What changed in this filing

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Item 1A. Risk Factors

2021-11-15 compared with 2021-08-16 · 112 added, 72 removed, 268 unchanged (41% of the section changed)

We are subject to various risks that could have a negative effect on the Company and its financial condition.

These risks could cause actual operating results to differ from those expressed in certain “forward looking statements” contained in this Quarterly Report on Form 10-Q as well as in other communications.

These risks could cause actual operating results to differ from those expressed in certain “forward looking statements”

contained in this Quarterly Report on Form 10-Q as well as in other communications.

Risks Related to the Company

Our operations are now primarily dependent on the business of Charlie’s, and our ability to achieve positive cash flow under our new business plan is uncertain.

As a result of the Share Exchange (see Note 3 of Part 1, Item 1 of this Report), our continued operations are now primarily dependent on the business of Charlie’s.

Although Charlie’s generated net revenue of approximately $9.8 million during the six months ended June 30, 2021 and $16.7 million during the year ended December 31, 2020, there can be no guarantee that the Company can continue to grow revenue or achieve positive cash flow in the future.

Our operating results in the past will not reflect our operating results in the future, which makes it difficult to evaluate our future business, prospects, and forecast revenue.

Until recently, our business was comprised primarily of the development, marketing, sale and distribution of all-natural, vitamin-enhanced drinks.

As a result of our decision to consummate the Share Exchange, our future revenue will substantially differ from past revenue, and our operating results will vary significantly compared to past operating results.

It is too early to predict whether consumers will accept, and continue to use on a regular basis, our new products, due in part to the fact that we have had limited recent operating history as a combined entity with Charlie’s.

Factors that will significantly affect our operating results include, without limitation, the following:

the expected increase in revenue due to the addition of those products developed and marketed by Charlie’s prior to the Share Exchange, as well as any products that we may release in the future, to our revenue stream;

the restructuring of substantially all of our previously outstanding debt and shares of Preferred Stock on April 26, 2019, in connection with the Share Exchange.

Our operations are now primarily dependent on the business of Charlie ’

s, and our ability to achieve positive cash flow under our new business plan is uncertain.

As a result of the Share Exchange (see Note 3 of Part 1, Item 1 of this Report), our continued operations are now primarily dependent on the business of Charlie’s.

Although Charlie’s generated net revenue of approximately $15 million during the nine months ended September 30, 2021 and $16.7 million during the year ended December 31, 2020, there can be no guarantee that the Company can continue to grow revenue or achieve positive cash flow in the future.

Our cash resources are currently insufficient to submit each of our anticipated PMTA applications with the FDA, and otherwise satisfy our projected short-term liquidity and capital requirements.

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In addition, the cost associated with the preparation and submission of Premarket Tobacco Applications (" PMTAs ") with the FDA is approximately $4.4 million to date.

As a result, in March 2021 we issued shares of the Company’s Common Stock worth $3.0 million, which provided additional financing in order to reduce debt, further invest in the PMTA application process, and otherwise carry out our business plan.

There can be no assurance that the Company will not require additional financing in the future, or that the financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in our best interests.

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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 apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States.

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 apply for FDA approval to continue selling and marketing its products used for the vaporization of tobacco derived nicotine in the United States.

There is significant cost associated with the application process and there can be no assurance the FDA will approve the application(s).

In addition, the outbreak of a novel strain of COVID-19 (“ Coronavirus ”) which was identified in Wuhan, China around December 2019 and continues to spread globally, has had a negative impact on the global economy and markets which could impact the Company’s supply chain and/or sales.

For the six months ended June 30, 2021, the Company has incurred losses from operations of $397,000, and a consolidated net loss of approximately $373,000.

The Company has negative stockholders’ equity of $2,075,000 at June 30, 2021.

These factors raise substantial doubt about the Company’s ability to continue as a going concern.

In addition, the outbreak of a novel strain of COVID-19 (“

Coronavirus ”) which was identified in Wuhan, China around December 2019 and continues to spread globally, has had a negative impact on the global economy and markets which could impact the Company’s supply chain and/or sales.

For the nine months ended September 30, 2021, the Company has incurred losses from operations of $19,000, and a consolidated net income of approximately $2,734,000.

The Company had stockholders’

equity of $1,068,000 at September 30, 2021.

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.

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Our significant stockholders may have certain personal interests that may affect the Company.

Together, Brandon Stump and Ryan Stump, the founders of Charlie’s and our Chief Executive Officer and Chief Operating Officer, respectively, collectively own approximately 38% of our issued and outstanding voting securities.

