What changed in this filing

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Item 9A. Controls and Procedures

2022-04-12 compared with 2021-04-05 · 1223 added, 3103 removed, 254 unchanged (94% of the section changed)

1 unchanged sentence

(a)   

Evaluation of Disclosure Controls and

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 “

Act ”) as of the end of

the period covered by this Annual Report on Form 10-K.

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.

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

(b)   Management’s

Annual Report on Internal Control over Financial

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.

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.

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

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our President, the principal 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 President, the principal executive officer, and Chief Financial Officer concluded that, as of December 31, 2021, 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 President, the principal 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.

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

executive and financial officer concluded that our internal control over financial

reporting was effective as of December 31,

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.

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

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.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE

Based on that evaluation, our principal executive and financial officer concluded that our internal control over financial reporting was effective as of December 31, 2021.

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.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the period ended December 31, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Although we have modified our workplace practices due to the COVID-19 pandemic, resulting in some of our employees working remotely since March 2020, this has not materially affected our internal controls over financial reporting.

We continue to monitor and assess the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

OTHER INFORMATION

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

Brandon Stump (1)

Chair and Chief Executive Officer (Principal Executive

Jeffrey Fox (2)

Keith Stump (3)

Ryan Stump (4)

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:

Henry Sicignano

President (Principal Executive Officer)

Chief Financial Officer

Chief Operating Officer and Director

David Allen (5)

Chief Financial Officer and Secretary (Principal Financial

Adam Mirkovich

Chief Information Officer

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

Van Boerum’s resignation as Principal Executive Officer.

The Company’s Board appointed Brandon Stump as Chair on May

Fox was appointed to the Company’s Board on July 16,

Stump was appointed to the Company's Board on June 7,

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.

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.

Mirkovich was appointed to serve as the Company’s Chief

Information Officer on May 20, 2019.

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.

following biographical information regarding the foregoing

directors and officers of the Company is presented

Brandon Stump, Chair and

Chief Executive Officer.

Stump was appointed as a director and Chief Executive Officer of

the Company on April 26, 2019 in connection with the Share

The Board appointed Mr.

Stump as Chair on May 8, 2019.

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.

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.

programs provide a continuum of care and services to men and women

from around the country in promoting emotional, physical and

spiritual development.

a co-founder of Charlie’s, the Board of Directors believes

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.

Cohen , 

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.

Cohen also is the Founder of

Petro River Oil, LLC and Chairman of Petro River Oil Corp.

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.

Cohen currently serves as a director on the Board of Directors

of Wrap Technologies, Inc.

WRTC), and is active in

philanthropic activities with numerous charities including the

Jewish Enrichment Council.

Cohen received a Bachelor of Science

degree from Ohio University in 1991.

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.

Fox was appointed to the Board effective July

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.

currently a member of the board of directors of Cici’s Pizza

and Flix Brewhouse.

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. 

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.

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.

was responsible for the sales performance of the company’s

five divisions, along with operational oversight.

included P&L responsibility for all product divisions,

leadership training and development, new product and service

offerings, enterprise account selling, amongst other duties.

Stump was instrumental in helping Blue Technologies, Inc.

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

Stump serves on several not-for-profit boards, which

serve those in recovery from addiction and developmental

disabilities.

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.

Stump was appointed as a

director and the Company’s Chief Marketing Officer on April

26, 2019 in connection with the Share Exchange.

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,

Stump worked as an Associate Territory Manager and then as a

Territory Manager for ConMed, a medical sales device company, from

2010 to 2013.

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

Edward Carmines

The following biographical information regarding the foregoing directors and officers of the Company is presented below:

Henry Sicignano, President (Principal Executive Officer).

Sicignano was appointed as President of the Company on April 1, 2021.

Prior to joining the Company, Mr.

Sicignano held multiple positions, including Chief Executive Officer of 22nd Century Group, Inc.

(NYSE American:

 XXII), a plant-based biotechnology company that is focused on tobacco harm reduction, very low nicotine content tobacco, and hemp/cannabis research from March 2015 through July 2019.

He also served as President and as a member of the Board of Directors with 22nd Century from January 2011 through July 2019.

In addition, from December 2014 to August 2018, Mr.

Sicignano served on the Board of Directors of Anandia Laboratories, Inc., a cannabis-focused science company that was sold to Aurora Cannabis (NYSE:

Sicignano holds a B.A.

Degree in Government from Harvard College and an M.B.A.

Degree from Harvard University.

Montesano, Chief Financial Officer.

Montesano was appointed as Chief Financial officer of the Company on May 10, 2021.

Prior to his appointment, and since 2014, Mr.

Montesano has served as Chief Financial Officer of Charlie’s Chalk Dust, LLC, the Company’s largest and most profitable operating division.

Beginning in 2019, he also began serving as the Chief Financial Officer of Don Polly, LLC, the Company’s hemp-derived products division.

Prior to joining the Company, Mr.

Montesano worked for L’Oreal USA in a variety of corporate finance positions for the company’s Professional Products and Salon Centric divisions.

Prior to L’Oreal USA, Mr.

Montesano worked for KeyBanc Capital Markets as an investment banker where he focused on debt, equity and merger and acquisitions transactions in the industrials space.

Ryan Stump, Director and Chief Operating Officer.

