Accordingly, the historical financial statements of True Drinks were replaced by the Company's historical financial statements including the comparative prior periods. All references in the consolidated financial statements to the number of shares and per-share amounts of Common Stock have been retroactively restated to reflect the exchange rate.    Basis of Presentation   The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “ SEC ”). The financial information contained in the consolidated financial statements and footnotes are based on Charlie’s historical financial statements and the Company’s financial activity beginning April 26, 2019, as adjusted, to give effect to Charlie’s reverse recapitalization of the Company and the Charlie’s Financing completed prior to the Share Exchange. In addition, from the period April 26, 2019 until December 31, 2019, there were minimal costs and revenue associated with the Bazi product line which are included in the interim condensed consolidated financial statements. As noted above, we do not intend to continue to produce and sell the Bazi product line in its current form, and these costs and expenses are nominal and will continue to be so in the future. The operating results of Don Polly are also included.   Historical financial information presented prior to April 26, 2019 is that of Charlie’s only, while financial information presented after April 26, 2019 includes Charlie’s, Don Polly, Bazi Drinks and the Company, which includes the transactions associated with the share exchange and private placement transaction along with ongoing corporate costs.   Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management’s plan of operation            The accompanying 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. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company is required to obtain approval from the United States Food and Drug Administration (" FDA ") to continue selling and marketing its products used for the vaporization of nicotine in the United States. The Company has incurred significant costs associated with the application process and there can be no assurance that additional costs will not arise, or that the FDA will approve the application(s). In addition, the recent outbreak of coronavirus (“ COVID-19 ”) in March 2020 has had a negative impact on the global economy and markets which has impacted the Company’s supply chain and sales. For the year ended December 31, 2020, the Company has incurred losses from operations of approximately $6.8 million and a consolidated net loss of approximately $7.2 million. The Company has a stockholders’ deficit of approximately $6.0 million as of December 31, 2020 and the Company’s liabilities exceed its assets. 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.   Management's plans depend on its ability to increase revenues and continue its business development efforts, including costs beyond the approximately $4,400,000 already expensed to complete our Premarket Tobacco Application ( “PMTA ” ) registration process. The Company does not anticipate that its current cash position will be sufficient to meet its working capital requirements, to continue its sales and marketing efforts and complete the PMTA registration process. The Company is currently seeking debt and/or equity financing in order to ensure that it has sufficient cash to operate for the next 12 months (refer to Note 14 – Subsequent Events). 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 the Company’s best interests.     F-8 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     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. 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 flavored e-cigarette liquid and products used for the vaporization of nicotine 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 nicotine-based e-liquid products. Our 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. The Company is also seeking additional financing to support potential future PMTA related expenses and general working capital. There is no assurance that regulatory approval to sell our products will be granted or that we can raise the additional financing required, and if not, this could have a significant impact on our sales.   On March 11, 2020, the World Health Organization designated the ongoing and evolving COVID-19 outbreak as a pandemic. The outbreak has caused substantial disruption in international and U.S. economies and markets as it continues to spread. The outbreak is having a temporary adverse impact on our industry as well as our business, with regards to certain supply chain disruptions and sales volume. While the disruption from COVID-19 is currently expected to be temporary, there is uncertainty around the duration.  The financial impact from COVID-19 has caused a decline in sales, and if disruptions from the COVID-19 outbreak are prolonged, it will continue to have an adverse impact on our business.   NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES   Principles of Consolidation           As noted above, the consolidated financial statements include the accounts of the Company, Charlie’s Holdings, Inc., its two 100% wholly owned subsidiaries, Charlie’s Chalk Dust, LLC and Bazi, Inc, and Don Polly, LLC, a consolidated variable interest for which the Company is the primary beneficiary. All inter-company balances and transactions have been eliminated in consolidation.   Use of Estimates   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.     F-9 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     Fair Value of Financial Instruments   U.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.   In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.   Revenue Recognition   The Company recognizes revenues in accordance with Accounting Standards Codification (“ ASC ”) 606 – Contracts with Customers. Revenues are generated from contracts with customers that consist of sales to retailers and distributors. Contracts with customers are generally short term in nature with the delivery of product as a single performance obligation. Revenue from the sale of product is recognized at the point in time when the single performance obligation has been satisfied and control of the product has transferred to the customer. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, the right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are received by customers. Shipping generally occurs prior to the transfer of control to the customer and is therefore accounted for as a fulfillment expense.   