As a result, Ryan Stump and Brandon Stump have the ability to exert influence over both the actions of our Board of Directors, the outcome of issues requiring approval by our stockholders, as well as the execution of management’s plans.

Together, Brandon Stump and Ryan Stump, the founders of Charlie’s and the Company's former Chief Executive Officer and current Chief Operating Officer, respectively, collectively own approximately 38% of our issued and outstanding voting securities.

This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other stockholders or preventing transactions in which stockholders might otherwise recover a premium for their shares over current market prices.

The loss of one or more of our key personnel or our failure to attract and retain other highly qualified personnel in the future, could harm our business.

We currently depend on the continued services and performance of key members of our management team, in particular, Brandon Stump and Ryan Stump, Charlie’s founders and our Chief Executive Officer and Chief Operating Officer, respectively, Matt Montesano, our Chief Financial Officer, and Henry Sicignano our President.

We currently depend on the continued services and performance of key members of our management team, in particular, Ryan Stump, one of Charlie’s founders and our Chief Operating Officer, Matt Montesano, our Chief Financial Officer, and Henry Sicignano our President.

If we cannot call upon them or other key management personnel for any reason, our operations and development could be harmed.

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The shareholders of Don Polly, our consolidated variable interest entity, may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

The equity interests of Don Polly, our consolidated VIE, are held by entities controlled by Brandon Stump, our Chief Executive Officer, and Ryan Stump, our Chief Operating Officer.

The equity interests of Don Polly, our consolidated VIE, are held by entities controlled by Ryan Stump, the Company's Chief Operating Officer and member of our Board of Directors, and Brandon Stump, a significant shareholder of the Company.

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

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Such disruptions or misappropriations and the resulting repercussions, including reputational damage and legal claims or proceedings, may adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock.

This risk is enhanced in certain jurisdictions with stringent data privacy laws.

For example, California recently adopted the California Consumer Privacy Act of 2018 (“ CCPA ”), which provides new data privacy rights for consumers and new operational requirements for businesses.

The CCPA includes a statutory damages framework and private rights of action against businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and practices to prevent data breaches.

The CCPA went into effect in January 2020.

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

These shareholders may breach, or cause Don Polly to breach, the existing contractual arrangements we have with them and Don Polly, which would have a material adverse effect on our ability to effectively control Don Polly and receive economic benefits from it.

For example, the shareholders may be able to cause our agreements with Don Polly to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis.

We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor.

The business that we conduct outside the United States may be adversely affected by international risk and uncertainties.

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Business interruptions resulting from geo-political actions, including war and terrorism or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires;

Failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act (“ FCPA ”).

Failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act (“

FCPA ”).

These factors or any combination of these factors may adversely affect our revenue or our overall financial performance.

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The general market in which our products are sold faces significant governmental and private sector actions, including efforts aimed at reducing the incidence of use in minors and efforts seeking to hold the makers and sellers of these products responsible for the adverse health effects associated with them.

More broadly, new regulatory actions by the FDA and other federal, state or local governments or agencies, may impact the consumer acceptability of or access to our products, including regulations promulgated by the FDA which will require us to file PMTA(s) for any of our products that are identified as “Deemed Tobacco Products” by the FDA that we intend to market and sell after September 9, 2020.

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

See "-The regulation of tobacco products by the FDA in the United States and the issuance of Deeming Regulations may materially adversely affect the Company." Additionally, on January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA.

According to the FDA, it is expected that the new policy will have minimal impact on small manufacturers, such as vape shops, that sell non-cartridge based products.

We believe that any ban on flavored e-cigarettes, or similar enforcement action by the FDA, would have a significant adverse impact on Charlie’s products, which would, in turn, have a material adverse impact on our overall business material.

Additional regulatory challenges may come in future months and years, including the FDA’s publication of new product standards or additional rule making that may impact vape shops or other small manufacturers, limit adult consumer choices, delay or prevent the launch of new or modified risk tobacco products or products with claims of reduced risk, require the recall or other removal of certain products from the marketplace, restrict communications including marketing, advertising, and educational campaigns regarding the product category to adult consumers, restrict the ability to differentiate products, create a competitive advantage or disadvantage for certain companies, impose additional manufacturing, labeling or packaging requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business, or restrict or prevent the use of specified products in certain locations or the sale of products by certain retail establishments.

Any of these actions may also have a material adverse effect on our business.