Stump was appointed as a director and the Company’s Chief Marketing Officer on April 26, 2019 in connection with the Share Exchange.

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.

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.

Stump earned a B.S.

in Sports Marketing and

Marketing from Duquesne University

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.

David Allen, Chief

Financial Officer and Secretary.

Allen was appointed as the

Company’s Chief Financial Officer on April 26, 2019, upon

consummation of the Share Exchange.

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.

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

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;

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.

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

Allen is a licensed CPA and holds a

Bachelor’s Degree in Accounting and a Master’s Degree

in Taxation from Bentley College.

Mirkovich, Chief Information Officer.

Mirkovich was appointed as the Company’s

Chief Information Officer on May 20, 2019.

Mirkovich has over a

decade of experience managing supply chains for consumer products.

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.

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.

Adam Mirkovich, Chief Information Officer.

Mirkovich was appointed as the Company’s Chief Information Officer on May 20, 2019.

Mirkovich has over a decade of experience managing supply chains for consumer products.

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.

multi-state premium cannabis vape company, from September 2018 to

Mirkovich served as the Chief Operating Officer of Orchid Ventures, Inc.

ORCD), a multi-state premium cannabis vape company, from September 2018 to April 2019.

From December 2014 to February 2016, Mr.

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

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.

Mirkovich earned a Bachelor of Science degree in Business

Administration and Economics from Chapman

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.

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.

Mirkovich earned a Bachelor of Science degree in Business Administration and Economics from Chapman University.

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.

Cohen also is the Founder of Petro River Oil, LLC and Chairman of Petro River Oil Corp.

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.

Cohen currently serves as a director on the Board of Directors of Wrap Technologies, Inc.

WRTC), and is active in philanthropic activities with numerous charities including the Jewish Enrichment Council.

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 .

Fox was appointed to the Board effective July 16, 2019.

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.

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.

Edward Carmines, Director.

Carmines was appointed to the Board effective March 2, 2022.

He is currently Chief Scientific Officer of Chemular, Inc., where he designs and directs scientific and regulatory programs for PMTAs for a host of contract clients across a wide range of tobacco product categories.

He also currently serves as an Advisory Board Member of Sparq Life, Inc, focusing on the science of inhalation of non-tobacco products, and Principal for Carmines Consulting, LLC, where Dr.

Carmines consults to the regulated tobacco industry in the field of toxicology and regulatory affairs.

Previously, Dr.

Carmines managed the safety of novel and oral tobacco products as a scientist with R.J.

Reynolds Tobacco Co.

From 1996-2009, Dr.

Carmines served as a principal scientist for Philip Morris USA (Altria Client Services, Inc.), where he developed guidelines for safely testing cigarette ingredients and components based on the FDA Red Book.

Carmines received a B.S.

degree in Chemistry and a Ph.D.

degree in Toxicology from the Medical College of Virginia (Virginia Commonwealth University).

The Board of Directors believes that Dr.

Carmines extensive experience within the nicotine industry and navigating the regulatory process relating to the nicotine industry is significantly valuable to the Company due to the ongoing and evolving nature of the Company’s industry.

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

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.

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.

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 none of our officers and directors failed to timely file at least one report due under Section 16(a) during the year ended December 31, 2021.

Code of Ethics

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,

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

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

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

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.

December 31, 2020, Mr.

Stump continues to serve both as the

Company’s Chief Executive Officer and as Chair of the

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 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.

Board Role in Risk Assessment

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.

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, 2021.

The Board also provides risk oversight through its periodic reviews of the financial and operational performance of the Company.

Director Nominations

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.

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.

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.

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

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.

recommended by stockholders are considered in the same way as

nominees suggested from other sources. 

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.

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.

recommendation should be sent to:

Secretary, Charlie’s

Holdings, Inc., 1007 Brioso Drive, Costa Mesa, California

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

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,

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.

Attendance at Meetings

The Board held 13 meetings and acted by unanimous written consent 7 times during the year ended December 31, 2021.

Each director attended at least 75% of Board meetings during the year ended December 31, 2021.

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

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 ”.

As of December 31, 2021, 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 ”.

Audit Committee

December 31, 2020, the Audit Committee consisted of Messrs.

(Chair) and Fox.

The Audit Committee

met four times during the year ended December 31,

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

noted above, the Board currently does not have an active

As of December 31, 2021, the Audit Committee consisted of Messrs.

Cohen (Chair) and Fox.

The Audit Committee met four times during the year ended December 31, 2021.

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

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.

As noted above, the Board currently does not have an active compensation committee.

Instead, the 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

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.

As noted above, the Board currently does not have an active nominating and corporate governance committee.

Instead, the 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.

EXECUTIVE COMPENSATION

Summary Compensation Table

following table sets forth the compensation paid to the following

persons for our fiscal years ended December 31, 2020 and

The following table sets forth the compensation paid to the following persons for our fiscal years ended December 31, 2021 and 2020:

our principal executive officer;

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 ”);

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

Name and  

Option Awards

Brandon Stump (2)

$ 381,855  

Chief Executive Officer and Chair of the Board

$ 333,330  

$ 497,000  

$ 830,330  

David Allen (3)

$ 122,115  

$ 20,000  

$ 142,115  

our most highly compensated executive officers who were serving as an executive officer at the end of the fiscal year ended December 31, 2021 and 2020 who had total compensation exceeding $100,000 (together, with the principal executive officer, the “

Named Executive Officers ”);

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

Henry Sicignano (2)

Montesano (3)

Chief Financial Officer

$ 93,750  

$ 43,500  

$ 137,250  

Ryan Stump (4)

$ 381,817  

Chief Operating Officer and Director

$ 333,330  

$ 497,000  

$ 830,330  

Former Named Executive Officers

Van Boerum (5)

$ 24,525  

$ 67,500  

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 –

Compensation.