In circumstances where shipping and handling activities occur after the customer has obtained control of the product, the Company has elected to account for shipping and handling activities as a fulfillment cost rather than an additional promised service. Contract durations are generally less than one year and, therefore, costs paid to obtain contracts, which generally consist of sales commissions, are recognized as expenses in the period incurred. Revenue is measured by the transaction price, which is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers, volume rebates and promotional discounts on current orders. Our volume rebates are short-term in nature and reset on a quarterly basis. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very short-term durations.   Amounts billed and due from customers are short term in nature and are classified as receivables since payments are unconditional and only the passage of time related to credit terms is required before payments are due. The Company does not grant payment financing terms greater than one year. Payments received in advance of revenue recognition are recorded as deferred revenue.   Cash and Cash Equivalents   The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents.   Accounts Receivable   Accounts receivable is recorded at the invoiced amount and does not bear interest. We determine the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and set up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2020 and 2019, the allowance for bad debt totaled $355,000 and $639,000, respectively.     F-10 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     Inventories   Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2020 and 2019, the reserve for excess and obsolete inventories totaled $179,000 and $83,000, respectively.   Plant, Property and Equipment   Property and equipment are stated at cost. Depreciation and amortization are provided for using straight-line methods, in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives. Repairs and maintenance costs are charged to operations as incurred.   Costs for capital assets not yet placed into service are capitalized as construction in progress on the consolidated balance sheets and will be depreciated once placed into service.   The Company assesses its long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected undiscounted net future cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets.   Leases   Subsequent to the adoption of the new leasing standard on January 1, 2019, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is, or contains a lease at contract inception. Operating leases with a duration greater than one year are included in right-of-use assets, lease liabilities, and lease liabilities, net of current portion in the Company’s consolidated balance sheets. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset.   The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred.   Stock-Based Compensation   We account for all stock-based compensation using a fair value-based method. The fair value of equity-classified awards granted to employees is estimated on the date of the grant using the Black-Scholes option-pricing model and the related stock-based compensation expense is recognized over the vesting period during which an employee is required to provide service in exchange for the award. We measure the fair value of liability-classified awards using a Monte Carlo valuation model. Compensation cost is recognized over the service period and is remeasured at each reporting period through settlement.   Income taxes   Income taxes are computed under the liability method. This method requires the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.   Financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that meets the more-likely-than-not threshold of being realized upon ultimate settlement with a taxing authority. We recognize potential accrued interest and penalties related to unrecognized tax benefits as income tax expense.   Research and development                  We expense the cost of research and development as incurred.  Research and development expenses include costs incurred in funding research and development activities, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made.   F-11 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   Segments   Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.   The following table disaggregates revenue from our single operating segment by geographic market and customer type for the periods ending December 31, 2020 and 2019, respectively:       December 31, 2020     December 31, 2019   Geographic Market             International     19 %     24.0 % United States     81 %     76.0 %                   Customer Type                 Retailer     43 %     36.0 % Distribution     57 %     64.0 %   Recently Issued Accounting Pronouncements   Measurement of Credit Losses on Financial Instruments   In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.   Improvements to Non-Employee Share-Based Payment Accounting   In June 2018, the FASB issued ASU 2018-07 “Improvements to Non-employee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the ASU, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company has early adopted the new standard effective January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s consolidated financial statements.   Income Taxes   In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.   Debt – Debt with conversion and Other Options   In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for the Company on December 1, 2022, Early adoption is permitted, but no earlier than December 1, 2021. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.     F-12 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     NOTE 3 – FAIR VALUE MEASUREMENTS   In accordance with ASC 820 (Fair Value Measurements and Disclosures), the Company uses various inputs to measure the outstanding warrants on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:   Level 1 - Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date   Level 2 - Quoted prices in markets that are not active or inputs which are either directly or indirectly observable   Level 3 - Unobservable inputs for the instrument requiring the development of assumptions by the Company   The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2020 and 2019 (amount in thousands):       Fair Value at December 31, 2020                   Total     Level 1     Level 2     Level 3   Liabilities:                         Derivative liability - Warrants     4,444       -       -       4,444   Total liabilities   $ 4,444     $ -     $ -     $ 4,444                                           Fair Value at December 31, 2019                   Total     Level 1     Level 2     Level 3   Liabilities:                         Derivative liability - Warrants     4,144       -       -       4,144   Total liabilities   $ 4,144     $ -     $ -     $ 4,144     There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2020 and 2019.   