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Extensive and inconsistent regulation by multiple states and at different governmental levels could prove to be particularly disruptive to our business as we may be unable to accommodate such regulations in a cost-effective manner that allows us to continue to compete in an economically viable way.

Regulations are often introduced without the tobacco industry’s input and have been a significant reason behind reduced industry sales volumes and increased illicit trade.

There can be no assurance that we, or our independent distributors, will be in compliance with all of these regulations.

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In addition, the adoption of new regulations and policies or changes in the interpretations of existing regulations and policies may result in significant new compliance costs or discontinuation of product sales, and may adversely affect the marketing of our products, resulting in decreases in revenue.

In 1986, federal legislation was enacted regulating smokeless tobacco products (including dry and moist snuff and chewing tobacco) by, among other things, requiring health warnings on smokeless tobacco packages and prohibiting the advertising of smokeless tobacco products on media subject to the jurisdiction of the Federal Communications Commission (“ FCC ”).

FCC ”).

Since 1986, other proposals have been made at the federal, state, and local levels for additional regulation of tobacco products.

It is likely that additional proposals will be made in the coming years.

For example, the Prevent All Cigarette Trafficking Act (“ PACT Act ”) initially prohibited the use of the U.S.

For example, the Prevent All Cigarette Trafficking Act (“

PACT Act ”) initially prohibited the use of the U.S.

Postal Service to mail cigarette and smokeless tobacco products and also amended the Jenkins Act, which established cigarette sales reporting requirements for state excise tax collection, to require individuals and businesses that make interstate sales of certain cigarette or smokeless tobacco comply with state tax laws.

The PACT Act was recently amended expanding the definition of “cigarette” to include “electronic nicotine delivery systems,” or "ENDS", and requires that the United States Postal Service (" USPS ") promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS.

The PACT Act was recently amended expanding the definition of “cigarette”

to include “electronic nicotine delivery systems,”

or ( "ENDS" ), and requires that the United States Postal Service (" USPS ") promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS.

This amendment to the PACT Act applies to certain products manufactured and sold by the Company, which has impacts at the federal and state levels.

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To the extent we are unable to respond to, or comply with, these new requirements, there could be a material adverse effect on our business, results of operations and financial condition.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “ Tobacco Control Act ”) granted the FDA regulatory authority over tobacco products.

The Act also amended the Federal Cigarette Labeling and Advertising Act, which governs how cigarettes can be advertised and marketed, as well as the Comprehensive Smokeless Tobacco Health Education Act (“ CSTHEA ”), which governs how smokeless tobacco can be advertised and marketed.

In addition to the FDA and FCC, we are subject to regulation by numerous other federal agencies, including the Federal Trade Commission (“ FTC ”), the Department of Justice (“ DOJ ”), the Alcohol and Tobacco Tax and Trade Bureau (“ TTB ”), the U.S.

Environmental Protection Agency (“ EPA ”), the U.S.

Department of Agriculture (“ USDA ”), the Consumer Product Safety Commission (“ CPSC ”), the U.S.

Customs and Border Protection (“ CBP ”) and the U.S.

Center for Disease Control and Prevention’s (“ CDC ”) Office on Smoking and Health.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “

Tobacco Control Act ”) granted the FDA regulatory authority over tobacco products.

CSTHEA ”), which governs how smokeless tobacco can be advertised and marketed.

In addition to the FDA and FCC, we are subject to regulation by numerous other federal agencies, including the Federal Trade Commission (“

FTC ”), the Department of Justice (“

DOJ ”), the Alcohol and Tobacco Tax and Trade Bureau (“

TTB ”), the U.S.

Environmental Protection Agency (“

EPA ”), the U.S.

Department of Agriculture (“

USDA ”), the Consumer Product Safety Commission (“

CPSC ”), the U.S.

Customs and Border Protection (“

CBP ”) and the U.S.

Center for Disease Control and Prevention’s (“

CDC ”) Office on Smoking and Health.

There have also been adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry, which we believe have received widespread public attention.

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The regulation of tobacco products by the FDA in the United States and the issuance of Deeming Regulations may materially adversely affect the Company.

The “Deeming Regulations” issued by the FDA in May 2016 require any e-liquid, e-cigarettes, and other vaping products considered to be Deemed Tobacco Products that were not commercially marketed as of the grandfathering date of February 15, 2007, to obtain premarket approval by the FDA before any new e-liquid or other vaping products can be marketed in the United States.