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

Van Boerum’s resignation as Principal Executive

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.

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.

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

Brandon Stump (4)

Former Chief Executive Officer and Chair of the Board

David Allen (5)

Chief Financial Officer

The amounts in the “Equity Awards” columns do not represent any cash payments actually received by the individuals listed in the table with respect to any of such equity awards granted to them during the year ended December 31, 2021.  Rather, the amounts represent the aggregate grant date fair value of awards to the individuals listed in the table during the years ended December 31, 2021 and 2020, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation.

Sicignano was appointed as President of the Company on April 1, 2021.

Montesano was appointed as Chief Financial Officer of the Company on May 10, 2021.

Stump resigned from his positions as (i) Chief Executive Officer, Chair of the Board of Directors, and a member of the Board of Directors of the Company;

and (ii) all positions held for each direct and indirect subsidiary of the Company (each, a " Subsidiary "), including as a member of the Board of Directors of each Subsidiary, on October 29, 2021.

Allen resigned from his position as Chief Financial Officer on May 10, 2021, and served as a member of the Board of Directors of the Company from May 10, 2021 through October 29, 2021.

Allen’s compensation does not include compensation earned as member of the Company’s Board of Directors.

Outstanding Equity Awards at Fiscal Year-End 2021

following table sets forth all equity awards held by our Named

Executive Officers at December 31, 2020:

Number of Securities Underlying Unexercised Options and

The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2021:

Number of Securities Underlying Unexercised Options and Warrants

(#) Exercisable

2 unchanged sentences

(#) Unexercisable

Henry Sicignano

Chief Operating Officer

Matthew Montesano

Chief Financial Officer

Former Named Executive Officers

Brandon Stump

Former Chief Executive Officer and

Chairman of the Board

Former Chief Financial Officer and

Executive Compensation Arrangements

Employment Agreements

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 “

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;

Stump is subject to a

non-competition requirement for three years after his termination;

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

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.

Brandon Stump (Former CEO).

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 “

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;

Stump is subject to a non-competition requirement for three years after his termination;

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.

Stump Employment Agreement provided that, in the event of Mr.

Stump’s death or disability, or for Cause, as defined in the B.

Stump Employment Agreement, the Company may terminate the B.

Stump Employment Agreement;

however , that at no time may

the Company terminate him without Cause.

Stump may terminate

provided, however, that at no time may the Company terminate him without Cause.

Stump may terminate the B.

Stump Employment Agreement at any time for any reason.

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;

however , that in the event that

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.

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:

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%.

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 “

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;

Stump is subject

to a non-competition requirement for three years after his

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.

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

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.

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%.

Stump Employment Agreement was amended on February 12, 2021.

The terms of the amendment are identical to the terms of the Amended Employment Agreement set forth under “Ryan Stump”.

On October 29, 2021, Brandon Stump resigned from his position as:

(i) Chief Executive Officer, Chair of the Board of Directors, and a member of the Board of Directors of the Company;

and (ii) all positions held for each direct and indirect subsidiary of the Company (each, a " Subsidiary "), including as a member of the Board of Directors of each Subsidiary.

In connection with Mr.

Stump's resignation, the Company and Mr.

Stump entered into an agreement regarding Mr.

Stump's resignation (the " Resignation Agreement "), which Resignation Agreement is dated October 29, 2021.

Pursuant to the Resignation Agreement, in consideration for Mr.

Stump agreeing to terminate the B.

Stump Employment Agreement, and agreeing to certain restrictions and covenants, the Company will:

(i) continue to pay Mr.

Stump his base salary (as defined in the B.

Stump Employment Agreement), through April 22, 2022;

Stump certain bonus compensation owed to Mr.

Stump in an amount equal to $300,000, payable in installments of $75,000 on each of November 1, 2021, December 1, 2021, January 1, 2022, and February 1, 2022;

and (iii) continue to make available to Mr.

Stump certain employee benefits offered by the Company until April 22, 2022.

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 “

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;

Stump is subject to a non-competition requirement for three years after his termination;

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.

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 in the event of Mr.

Stump’s death or disability, or for Cause, as defined in the R.

Stump Employment Agreement;

however , that at no time may

the Company terminate him without Cause.

Stump may terminate

provided, however , that at no time may the Company terminate him without Cause.

Stump may terminate the R.

Stump Employment Agreement at any time for any reason.

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;

however , that in the event that

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.

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.

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.

addition, effective upon a Change in Control, regardless of whether

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,

terms of the Amended Employment Agreements have been amended as

(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;

(ii) payment of the 2019 bonuses have been deferred, resulting in

the accrual of such bonuses on the books and records of the

All other terms of the respective Employment Agreements

Stump and Stump will remain in full force and effect

subject to further review by the Board as it deems necessary and

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:

In addition, effective upon a Change in Control, regardless of whether the R.