The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31, 2020 and 2019. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (amount in thousands).          Derivative liability - Warrants   Balance at January 1, 2019   $ -   Addition     7,762   Change in fair value     (3,618 ) Balance at December 31, 2019     4,144   Change in fair value     300   Balance at December 31, 2020   $ 4,444   A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in the Monte Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of December 31, 2020 and 2019 is as follows:       December 31,     December 31,       2020     2019   Exercise price   $ 0.0044     $ 0.0044   Contractual term (years)     3.32       4.32   Volatility (annual)     75.0 %     70.0 % Risk-free rate     0.2 %     1.7 % Dividend yield (per share)     0 %     0 % F-13 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     NOTE 4 - PROPERTY AND EQUIPMENT   Property and Equipment detail as of December 31, 2020 and 2019 are as follows (amount in thousands):       December 31,     December 31,         2020     2019   Estimated Useful Life Machinery and equipment   $ 38     $ 96   5 years Trade show booth     233       171   5 years Office equipment     552       118   5 years Leasehold improvements     171       440   Lesser of lease term or estimated useful life       994       825     Accumulated depreciation     (463 )     (282 )       $ 531     $ 543     Depreciation and amortization expense totaled $181 ,000 and $73 ,000 , respectively, during the years ended December 31, 2020 and 2019.   NOTE 5 - CONCENTRATIONS   Vendors   The Company’s concentration of purchases are as follows:         For the year ended       December 31,       2020     2019   Vendor A     25 %     57 % Vendor B     27 %     16 % Vendor C     26 %     0 % Vendor D     12 %     0 %   During the year ended December 31 , 2020, purchases from four vendors represented 90% of total inventory purchases. During the year ended December 31, 2019, purchases from two vendors represented 73 % of total inventory purchases.   As of December 31, 2020 and 2019, amounts owed to these vendors totaled $270 ,000 and $58,000 respectively, which are included in accounts payable in the accompanying condensed consolidated balance sheets.   Accounts Receivable   The Company’s concentration of accounts receivable are as follows:       December 31,       2020       2019   Customer A     -       23 % Customer B     17 %     -   Customer C     10 %     -     Two customers made up more than 27% of net accounts receivable at December 31, 2020 and one customer accounted for 23% of net accounts receivable at December 31, 2019. Customer B owed the Company a total of $210,000, representing 17% of net receivables at December 31, 2020. Customer C owed the Company a total of $127,000, representing 10% of net receivables at December 31, 2020. Customer A owed the Company a total of $211,000, representing 23% of net receivables at December 31, 2019. No customer exceeded 10% of total net sales for the years ended December 31, 2020 and 2019, respectively.   F-14 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     NOTE 6 – DON POLLY, LLC.   Don Polly, LLC is a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, the Company’s Chief Executive Officer and Chief Operating Officer, respectively, and a consolidated variable interest for which the Company is the primary beneficiary. Don Polly formulates, sells and distributes the Company’s CBD product lines.   We evaluate our ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are variable interest entities (“ VIEs ”), and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. We continuously perform this assessment, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of a VIE. Effective April 25, 2019, we consolidated the financial statements of Don Polly and it is considered a VIE of the Company. Since the Company has been determined to be the primary beneficiary of Don Polly, we have included Don Polly’s assets, liabilities, and operations in the accompanying consolidated financial statements of the Company.   Don Polly operates under exclusive licensing and service contracts with the Company whereby the Company receives 75% of net income from the licensing agreement and 25% of net income from the service agreement, therefore, as the Company receives 100% of the net income or incurs 100% of the net loss of the VIE, no non-controlling interests are recorded.   NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES   Accounts payable and accrued expenses as of December 31, 2020 and 2019 are as follows (amount in thousands):       December 31,     December 31,       2020     2019   Accounts payable   $ 629     $ 673   Accrued compensation     1,420       1,635   Other accrued expenses     476       208       $ 2,525     $ 2,516     NOTE 8 – NOTES PAYABLE   Red Beard Holdings, LLC Note Payable   On April 1, 2020, the Company, Charlie's and its VIE, Don Polly, issued a secured promissory note (the " Red Beard Note ") to one of the Company's largest stockholders, Red Beard Holdings, LLC (" Red Beard ") in the principal amount of $750,000 (the " Principal Amount "), which Note is secured by all assets of the Company pursuant to the terms of a Security Agreement entered into by and between the Company and Red Beard (the " Red Beard Note Financing ").   F-15 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     The Red Beard Note required the payment of the Principal Amount and guaranteed minimum interest in the amount of $75,000 on or before the earlier date of (i) a Liquidity Event, as defined under the terms of the Red Beard Note; or (ii) October 1, 2020. In addition, if there was an occurrence of an event of default, then, in addition to the guaranteed minimum interest, the Principal Amount and unpaid interest and unpaid other amounts under the Red Beard Note shall, at the election of the Red Beard in its sole and absolute discretion, bear interest at the lesser of a rate equal to 20% per annum or the maximum default rate. Such interest would accrue daily commencing on occurrence of such event of default until payment in full of the Principal Amount, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made.   