The “Deeming Regulations”

issued by the FDA in May 2016 require any e-liquid, e-cigarettes, and other vaping products considered to be Deemed Tobacco Products that were not commercially marketed as of the grandfathering date of February 15, 2007, to obtain premarket approval by the FDA before any new e-liquid or other vaping products can be marketed in the United States.

However, any Deemed Tobacco Products such as certain products from our Charlie's Chalk Dust and Pachamama product lines that were on the market in the United States prior to August 8, 2016 have a grace period to continue to market such products, ending on September 9, 2020 whereby a premarket application, likely though the PMTA pathway, must be completed and filed with the FDA.

Upon submission of a PMTA, products would then be able to be marketed pending the FDA’s review of the submission.

Without obtaining marketing authorization by the FDA prior to September 9, 2020 or having submitted a PMTA by such date, non-authorized products would be required to be removed from the market in the United States until such authorization could be obtained, although such products may continue to be sold if a PMTA is pending as of the September 9, 2020 deadline.

As at the date of this Report, we have submitted PMTAs for certain of our traditional nicotine vapor products, including, but not limited to menthol and/or tobacco products with the assistance of Avail, pursuant to the terms of the Avail Agreement.

As at the date of this Report, we have submitted PMTAs for certain of our tobacco derived nicotine vapor products, including, but not limited to menthol and/or tobacco products with the assistance of Avail, pursuant to the terms of the Avail Agreement.

The costs to date associated with these PMTAs are approximately $4.4 million in total.

We are also evaluating the potential market perception and clinical studies that may be required in connection with each PMTA.

If we do not submit a PMTA for any Charlie’s products considered to be Deemed Tobacco Products prior to the lapse of the grace period or if any PMTA submitted by the Company is denied, we will be required to cease the marketing and distribution of such Charlie’s products, which, in turn, would have a material adverse effect on the Company’s business, results of operations and financial condition.

Furthermore, there can be no assurance that if the Company were to complete a PMTA for any of the affected Charlie's products, that any application would be approved by the FDA.

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Any FDA regulation may require us to reformulate, recall and or discontinue certain of the products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, financial condition, results of operations, cash flows and or future prospects.

Recent bans on the sales of flavored e-cigarettes directly impacts the markets in which we may sell Charlie’s products, and significant increases in state and local regulation of Charlie's products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

Recent bans on the sales of flavored e-cigarettes directly impacts the markets in which we may sell Charlie ’

s products, and significant increases in state and local regulation of Charlie's products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

On January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA.

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Despite the recent outbreak of vaping-related lung injuries, the medical profession does not yet definitively know the cause of such injuries.

Should vapor products, such as Charlie’s products, be determined conclusively to pose long-term health risks, including a risk of vaping-related lung injury, our business will be negatively impacted.

Should vapor products, such as Charlie ’

s products, be determined conclusively to pose long-term health risks, including a risk of vaping-related lung injury, our business will be negatively impacted.

Because vapor products have been developed and commercialized recently, the medical profession has not yet had a sufficient period of time to fully realize the long-term health effects attributable to vapor product use.

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The CDC's principal deputy director, Dr.

Anne Schuchat, stated that "vitamin E acetate is a known additive used to dilute liquid in e-cigarettes or vaping products that contain THC”, suggesting the possible culprit for the series of lung injuries across the U.S.

As a result, there is currently no way of knowing whether or not vapor products are safe for their intended use.

If the medical profession were to determine conclusively that vapor product usage poses long-term health risks, the use of such products, including Charlie’s products, could decline, which could have a material adverse effect on our business, results of operations and financial condition.

The marketing and sale of  

Delta-8-THC and other synthetic  

cannabinol  

products  

by the Company could subject it to limitations or restrictions imposed by the FDA, the states or other regulatory authorities.

The Company’s production of Delta-8-Tetrahydrocannabinol (" Delta-8-THC ") and other synthetic tetrahydrocannabinol (" Synthetic THC ") products derived from hemp could subject it to limitations or restrictions, which could result in an outright ban on such marketing or sale. 

Regulatory uncertainties regarding potential adverse changes in Federal and state laws may have a materially adverse effect on our business and the trading price of our common stock.

These risks are heightened as they relate to the nicotine, marijuana, Delta-8-THC, Synthetic THC, CBD and other cannabinoid varieties, derivatives and /or equivalents which are controversial socially, scientifically and legally. 

In addition, although we believe that Delta-8-THC is legal under the Farm Bill, certain states have moved to ban Synthetic THC or have moved to regulate Synthetic THC as marijuana. 