On February 12, 2020, the Board of Directors (the “

Board ”) of the Company, entered into a form of Amended and Restated Employment Agreement with Mr.

Stump (the “

Amended Employment Agreement ”) 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.

Henry Sicignano.

On April 1, 2021, the Board of Directors of the Company entered into an Employment Agreement (the " Agreement ") with Henry Sicignano III, MBA, pursuant to which the Company appointed Mr.

Sicignano to serve as President of the Company.

Pursuant to the Agreement, Mr.

Sicignano will serve as President for an initial period of two years, renewable on an annual basis unless earlier terminated by the Company or Mr.

Sicignano was awarded 1,500,000 restricted shares (subject to forfeiture) (“

Restricted Shares ”) of the Company.

Sicignano will have all the rights of a shareholder of the Company with respect to voting the 1,500,000 restricted shares awarded under this grant and share adjustments, receipt of dividends (if any) and distributions (if any) on such shares.

Restricted Shares will be subject to forfeiture in 750,000 share increments on April 1, 2022 and April 1, 2023 , and will also be subject to additional forfeiture-release features set forth in Addendum A to the Employment Agreement of Henry Sicignano, III, included in the Company’s 8 -K filed April 6, 2021.

The grant date fair value of the 1,500,000 restricted shares was approximately $65,000.

Director Compensation

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

following table discloses certain information concerning the

compensation of the Company’s non-employee directors for the

year ended December 31, 2020:

Fees Earned or

Paid in Cash

Cohen (2) 

$ 60,000  

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 –

Compensation.

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.

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 OTCQB Venture 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, 2021:

Fees Earned or

Keith Stump (2)

David Allen (3)

Edward Carmines (4)

The amounts in the “Equity 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, 2021.  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, 2021, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation.

Stump resigned from his position as a member of the Board of Directors on October 29, 2021.

Allen resigned from his position as a member of the Board of Directors on October 29, 2021.

Allen’s compensation excludes compensation earned during 2021 as the Company’s former Chief Financial Officer.

Carmines was appointed to the Company’s Board of Directors on March 2, 2022 and did not receive any compensation during the year ended December 31, 2021

Outstanding Equity Awards as of December  

following table sets forth all equity awards held by our Named

Executive Officers at December 31, 2020:

Number of Securities Underlying Unexercised Options and

The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2021:

Number of Securities Underlying Unexercised Options and Warrants

(#) Exercisable

2 unchanged sentences

(#) Unexercisable

5,000,000  

–10,000,000  

$ –0.0044313  

–10/28/2029 

Henry Sicignano

Chief Operating Officer

Matthew Montesano

Chief Financial Officer

Former Named Executive Officers

3,172,294  

$ 0.02  

 Equity Compensation Plan Information

following table includes information as of December 31, 2020 for

our equity compensation plans:

Brandon Stump

Former Chief Executive Officer and

Chairman of the Board

Former Chief Financial Officer and

Equity Compensation Plan Information

The following table includes information as of December 31, 2021 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

compensation plans approved by stockholders

750,293,786  

$ 0.0044313  

367,754,205  

compensation plans not approved by stockholders

750,293,786  

$ 0.0044313  

367,754,205  

2013 Stock Incentive

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

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))

Equity compensation plans approved by stockholders

Equity compensation plans not approved by stockholders

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 0.2 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.

the year ended December 31, 2018, the Company did not issue any

restricted stock awards pursuant to the 2013 Plan;

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

2019 Omnibus Incentive

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.

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

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

Post-Employment Compensation, Pension Benefits, Nonqualified

Deferred Compensation

were no post-employment compensation, pension or nonqualified

deferred compensation benefits earned by the Named Executive

Officers during the year ended December 31, 2020.

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.

following tables contain the beneficial ownership of our

outstanding voting securities owned by:

(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 0.65 million shares of common stock and to ratify the issuance of any and all awards made prior to that date, subject to stockholder approval.

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 346,529 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 359,720, 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, 2021, approximately 0.6 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.

On December 22, 2021, our Board of Directors unanimously adopted resolutions by written consent approving an amendment to increase the number of shares of Common Stock available for issuance under the 2019 Plan by 15.0 million shares, from 11,072,542 to 26,072,542 shares (the “

Plan Amendment ”).

Furthermore, the Company received written consents approving the 2019 Plan Amendment from holders of approximately 50.3% of our outstanding voting securities.

In accordance with Rule 14c of the Securities Exchange Act of 1934, Our Board of Directors’

authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders.

The 2019 Plan Amendment will allow the Company to maintain a sufficient number of available shares for future grants under the 2019 Plan.

As of December 31, 2021, there were a total of 7,122,937 stock options outstanding pursuant to the 2019 Plan, 5,376,277 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, 2021.

SECURITY 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:

Each of our officers and directors;

All officer and directors as a group;

Each person known by us to beneficially own five percent or more of

the outstanding shares of our Series A Preferred and common

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

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.

shares are not deemed outstanding for the purpose of computing the

percentage of ownership by any other person.

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 141,123 shares of Series A Preferred and 216,840,987 shares common stock outstanding as of April 12, 2022.

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.