On August 27, 2020, the Company’s Board of Directors, entered into Amendment No. 1 to Secured Promissory Note and Security Agreement (“ Amended Red Beard Note ”), by and between the Company and Red Beard. Pursuant to the Amended Red Beard Note, the terms of the Red Beard Note held by Red Beard were amended as follows (i) the Principal Amount under the Red Beard Note was increased from $750,000 to $1,400,000 and (ii) the guaranteed minimum interest due upon maturity of the Red Beard Note was increased from $75,000 to $100,000. All other terms of the respective Red Beard Note remain in full force and effect.   On September 30, 2020, the Company’s Board of Directors entered into Amendment No. 2 to Secured Promissory Note and Security Agreement ( “Second Amended Red Beard Note” ), by and between the Company and Red Beard. The Red Beard Note, as amended by Amendment 1, was further amended by the Second Amended Red Beard Note to amend the definition of the “Maturity Date” in the Red Beard Note to mean November 1, 2020.   On October 29, 2020, the Company entered into Amendment No. 3 (" Third Amended Red Beard Note "), by and between the Company and Red Beard. The terms of the Second Amended Red Beard Note held by Red Beard have been amended to revise the maturity date from November 1, 2020 to December 1, 2020. Furthermore, Red Beard has agreed to waive certain rights upon the occurrence of an Event of Default, as defined in the Amended Red Beard Note, which was triggered by the Company’s receipt of that certain notice of default, dated August 13, 2020, from certain holders of the Company’s Series A Preferred.   On December 1, 2020, the Company entered into Amendment No. 4 to Secured Promissory Note and Security Agreement (“ Fourth Amended Red Beard Note ”), by and between the Company and Red Beard. The Fourth Amended Red Beard Note was retroactively effective as of December 1, 2020, therefore avoiding an event of default. The terms of the Third Amended Red Beard Note have been amended to revise the maturity date from December 1, 2020 to January 1, 2021, and the guaranteed minimum interest has been increased from $100,000 to $125,000.   On January 19, 2021, the Company entered into Amendment No. 5 to Secured Promissory Note and Security Agreement ( “Fifth Amended Red Beard Note” ), by and between the Company and Red Beard. The Fifth Amended Note is retroactively effective as of January 1, 2020. The terms of the Amended Note held by Red Beard have been amended to revise the maturity date from January 1, 2021 to February 15, 2021, and the guaranteed minimum interest has been increased from $125,000 to $150,000. Pursuant to the Fifth Amended Red Beard Note, Red Beard agreed to waive its rights to declare a default under the Red Beard Note due to the Dividend Default.   On March 24, 2021, the Company and Red Beard entered into a Satisfaction and Release (the " Red Beard Release "), pursuant to which the Company made a payment to Red Beard in the amount of $1.55 million in exchange for an acknowledgment of satisfaction and full release of the Company by Red Beard from liability and obligations arising under the Red Beard Note.   The Company used the proceeds from the Red Beard Note Financing for general corporate purposes, and its working capital requirements, pending availability of long-term investment capital.     Small Business Administration Loan Programs   On April 30, 2020, Charlie's, a wholly owned subsidiary of the Company, received approval to enter into a U.S. Small Business Administration (" SBA ") Promissory Note (the " Charlie's PPP Loan ") with TBK Bank, SSB (the " SBA Lender "), pursuant to the Paycheck Protection Program (" PPP ") of the Coronavirus Aid, Relief, and Economic Security Act (the " CARES Act ") as administered by the SBA (the " PPP Loan Agreement ").   The Charlie's PPP Loan provides for working capital to CCD in the amount of $650,761. The Charlie's PPP Loan will mature on April 30, 2022 and will accrue interest at a rate of 1.00% per annum. Per the PPP Loan Agreement , payments of principal and interest were deferred for six months from the date of the Charlie's PPP Loan, or until November 30, 2020. Interest, however, has continued to accrue during this time. Charlie’s was notified by SBA Lender that all payments, including principal and interest, on all PPP loans issued by the bank have been deferred indefinitely in order to allow borrowers adequate time to apply for forgiveness. Charlie’s has applied for forgiveness and is currently awaiting a response. The Company will continue to accrue interest expense relating to Charlie’s PPP Loan, however there is no anticipated future effect on cash at this time.   On April 14, 2020, Don Polly also obtained a loan pursuant to the PPP enacted under the CARES Act (the " Polly PPP Loan " and together with the Charlie's PPP Loan, the " PPP Loans ")) from Community Banks of Colorado, a division of NBH Bank (the " Polly Lender "). The Polly PPP Loan obtained by Don Polly provides for working capital to Don Polly in the amount of $215,600. The Polly PPP Loan will mature on April 14, 2022 and will accrue interest at a rate of 1.00% per annum. Payments of principal and interest will be deferred for six months from the date of the Polly PPP Loan, or until November 14, 2020. Interest, however, will continue to accrue during this time.   F-16 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     The aforementioned PPP Loans were made under the PPP enacted by Congress under the CARES Act. The CARES Act (including the guidance issued by SBA and U.S. Department of the Treasury) provides that all or a portion of the PPP Loans may be forgiven upon request from the respective borrower to the SBA Lender or the Polly Lender, as the case may be, subject to requirements in the PPP Loans and under the CARES Act.   On February 19, 2021 Don Polly received notice from the Polly Lender, that its PPP Loan was fully repaid, and its promissory note was cancelled as a result of the loan forgiveness process set forth by the U.S. Small Business Administration. There is no further action required on the part of Don Polly to satisfy this liability.   On June 24, 2020, SBA authorized (under Section 7(b) of the Small Business Act, as amended) an Economic Injury Disaster Loan (“ EID Loan ”) to Don Polly in the amount of $150,000. Installment payments, including principal and interest of $731 monthly will begin twelve months from date of the EID Loan. 