Notwithstanding the foregoing, the legality of hemp derived Synthetic THC is in a gray area and varies from state-to-state, with some states allowing Synthetic THC, others not addressing Synthetic THC specifically, while others have banned Synthetic THC due to its similarity to tetrahydrocannabinol.

The Federal legality of Synthetic THC is still unknown, and the Federal government has yet to take a definitive position.

Should the Company become subject to enforcement action by Federal, state or other regulatory agencies, it could be forced to spend significant sums defending against such enforcement action and ultimately could be forced to stop marketing and selling some or all of its Delta-8-THC products and/or be subject to other sanctions, which would have a material adverse effect on the Company’s business and shareholders’

The market for vapor products is a niche market, subject to a great deal of uncertainty, and is still evolving.

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Until 2014, when 7 U.S.

Code §5940 became federal law as part of the Agricultural Act of 2014 (the “ 2014 Farm Ac t”), products containing oils derived from hemp, notwithstanding a minimal or non-existing THC content, were classified as Schedule I illegal drugs.

The 2014 Farm Act expired on September 30, 2018, and was thereafter replaced by the Agricultural Improvement Act of 2018 on December 20, 2018 (the “ 2018 Farm Act ”), which amended various sections of the U.S.

Code §5940 became federal law as part of the Agricultural Act of 2014 (the “

2014 Farm Ac t”), products containing oils derived from hemp, notwithstanding a minimal or non-existing THC content, were classified as Schedule I illegal drugs.

The 2014 Farm Act expired on September 30, 2018, and was thereafter replaced by the Agricultural Improvement Act of 2018 on December 20, 2018 (the “

2018 Farm Act ”), which amended various sections of the U.S.

Code, thereby removing hemp, defined as cannabis with less than 0.3% THC, from Schedule 1 status under the Controlled Substances Act, and legalizing the cultivation and sale of industrial-hemp at the federal level, subject to compliance with certain federal requirements and state law, amongst other things.

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Additionally, the FDA has indicated its view that certain types of products containing CBD may not be permissible under the FDCA.

The FDA’s position is related to its approval of Epidiolex, a marijuana-derived prescription medicine to be available in the United States.

The active ingredient in Epidiolex is CBD.

On December 20, 2018, after the passage of the 2018 Farm Act, FDA Commissioner Scott Gottlieb issued a statement in which he reiterated the FDA’s position that, among other things, the FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce and that the FDCA prohibits introducing into interstate commerce food products containing added CBD, and marketing products containing CBD as a dietary supplement, regardless of whether the substances are hemp-derived.

Although we believe our existing and planned CBD product offerings comply with applicable federal and state laws and regulations, legal proceedings alleging violations of such laws could have a material adverse effect on our business, financial condition, and results of operations.

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Due to recent expansion into the CBD industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability .

Insurance that is otherwise readily available, such as general liability, and directors and officer’s insurance, may become more difficult for us to find, and more expensive, due to our recent launch of certain products containing hemp-derived CBD.

There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us.

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We face intense competition from numerous resellers, manufacturers and wholesalers of e-liquids similar to those developed and sold by us, from both retail and online providers.

We face competition from direct and indirect competitors, which arguably includes “big tobacco”, “big pharma”, and other known and established or yet to be formed vapor product manufacturing companies, each of whom pose a competitive threat to our current business and future prospects.

We compete against “big tobacco”, who offers not only conventional tobacco cigarettes and electronic cigarettes, but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff.

“Big tobacco” has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands.

Furthermore, we believe that “big tobacco” is likely to devote more attention and resources to developing and offering electronic cigarettes or other vapor products as the market for electronic cigarettes grows.

Because of their well-established sales and distribution channels, marketing depth, financial resources, and proven expertise navigating complex regulatory landscapes, “big tobacco” is better positioned than small competitors like us to capture a larger share of the vapor markets.

We compete against “big tobacco”, who offers not only conventional tobacco cigarettes and electronic cigarettes, but also smokeless tobacco products such as “snus”

(a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff.

“Big tobacco”

has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands.

Furthermore, we believe that “big tobacco”

is likely to devote more attention and resources to developing and offering electronic cigarettes or other vapor products as the market for electronic cigarettes grows.

Because of their well-established sales and distribution channels, marketing depth, financial resources, and proven expertise navigating complex regulatory landscapes, “big tobacco”

is better positioned than small competitors like us to capture a larger share of the vapor markets.