Beneficial Ownership of Series A Preferred

Name and

Address  

A Convertible Preferred Stock

Name and Address (1)

Series A Convertible Preferred Stock

% Ownership of Class

Executive Officers and Directors

Total Officers and Directors 

Former Director

Total Officers and Directors

Greater Than 5% Stockholders

Red Beard Holdings,

Red Beard Holdings, LLC (2)

17595 Harvard Avenue, Suite C511

California 92614

33,750  

Iroquois Capital Management,

Park Avenue, 25th Floor

York, New York 10017

32,813  

Hudson Bay Capital Management,

Irvine, California 92614

Hudson Bay Capital Management, LP (3)

777 Third Avenue, 30 th Floor

York, New York 10017

10,450  

SDS Capital Partners II,

Summer Street, Suite 405

Connecticut 06901

11,250  

Altium Growth Fund,

New York, New York 10017

Empery Asset Management, LP (4)

1 Rockefeller Plaza, Suite 1205

New York, New York

Altium Growth Fund, LP (5)

551 Fifth Avenue, 19 th Floor

York, New York 10176

11,025  

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.

Based on Company records as of March

manager of Red Beard, and has dispositive power and voting power

over the securities reported herein.

Based on Company records and ownership information from Schedule

13G filed by Iroquois Capital Management, LLC

Iroquois Capital

Management ”), Mr.

Kimberly Page on May 24, 2019.

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.

Page may each be deemed to be the beneficial owner of the shares of

Series A Preferred reported herein.

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,

Based on Company records as of March 23, 2021.

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.

Based on Company records as of March

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.

New York, New York 10176

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.

Based on Company records as of February 2, 2022.

Smith is a manager of Red Beard, and has dispositive power and voting power over the securities reported herein.

Based on Company records as of February 2, 2022.

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.

Based on Company records as of February 2, 2022.

Ryan Lane, Managing Partner for Empery Asset Management, LP may be deemed to be the beneficial owner of all shares of Common Stock underlying the Series A Preferred held by Empery Asset Management, LP.

Based on Company records as of February 2, 2022.

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.

Beneficial Ownership of Common Stock

7 unchanged sentences

Brandon Stump

Chief Executive Officer and Director

6,381,616,617  

Former Chief Executive Officer and Director

Chief Operating Officer and Director

2,734,978,608  

Henry Sicignano

Matthew Montesano

Chief Financial Officer

30,000,000  

5,000,000  

35,000,000  

Former Chief Financial Officer and Director

Adam Mirkovich

Chief Information Officer

810,000  

3,333,333  

4,143,333  

Scot Cohen (4)

202,632,203  

84,625,280  

56,416,355  

7,244,826  

350,918,664  

213,086,946  

67,700,224  

45,133,084  

16,666,667  

342,586,921  

Executive Officers and

Directors, as a group (6

9,563,124,374  

152,325,504  

101,549,439  

32,244,826  

9,849,244,143  

Edward Carmines

Former Director

Executive Officers and Directors, as a group (10 persons)

Greater Than 5% Stockholders

17595 Harvard Avenue, Suite C511

California 92614

2,216,559,416  

761,627,520  

513,130,526  

3,491,317,462  

Irvine, California 92614

Red Beard Holdings, LLC (6)

17595 Harvard Avenue, Suite C511

California 92614

4,012,825,315  

761,627,520  

513,130,526  

5,287,583,361  

Irvine, California 92614

Iroquois Capital Management, LLC (7)

125 Park Avenue, 25th Floor

York, New York 10017

514,000,002  

740,471,200  

493,643,101  

1,748,114,303  

Unless otherwise indicated, the address for each stockholder is

1007 Brioso Drive, Costa Mesa, California 92627.

Pursuant to the Certificate of Designation of the Series A

Preferred (“

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 ”);

New York, New York 10017

Unless otherwise indicated, the address for each stockholder is 1007 Brioso Drive, Costa Mesa, California 92627.

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 , 

that any holder of shares of Series A Preferred may waive the

Conversion Limitation upon 61 days written notice to the

The Series A COD also entitles each share of Series A

Preferred to vote, on an as converted basis, along with the common

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.

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.

Includes securities held by V3 Capital Partners and the Scot Jason

Cohen Foundation.

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.

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.

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.

Includes securities held by V3 Capital Partners and the Scot Jason Cohen Foundation.

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.

Includes securities held by LB 2, LLC (“

LB 2 ”) and Red Beard Holdings, LLC

Beard ”), based on Company

records and ownership information from Amendment No.

5 to Schedule

13D filed by Vincent C.

Smith on April 25, 2016.

manager of LB 2 and Red Beard.

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

Based on Company records and ownership information from Amendment

LB 2 ”) and 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 a manager of Red Beard, and has dispositive

power and voting power over the securities reported

Based on Company records and ownership information from Schedule

13G filed by Iroquois Capital Management, LLC

Iroquois Capital

Management ”), Mr.

Kimberly Page on May 24, 2019.

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.

Page may each be deemed to be the beneficial owner of all shares of

common stock underlying the common stock held by Iroquois Master

CERTAIN R ELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR

Relationships and Related Transactions

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.

Stump, Stump and Stump purchased the

property that is the subject of the Lease in July 2019.