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 note payable maturities as of December 31, 2020 (amount in thousands):   Year Ended December 31, 2021   $ 1,400   Year Ended December 31, 2022     874   Year Ended December 31, 2023     5   Year Ended December 31, 2024     5   Year Ended December 31, 2025     5   Thereafter     127   Total   $ 2,416     NOTE 9 – LOSS PER SHARE BASIC AND FULLY DILUTED   Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per common share is computed similar to basic earnings 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 earnings per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):       For the years ended           December 31,           2020     2019   Options     750,294       801,325   Series A convertible preferred shares     5,564,296       4,616,268   Warrants     4,033,769       4,033,769   Total     10,348,359       9,451,361     NOTE 10 – STOCKHOLDERS’ EQUITY   Series A Preferred   On April 25, 2019, in connection with the Share Exchange, the Company filed the Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock (the “ Series A COD ”), with the Nevada Secretary of State of the State, designating 300,000 shares of its preferred stock as Series A Convertible Preferred Stock. Each share of Series A Preferred has a stated value of $100 per share (the “ Series A Stated Value ”). The Series A Preferred rank senior to all of the Company’s outstanding securities. At December 31, 2020 and 2019, there were a total of 203,811 and 204,561 shares of Series A Preferred outstanding, respectively.   The Series A Preferred provides the holders with the right to receive a one-time dividend payment equal to 8% of the Series A Stated Value (the “ Series A Dividend ”), which Series A Dividend shall be paid by the Company on the earlier to occur of (i) when declared at the election of the Company, (ii) one year from the date of issuance, or (iii) when a holder elects to convert its shares of Series A Preferred into common stock.   F-17 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     Each share of Series A Preferred is convertible, at the option of the holder, into that number of shares of common stock equal to the Series A Stated Value, plus all accrued but unpaid dividends, divided by $0.044313, which conversion rate is subject to adjustment in accordance with the terms of the Series A COD. Holders of Series A Preferred are prohibited from converting Series A Preferred into common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or 9.99% upon the election of the holder prior to the issuance of the Series A Preferred) of the total number of shares of common stock then issued and outstanding. Each share of Series A Preferred is convertible at the option of the Company, at the same conversion rate set forth above, at such time, if ever, that the Company’s common stock is listed on the Nasdaq Stock Market and the Company has paid the Series A Dividend. In addition, upon the occurrence of a Bankruptcy Event (as defined in the Series A COD), the Company shall be required to redeem, in cash, all outstanding shares of Series A Preferred at a price equal to the conversion amount;  provided, however , that holders of the Series A Preferred shall have the right to waive, in whole or in part, such right to receive payment upon the occurrence of a Bankruptcy Event.      Holders of the Series A Preferred are entitled to vote on an as-converted basis along with holders of the Company’s common stock on all matters presented to the Company’s stockholders;  provided, however, that the number of votes that any holder, together with its affiliates, may exercise in connection with all of the Company securities held by such holder shall not exceed 9.99% of the voting power of the Company. In addition, pursuant to the Series A COD, the Company shall not take the following actions without obtaining the prior consent of at least a majority of the holders of the outstanding Series A Preferred, voting separately as a single class: (i) amend the Company’s Amended and Restated Articles of Incorporation or bylaws, or file a certificate of designation or certificate of amendment to any series of preferred stock if such action would adversely affect the holders of the Series A Preferred, (ii) increase or decrease the authorized number of shares of Series A Preferred, (iii) create or authorize any series of stock that ranks senior to, or on parity with, the Series A Preferred, (iv) purchase, repurchase or redeem any shares of junior stock, or (v) pay dividends on any junior or parity stock . Furthermore, so long as at least 25% of the Series A Preferred remain outstanding, holders of the Series A Preferred (other than the Direct Investors) shall have a right to appoint two members to the Company’s Board of Directors, and the Board shall not consist of more than five members, unless the holders of a majority of the outstanding Series A Preferred have consented to an increase in such number.   Conversion of Preferred Shares   For the year ended December 31, 2020 the Company issued approximately 16,925,000 common stock conversion shares as 750 shares of Series A preferred were converted into common shares. For the year ended December 31, 2019 the Company issued approximately 38,081,000 common stock conversion shares as 1,687 shares of Series A preferred were converted into common shares.     Series A Preferred Share Dividend   On April 25, 2020, the Company was required to pay a one-time dividend equal to eight percent (8%) of the stated value of its Series A Preferred, equal to $1,650,000 (“ Dividend Amount ”), which Dividend Amount was required to be paid in cash on or before April 25, 2020. As of December 31, 2020, the Company has not paid the Dividend Amount to holders of its Series A Preferred and has reflected the liability on its consolidated balance sheet.   On 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 ( “Dividend Default” ). As disclosed, the aggregate amount of dividends due and payable to holders of the Series A Preferred is $1,650,000.     Series B Preferred   On April 26, 2019, in connection with the Share Exchange, the Company filed the Certificate of Designation, Preferences and Rights of the Series B Convertible Preferred Stock (the “ Series B COD ”), with the Secretary of State of the State of Nevada, designating 1.5 million shares of its preferred stock as Series B Preferred. At the time of the filing of the Series B COD, the Series B Preferred ranked junior to the Series A Preferred and senior to all of the Company’s other outstanding securities.   