We also face competition from companies in the vapor market that are much larger, better funded, and more established than us.

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This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors or retailers for our products, which would have a material adverse effect on our ability to generate sales and revenue.

Our distributors’ and customers’ perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others.

Adverse publicity, whether or not accurate, that associates consumption of our products or any similar products with illness or other adverse effects, will likely diminish the public’s perception of our products.

Our distributors’

and customers’

perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others.

Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and revenue.

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These sales, or the perception that such sales may occur, may adversely impact the price of our Common Stock, even if there is no relationship between such sales and the performance of our business.

As of June 30, 2021, we had 203,165,202 shares of Common Stock outstanding, as well as outstanding options to purchase an aggregate of 7,503,000 shares of our Common Stock at a weighted average exercise price of $0.44313 per share, up to 39,492,000 shares of Common Stock issuable upon conversion of outstanding shares of Series A Preferred and outstanding warrants to purchase up to an aggregate of 40,338,000 shares of our Common Stock at a weighted average exercise price of $0.44313 per share.

As of September 30, 2021, we had 210,427,674 shares of Common Stock outstanding, as well as outstanding options to purchase an aggregate of 7,582,937 shares of our Common Stock at a weighted average exercise price of $0.5367 per share, up to 32,229,377 shares of Common Stock issuable upon conversion of outstanding shares of Series A Preferred and outstanding warrants to purchase up to an aggregate of 40,338,000 shares of our Common Stock at a weighted average exercise price of $0.44313 per share.

The exercise and/or conversion of such outstanding derivative securities may result in further dilution to our stockholders.

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Upon liquidation, dissolution or winding-up of the Company, the holders of the Series A Preferred are entitled to a liquidation preference equal to the original purchase price of Series A Preferred prior to and in preference to any distribution to the holders of our Common Stock.

In addition, the holders of the Series A Preferred are also entitled to an annual 8% dividend payable in cash or shares of our Common Stock.

Such rights could cause dilution of our Common Stock or limit our cash.

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Companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation.

If we were to become the subject of securities class action litigation, it could result in substantial costs and a significant diversion of our management’s attention and resources.

Because our Common Stock may be classified as “penny stock”, trading may be limited, and the share price could decline.

If we were to become the subject of securities class action litigation, it could result in substantial costs and a significant diversion of our management’s attention and resources.

Because our Common Stock may be classified as “penny stock”, trading may be limited, and the share price could decline.

Moreover, trading of our Common Stock, if any, may be limited because broker-dealers would be required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving our Common Stock.

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The rights and preferences of any such class or series of Preferred Stock would be established by our Board of Directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of the Common Stock.

Our Amended and Restated Bylaws designate courts within the state of Nevada as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our Amended and Restated Bylaws (“ Bylaws ”) require that, to the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, a state court located within the State of Nevada (or, if no state court located within the State of Nevada has jurisdiction, the federal district court for the District of Nevada), will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our Amended and Restated Bylaws (“

Bylaws ”) require that, to the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, a state court located within the State of Nevada (or, if no state court located within the State of Nevada has jurisdiction, the federal district court for the District of Nevada), will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

any derivative action or proceeding brought on behalf of the Company;

any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Company to the Company or the Company’s stockholders;

any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the Nevada Revised Statutes or the Company’s Amended and Restated Articles of Incorporation, as amended, or the Amended and Restated Bylaws;

any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Company to the Company or the Company’s stockholders;

any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine.

Because the applicability of the exclusive forum provision is limited to the extent permitted by law, we believe that the exclusive forum provision would not apply to suits brought to enforce any duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction, and that federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act of 1933, as amended (“ Securities Act ”).

Securities Act ”).

We note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Although we believe this provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

You may not be able to hold our securities in your regular brokerage account.

In the case of publicly traded companies, it is common for a broker to hold securities on your behalf, in “street name” (meaning the broker is shown as the holder on the issuer’s records and then you show up on the broker’s records as the person the broker is holding for).

In the case of publicly traded companies, it is common for a broker to hold securities on your behalf, in “street name”

(meaning the broker is shown as the holder on the issuer’s records and then you show up on the broker’s records as the person the broker is holding for).

Due to regulatory uncertainties, certain brokers may not agree to hold securities of companies whose products include hemp-derived CBD for their customers, meaning that you may not be able to take advantage of the convenience of having all your holdings reflected in one place.

4 unchanged sentences

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

What changed 10-Q

Item 1A. Risk Factors