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.

of the Lease were negotiated and approved by the independent

members of the Board, and executed by Mr.

Company’s Chief Financial Officer after reviewing a detailed

analysis of comparable properties and rent rates compiled by an

independent, third-party consultant.

and Executive Officer Compensation

“Executive Compensation”

and “Director

Compensation”

for information regarding compensation of

directors and executive officers.

Smith on November 21, 2019.

Smith is manager of LB 2 and Red Beard.

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.

Based on Company records and ownership information from Amendment No.

5 to Schedule 13D filed by Vincent C.

Smith on November 21, 2019. Mr.

Smith is a manager of Red Beard, and has dispositive power and voting power over the securities reported herein.

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 September 21, 2021.

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.

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.

CERTAIN RELATIONSHIPS, 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.

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 the Company’s then Chief Financial Officer after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant.

On January 10, 2020, Bellerose CBD Trade Co.

Bellerose ”), an entity controlled by Brandon Stump, the Company’s former Chief Executive Officer, and Ryan Stump, the Company’s Chief Operating Officer, subleased 656 square feet from Don Polly within Don Polly’s warehouse located at 1288 S.

Broadway, Denver, Colorado (the “

Sublease ”), for use as a retail sales location for Bellerose’s operations. Subsequent to entering into Sublease, Don Polly completed certain leasehold improvements to which Bellerose reimbursed Don Polly $25,396 for modifications that affected the subleased space.

The Sublease had a base rent rate of $1,154 per month and was terminated on January 27, 2022. 

For the fiscal year ended December 31, 2021, Don Polly received $13,848 of lease income pursuant to the Sublease, as well as $18,362 of income from the sale of Don Polly Products to Bellerose.

Director and Executive Officer Compensation

See “Executive Compensation”

and “Director Compensation”

for information regarding compensation of directors and executive officers.

Employment Agreements

entered into employment agreements with our executive officers.

more information regarding these agreements, see

Executive Compensation

Narrative to Summary Compensation Table and Outstanding

Equity Awards at 2020 Fiscal Year End ”.

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 2021 Fiscal Year End ”.

Independent Directors

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.

addition, the Board has determined that Mr.

Cohen satisfies the

definition of an “audit committee financial expert”

The Board has determined that Messrs.

Cohen, Fox and Carmines 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

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

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.

Audit Fees 

$ 140,000  

$ 165,500  

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.

PRINCIPAL 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, 2021, and 2020 and fees and other expenses for other services rendered during those periods.

Audit Fees (1)

Audit-Related Fees (2)

$ 7,500  

Tax Fees  (3)

All Other Fees  

$ 147,500  

$ 165,500  

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.

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.”

For permissible professional services related to income tax return

preparation and compliance.

All Other Fees

Audit services in 2021 and 2020 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.

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.”

For permissible professional services related to income tax return preparation and compliance.

EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

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.

Articles of Incorporation, incorporated herein by reference from

Exhibit 3.01 to Form SB-2 filed on February 27, 2001.

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.

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.

Amended and Restated By-laws, incorporated herein by reference from

Exhibit 3.2 to Form 10-KSB filed on March 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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. 

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,

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.

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.

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,

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.

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,

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,

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,

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.

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,

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,

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,

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.

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.

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.

Employment agreement with Dan Kerker, incorporated by reference to

Exhibit 10.4 filed with the Annual Report on Form 10-K, filed April

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.

Form of Securities Purchase Agreement, incorporated by reference

from Exhibit 10.1 to the Current Report on Form 8-K, filed November

2013 Stock Incentive Plan, incorporated by reference from Exhibit

10.17 to the Annual Report on Form 10-K, filed March 31,

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.

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

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.

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.

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.

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.

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.

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.

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.

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.

Form of Warrant, incorporated by reference from Exhibit 10.2 to the

Current Report on Form 8-K, filed September 11, 2015.

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,

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.

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.

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.

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.

Form of Securities Purchase Agreement, incorporated by reference

from Exhibit 10.1 to the Current Report on Form 8-K, filed December

Form of Warrant, incorporated by reference from Exhibit 10.2 to the

Current Report on Form 8-K, filed December 1, 2015.

Form of Registration Rights Agreement, incorporated by reference

from Exhibit 10.3 to the Current Report on Form 8-K, filed December

Employment Agreement, by and between True Drinks Holdings, Inc.

Kevin Sherman, dated November 25, 2015, incorporated by reference

from Exhibit 10.4 to the Current Report on Form 8-K, filed December

Form of Note Exchange Agreement, incorporated by reference to the

Annual Report on Form 10-K, filed March 31, 2017.

Form of Securities Purchase Agreement, incorporated by reference

from Exhibit 10.1 to the Current Report on Form 8-K, filed April

Form of Warrant, incorporated by reference from Exhibit 10.2 to the

Current Report on Form 8-K, filed April 19, 2016.

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.

Certificate of Change for Charlie’s Holdings, Inc., effective as of June 14, 2021, incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on June 16, 2021.

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.

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.

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.

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,

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Employment Agreement by and between True Drinks Holdings, Inc.

Brandon Stump, dated April 26, 2019, incorporated by reference to

Exhibit 10.7 to the Current Report on Form 8-K, filed April 30,

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.

Employment Agreement by and between True Drinks Holdings, Inc.