The Series B Preferred was structured to act as a common stock equivalent, and, on June 28, 2019, the Company amended and restated its Articles of Incorporation (the “ Amended and Restated Charter ”) to (i) change our corporate name to Charlie’s Holdings, Inc. and (ii) increase the number of shares authorized as common stock from 7.0 billion to 50.0 billion shares. The Amended and Restated Charter was approved by our Board of Directors and holders of a majority of our outstanding voting securities on May 8, 2019, and the Amended and Restated Charter was filed with the State of Nevada on June 28, 2019. As a result of the filing of the Amended and Restated Charter and the increase of our authorized common stock to 50.0 billion shares, all 1,396,305 outstanding shares of Series B Preferred automatically converted into a total of 13,963,047,716 shares of common stock in accordance with the Series B COD.   F-18 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     At December 31 , 2020 and 2019, no shares of Series B Preferred were outstanding.   Prior to the filing of the Amended and Restated Charter, holders of the Series B Preferred were entitled to vote on an as-converted basis along with holders of the Company’s common stock on all matters presented to the Company’s stockholders. In addition, pursuant to the Series B COD, the Company was not permitted to take the following actions without obtaining the prior consent of at least 50% of the holders of the outstanding Series B Preferred, voting separately as a single class: (i) amend the provisions of the Series B COD so as to adversely affect holders of the Series B Preferred, (ii) increase the authorized number of shares of Series B Preferred, or (iii) effect any distribution with respect to junior stock, unless the Company also provides such distribution to holders of the Series B Preferred.   Common Stock   On June 28, 2019, the Company filed the Amended and Restated Charter to change the name of the Company to “Charlie’s Holdings, Inc.”, as well as to increase the number of shares of the Company’s common stock authorized for issuance from 7.0 billion shares to 50.0 billion shares.   Warrants   On April 26, 2019, pursuant to the Share Exchange as described in Notes 1 and 3, the Company issued warrants to purchase approximately 4 billion shares of common stock, consisting of the Investor Warrants issued to the new investors and the Direct Investors, and the Placement Agent Warrants issued to Katalyst. The warrants have a 5-year term and an exercise price of $0.0044313, subject to adjustment for anti-dilution events. Due to the exercise features of these warrants they are not indexed to the Company’s own stock and are therefore not afforded equity treatment in accordance with ASC Topic 815, Derivatives and Hedging (“ ASC 815 ”). ASC 815 requires the Company to assess the fair value of warrant liabilities at each reporting period and recognize any change in the fair value as items of other income or expense (see Note 3).   NOTE 11 – STOCK-BASED COMPENSATION   The True Drinks Holdings, Inc. 2013 Stock Incentive Plan (the “ Prior Plan ”) was first approved in December 2013 and was approved by a majority of the stockholders in October 2014. The Prior Plan originally authorized 20.0 million shares of common stock for issuance as equity-based awards, which amount was increased to 120.0 million in January 2018 by authorization of the Board of Directors at that time (the “ Prior Plan Amendment ”). As of the date of the Share Exchange, April 26, 2019, a total of approximately 91.7 million awards were issued under the Prior Plan and the Prior Plan Amendment, consisting entirely of outstanding stock options. As of December 31, 2020, approximately 56.6 million of these stock options remain vested and exercisable under this plan.   The Company will not grant any additional awards or shares of common stock under the Prior Plan beyond those that are currently outstanding.                  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. The 2019 Plan will supersede and replace the Prior Plan and no new awards will be granted under the Prior Plan. Any awards outstanding under the Prior Plan on the date of stockholder approval of the 2019 Plan will remain subject to the terms in the Prior Plan, including those granted under the Prior Plan Amendment, and any shares subject to outstanding awards under the Prior Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the 2019 Plan. Up to 1,107,254,205 stock options may be granted under the 2019 Plan. The shares of common stock issuable under the 2019 Plan will consist of authorized and unissued shares, treasury shares, and shares purchased on the open market or otherwise.     F-19 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     Non-Qualified Stock Options   The following table summarizes stock option activities during the year ended December 31, 2020 and 2019 (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, 2019     85,991     $ 0.02       1.1     $ -   Options granted     788,882       0.02       9.5       -   Options forfeited/expired     (73,548 )     0.02       -       -   Outstanding at December 31, 2019     801,325     $ 0.01       9.4     $ -   Options granted     5,000       0.00       10.0       -   Options forfeited/expired     (56,031 )     0.01       -       -   Outstanding at December 31, 2020     750,294     $ 0.01       8.5     $ -   Options vested and exercisable at December 31, 2020     356,960     $ 0.01       8.0     $ -     During the year ended December 31, 2020 and 2019, the Company granted 5.0 million and 788.9 million options under the 2019 Plan, respectively. The fair value of the option on the grant date was approximately $5,400 and $1.1 million, respectively based on the following weighted average assumptions:       For the years ended           December 31,           2020     2019   Exercise price   $ 0.0044     $ 0.0044   Expected term (years)     6.00       5.79   Volatility (annual)     75.0 %     70.0 % Risk-free rate     0.5 %     1.7 % Dividend yield (per share)     0 %     0 % During the year ended December 31, 2020, the Company modified 61.7 million options to accelerate certain employees’ option grants to allow the employee to exercise or receive the award. The Company accounted for the modification as a Type III (improbable-to-probable) modification. The Company recognized approximately $79,000 of additional compensation expense related to this modification during the year ended December 31, 2020.   During the year ended December 31, 2019, the Company modified 49.4 million options to extend their maturity date. All options were fully vested as of the modification date. The Company accounted for the modification as a Type I (probable-to-probable) modification. Any additional compensation expense related to this modification was considered immaterial.   As of December 31, 2020, there was approximately $254,000 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the 2019 Plan. That cost is expected to be recognized over a weighted average period of 2.8 years. For the year ended December 31, 2020 and 2019, the Company recorded a compensation expense of $590,000 and $178,000, respectively, related to the issuance of stock options.   Common Stock Awards   On April 26, 2019, in connection with employment agreements with its Chief Executive Officer and Chief Operating Officer, the Company issued market condition awards contingent upon the achievement of certain market capitalization targets. The awards are subject to a three-year service vesting period. The awards are settleable in a variable number of common shares based on defined percentages of the Company's total shares determined by market capitalization targets and are, therefore, classified as liabilities in accordance with ASC 718. The fair value of the awards is remeasured at each reporting period until settlement. Compensation cost is attributed over the period encompassing the derived service period and the explicit service period. The fair value of the market condition awards on the termination date of February 12, 2020 was approximately $1,638,000. The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 1.44% and a volatility of 75% based on volatility over 3 years using daily stock prices. For the year ended December 31, 2020 and 2019, the Company recorded an expense of $1,322,000 and $316,000, respectively, for these awards. In addition, as these market awards were eliminated during the first quarter of 2020 (see paragraph below), the Company reversed the entire compensation liability of $1,638,000 to Additional Paid In Capital during the year ended December 31, 2020.   F-20 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     On February 12, 2020, the Company, entered into a form of Amended and Restated Employment Agreement (together the “Amended Employment Agreements” ) with both the Company’s Chief Executive Officer and Chief Operating Officer. The terms of the Amended Employment Agreements have been amended as follows: (i) the annual equity awards based upon, among other conditions, the Company’s market capitalization and a percentage of base salary have been eliminated; however, the awards based on financial milestones remain in full force and effect; and (ii) payment of the 2019 bonuses has been deferred, resulting in the accrual of such bonuses on the books and records of the Company. All other terms of the respective Employment Agreements will remain in full force and effect subject to further review by the Board of Directors as it deems necessary and appropriate.   On April 26, 2019, as additional consideration for advisory services provided in connection with the Charlie’s Financing and the Share Exchange (see Note 1 above), the Company issued an aggregate of 902.7 million shares of common stock (the “ Advisory Shares ”), including to a member of the Company’s Board of Directors, pursuant to a subscription agreement. The fair value of a share of common stock was $0.0032 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recorded stock-based compensation of approximately $2.9 million on the grant date.   Prior to the Share Exchange, Charlie’s employees held Member units, which were automatically converted into 7.1 million shares of common stock and 69,815 shares of Series B Preferred (or 698.1 million shares of common stock equivalents) due to the effect of the Share Exchange. The 705.3 million shares of common stock will vest over a two-year period. The fair value of a share of common stock was $0.0032 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recorded stock-based compensation of approximately $1,128,000 and $ 752,000 during the year ended December 31 , 2020 and 2019, respectively.   NOTE 12 - COMMITMENTS AND CONTINGENCIES   Leases   The Company leases office space under agreements classified as operating leases that expire on various dates through 2024. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expires in 2024, its warehouse in Santa Ana, California, which expires in 2021, its office and warehouse in Denver, Colorado, which expires in 2022, and its warehouse space in Huntington Beach, California, which expires in 2022. 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 Topic 842 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, Ryan Stump and Keith Stump, the Company’s Chief Executive Officer, Chief Operating Officer and member of the Board. Messrs. Stump, Stump and Stump 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, and executed by Mr. David Allen, the Company’s Chief Financial Officer after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. The total amount paid to related parties for the year ended December 31, 2020 and 2019 was $233,264 and $115,000, respectively.   At December 31, 2020, the Company had operating lease liabilities of approximately $1.2 million and right of use assets of approximately $1.2 million, which were included in the consolidated balance sheet.   F-21 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     The following summarizes quantitative information about the Company’s operating leases (amount in thousands):     For the years ended       December 31,           2020     2019   Operating leases                Operating lease cost   $ 597     $ 271      Variable lease cost     -       -   Operating lease expense     597       271   Short-term lease rent expense     -       -   Total rent expense   $ 597     $ 271         For the years ended       December 31,           2020     2019   Operating cash flows from operating leases   $ 423     $ 169   Weighted-average remaining lease term – operating leases (in years)     2.99       3.80   Weighted-average discount rate – operating leases     12.00 %     12.00 % Maturities of our operating leases, excluding short-term leases, are as follows:   Year Ended December 31, 2021   $ 577   Year Ended December 31, 2022     399   Year Ended December 31, 2023     275   Year Ended December 31, 2024     206   Total     1,457   Less present value discount     (239 ) Operating lease liabilities as of December 31, 2020   $ 1,218     Legal proceedings   From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business.  Other than as set forth below, there are no additional pending or threatened legal proceedings at this time.   C.H. Robinson Worldwide, Inc. v. True Drinks, Inc. On September 5, 2018, C.H. Robinson Worldwide (“ Robinson ”) filed a complaint against True Drinks, Inc. in the California Superior Court for the County of Orange located in Santa Ana, California alleging open book account, account stated, reasonable value of services received, agreement, and unjust enrichment related to shipping services provided by Robinson. Robinson has asserted $121,743 in damages plus interest, attorney’s fees and costs. On November 13, 2020 the Company and Robinson reached a Settlement Agreement and Mutual Release (“ Settlement Agreement ”) by which the Company agreed to pay the total sum of $50,000 in two equal installments of $25,000. The first payment was to be due on or before November 19, 2020 and the second payment was to be due on or before December 17, 2020. The Company has satisfied its obligations set forth in the Settlement Agreement and has been relieved of any future liability in this matter.   NOTE 13- INCOME TAXES    The Company was classified as a partnership through the Closing Date, and therefore, not subject to entity level tax.  After the Closing Date, the Company is taxed as a C corporation and files a consolidated return with True Drinks, Inc.     F-22 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     The tax effects of temporary differences and tax loss and credit carry forwards that give rise to significant portions of deferred tax assets and liabilities at December 31, 2020 and 2019 are comprised of the following (in thousands):       As of December 31,           2020      2019   Deferred tax assets:             Bad Debt   $ 82     $ 133   Inventory     39       9   Accrued Expenses     16       -   Lease liability     294       385   Stock compensation     201       349   Transaction costs     -       808   Net operation loss     1,577       698   Contribution     1       -   Derivatives     287       268   Total deferred income tax assets     2,496       2,650                     Deferred income tax liabilities:                 ROU assets     (292 )     (384 ) Fixed assets     (67 )     (20 ) Other     5           Total deferred income tax liabilities     (354 )     (404 )                   Net deferred income tax assets     2,142       2,246   Valuation allowance     (2,142 )     (2,246 ) Deferred tax asset, net of allowance   $ (0 )   $ (0 )   At December 31, 2020, the Company had federal and state net operating loss carry forwards for income tax purposes of approximately $76.8 million. The effect of an ownership change would be the imposition of an annual limitation on the use of net operating loss carryforwards (“NOL”) attributable to periods before the change. Any limitation may result in expiration of a portion of the NOL carryforwards before utilization. The Company has not performed a detailed analysis to determine the realizability of the NOL under Section 382 of the IRC. As such, deferred tax assets related to NOLs incurred before the Closing Date of $71 million relating to True Drinks, Inc. have not been recorded.  After the Closing Date we incurred $5.8 million of federal gross NOLs and $5.1 million of state gross NOLs, which will begin to expire in 2029.   In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and taxing strategies in making this assessment. Based on the review of positive and negative evidence, the Company has provided a full valuation allowance against its deferred tax assets as it is more likely than not that they may not be realized.     F-23 Table of Contents CHARLIE’S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     The expected tax expense (benefit) based on the U.S. federal statutory rate is reconciled with actual tax expense (benefit) as follows:       Year ended December 31, 2020     Year ended December 31, 2019   Statutory federal income tax rate     21.0 %     21.0 % Non-taxable Income     (2.5 )%     15.1 % State taxes, net of federal tax benefit     4.7 %     20.6 % Stock compensation     (3.5 )%     - % Non-deductible expenses     (0.0 )%     (1.3 )% Derivatives     (0.7 )%     27.2 % Return to provisoin adjustment     (19.8 )%     - % Change in valuation allowance     0.8 %     (81.3 )% Income taxes provision (benefit)     - %     1.4 %       As of December 31,           2020     2019   Current             US Federal   $ -     $ -   US State     -       -   Total current provision     -       -   Deferred                 US Federal     (399 )     1,331   US State     341       443   Total deferred benefit     (59 )     1,774   Change in valuation allowance     59       (1,745 ) Total provision for income taxes   $ 0     $ 29     ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As of December 31, 2020, and 2019, there were no uncertain tax positions. The Company’s policy for recording interest and penalties associated with uncertain tax positions is to record such expense as a component of income tax expense. There were no amounts accrued for penalties or interest during the years ended December 31, 2020 and 2019. Management is currently unaware of any issues under review that could result in significant payments, accruals or material deviations from its position.   The Company is subject to U.S. federal and state taxes in the normal course of business, and its income tax returns are subject to examination by the relevant tax authorities.  Tax years 2017-2020  are still open for examination by Federal tax authorities and tax years 2016-2020 are generally open for examination by state tax authorities.  The Company is under IRS audit for 2017, however no material adjustments have currently been identified that would affect the tax provision as stated.   NOTE 14- SUBSEQUENT EVENTS   The Company has evaluated events subsequent to December 31, 2020 to assess the need for potential recognition or disclosure in this report. Such events were evaluated through the date these financial statements were available to be issued. Based upon this evaluation the following items were noted:   On March 19, 2021, the Company entered into Securities Purchase Agreements by and between the Company and certain family trusts in which Mr. Brandon Stump, the Company's Chief Executive Officer, and Mr. Ryan Stump, the Company's Chief Operating Officer are trustees and beneficiaries (the " Purchase Agreements "), for the private placement of an aggregate of 351,699,883 shares of its common stock, par value $0.001 (" Common Stock "), at a purchase price per share of $0.00853 (the " Private Placement "), which Private Placement was consummated on March 22, 2021. The Private Placement resulted in gross proceeds to the Company of approximately $3.0 million, less fees and expenses. The Private Placement was undertaken pursuant to Rule 506 promulgated under the Securities Act of 1933, as amended, and was consummated in a transaction approved by the Company's independent directors in accordance with Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, as amended.   The net proceeds to be received by the Company are intended to be used to repay certain indebtedness of the Company, and for general working capital purposes.   F-24