Ryan Stump, dated April 26, 2019, incorporated by reference to

Exhibit 10.8 to the Current Report on Form 8-K, filed April 30,

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.

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.

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.

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).

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,

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

Code of Ethics filed with Form 10-K on March 31, 2011 and

incorporated herein by reference.

Board Charter filed with Form 10-K on March 31, 2011 and

incorporated herein by reference.

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.

Consent of Baker Tilly US, LLP, dated April 2, 2021, filed

Certification of Principal Executive Officer as Required by Rule

13a-14(a)/15d-14, filed herewith.

Certification of Principal Financial Officer as Required by Rule

13a-14(a)/15d-14, filed herewith.

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

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

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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

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.

Satisfaction and Release, incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K, filed April 5, 2021.

Employment Agreement, dated April 1, 2021, by and between Charlie's Holdings, Inc.

and Henry Sicignano, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed April 6, 2021.

Form of Dividend Exchange and Waiver, dated May 25, 2021, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed May 26, 2021.

Letter Agreement between Charlie's Holdings, Inc.

and Brandon Stump, dated October 29, 2021, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 3, 2021.

2019 Omnibus Equity Incentive Plan, as amended, incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on May 28, 2019

Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference.

Board Charter filed with Form 10-K on March 31, 2011 and incorporated herein by reference.

Subsidiaries of Charlie's Holdings, Inc, filed herewith.

Consent of Squar Milner LLP, dated June 26, 2018, filed herewith.

Certification of Principal Executive Officer as Required by Rule 13a-14(a)/15d-14, filed herewith.

Certification of Principal Financial Officer as Required by Rule 13a-14(a)/15d-14, filed herewith.

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.

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.

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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

FORM 10-K SUMMARY

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.

April 12, 2022

CHARLIE’S HOLDINGS, INC.

/s/ Brandon

Brandon Stump

Chief Executive Officer and Chair of the Board

/s/ Henry Sicignano

Henry Sicignano

(Principal Executive Officer)

/s/ Matthew P.

Chief Financial Officer

(Principal Financial and Accounting Officer)

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

Brandon Stump

Chief Executive Officer and Director

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.

/s/ Henry Sicignano

Henry Sicignano

(Principal Executive Officer)

April 12, 2022

Chief Financial Officer and Secretary

(Principal Financial Officer and Principal Accounting

/s/ Matthew P.

Chief Financial Officer

(Principal Financial and Accounting Officer)

April 12, 2022

/s/ Ryan Stump

Chief Operating Officer and Director

April 12, 2022

/s/ Scot Cohen

April 12, 2022

/s/ Jeffrey Fox

April 12, 2022

/s/ Edward Carmines

Edward Carmines

April 12, 2022

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors

2 unchanged sentences

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

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

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.

We have audited the accompanying consolidated balance sheets of Charlie’s Holdings, Inc.

and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, 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.

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

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

We conducted our audits in accordance with the standards of the

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

The Company is not required to have, nor were we engaged

to perform, an audit of its internal control over financial

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.

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's consolidated 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 the 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 consolidated 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

Such procedures included examining, on a test basis,

evidence regarding the amounts and disclosures in the financial

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

We believe that our audits provide a reasonable basis

for our opinion.

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

(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

Our audits included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has continued to experience financial, supply chain and regulatory issues.

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 also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Critical Audit  

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 consolidated 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

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

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”).

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.

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

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.

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

As described in Note 10 to the consolidated financial statements, the Company previously issued warrants to purchase approximately 40 million shares of common stock.

The warrants have a 5-year term and an exercise price of $0.44313, subject to adjustment for anti-dilution events.

The Company is required 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, and accordingly uses various inputs to measure the outstanding warrants on a recurring basis to determine the fair value of the liability.

The fair value of the warrant liabilities was approximately $899,000 as of December 31, 2021.

We identified the fair value estimation of derivative liabilities as a critical audit matter because 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 a high degree of subjectivity.

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

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

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. 

The primary procedures we performed to address this critical audit matter included:

Obtaining an understanding and evaluating the design effectiveness of controls over the Company's accounting for the derivative liabilities.

Obtaining an understanding of management's review of the key assumptions and inputs utilized in the estimate of the fair value of the warrants.

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.

Evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates.

Testing the appropriateness of the key assumptions by evaluating 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.

Utilizing 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

1 unchanged sentence

Irvine, California

April 2, 2021

CHARLIE’S HOLDINGS, INC.

April 12, 2022 

CHARLIE ’

S HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

$ 1,422  

$ 2,448  

receivable, net

expenses and other current assets

Current assets:

plant and equipment, net

$ 1,422  

Accounts receivable, net

Inventories, net

Prepaid expenses and other current assets

Total current assets

Non-current assets:

Property, plant and equipment, net

Right-of-use asset, net

Total non-current assets

$ 9,248  

1 unchanged sentence

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

payable and accrued expenses

Current liabilities:

Accounts payable and accrued expenses

$ 4,068  

$ 2,525  

current liabilities

Derivative liability

Lease liabilities

Notes payable, current portion

Dividends payable

Deferred revenue

Total current liabilities

10,743  

payable, net of current portion

liabilities, net of current portion

Non-current liabilities:

Notes payable, net of current portion

Lease liabilities, net of current portion

Total non-current liabilities

Total liabilities

12,521  

COMMITMENTS AND CONTINGENCIES (see Note 12)

Stockholders'

equity (deficit):

preferred stock ($0.001 par value);

1,800,000 shares

A, 300,000 shares designated, 203,811 and 204,561 shares issued and

outstanding as of December 31, 2020 and 2019,

B, 1.5 million shares designated, 0 shares issued and outstanding

as of December 31, 2020 and 2019, respectively

($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  

Stockholders' equity (deficit):

Convertible preferred stock ($ 0.001 par value);

1,800,000 shares authorized

Series A, 300,000 shares designated, 141,873 and 203,811 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Series B, 1,500,000 shares designated, 0 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Common stock ($ 0.001 par value);

500,000,000 shares authorized;

210,890,930 shares and 189,907,526 shares issued and outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in capital

Accumulated deficit

( 4,855 )  

paid-in capital

stockholders' deficit

Total stockholders' equity (deficit)

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

1 unchanged sentence

$ 6,525  

The accompanying notes are an integral part of these consolidated

financial statements.

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

(in thousands,

except share and per share amounts)

For the years ended

$ 16,692  

$ 22,740  

16,692  

22,740  

Operating costs and expenses:

of goods sold - product revenue

10,071  

and administrative

10,873  

15,017  

and marketing

and development

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

CHARLIE ’

S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

Product revenue, net

Total revenues

Operating costs and expenses:

23,462  

28,504  

from operations

Other income (expense):

in fair value of derivative liabilities

Cost of goods sold - product revenue

General and administrative

Sales and marketing

Research and development

Total operating costs and expenses

Income (loss) from operations

Other income (expense):

loss per share, basic and diluted

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.

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’

Stockholders'

Convertible Preferred Stock

Interest expense

Change in fair value of derivative liabilities

Gain on debt extinguishment

Total other income (loss)

Income (loss) before income taxes

Income tax expense

Net income (loss)

Net earnings (loss) per share

Weighted average number of common shares outstanding

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

CHARLIE ’

S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’

EQUITY (DEFICIT)

(in thousands)

Convertible Preferred Stock

 Par value

 (Deficit)

Additional Paid-in

Total Stockholders' Equity

(Deficit)  

Balance at January 1, 2020

172,982  

of reverse merger 

$ 1,756  

 Conversion

of Series A convertible preferred stock

$ ( 2,476 )  

 Conversion

of Series B convertible preferred stock

Conversion of Series A convertible preferred stock

16,925  

( 17 )  

 Issuance

of preferred stock, common stock and warrants in a private

offering, net of $7,762 warrant liability

Reclassification of liability awards to equity

Accrue dividends payable on Series A convertible preferred stock

( 1,650 )  

Stock compensation

( 7,187 )  

Balance at December 31, 2020

189,907  

 Offering

cost related to private offering

 Cash distributions to CCD

( 9,663 )  

Balance at December 31, 2019

Issuance of common stock to related parties for cash

Conversion of Series A convertible preferred stock

( 62 )  

13,977  

 Conversion

of Series A convertible preferred stock

( 14 )  

 Reclassification

of liability awards to equity

dividends payable on Series A convertible preferred

Issuance of common stock for dividend payment

Accrue dividends payable on Series A convertible preferred stock

Stock compensation

Fraction shares adjustment due to reverse split

Balance at December 31, 2021

1 unchanged sentence

$ 7,775  

The accompanying notes are an integral part of these consolidated

financial statements.

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF

$ ( 4,855 )  

$ 3,131  

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

CHARLIE ’

S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

1 unchanged sentence

Cash Flows from Operating Activities:

Reconciliation

of net loss to net cash used in operating activities:

Provision for bad

Depreciation and

Change in fair

value of derivative liabilities

Amortization of

operating lease right-of-use asset

non-cash charges

in operating assets and liabilities:

expenses and other current assets

payable and accrued expenses

cash used in operating activities

Net income (loss)

Reconciliation of net income (loss) to net cash used in operating activities:

Provision for bad debt expense

Depreciation and amortization

Change in fair value of derivative liabilities

Amortization of operating lease right-of-use asset

Stock based compensation

Gain from debt extinguishment

Subtotal of non-cash charges

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other current assets

Accounts payable and accrued expenses

Deferred revenue

Lease liabilities

Net cash used in operating activities

Cash Flows from Investing Activities:

of property, plant and equipment

cash used in investing activities

Purchase of property, plant and equipment

Net cash used in investing activities

Cash Flows from Financing Activities:

from issuance of common stock and warrants in a private offering,

23,160  

from issuance of notes payable

distributions to CCD Members

cash provided by financing activities

(decrease) increase in cash

beginning of the year

Proceeds from issuance of common stock to related parties

Proceeds from issuance of notes payable

Repayment of notes payable

Dividend payment

Net cash provided by financing activities

Net decrease in cash

Cash, beginning of the year

Cash, end of the year

$ 1,422  

$ 2,448  

Supplemental disclosure of cash flow information

paid for interest

paid for income taxes

Cash paid for interest

Cash paid for income taxes

Supplemental disclosure of cash flow information

of Series A convertible preferred stock

Reclassification

of liability awards to equity

$ 1,638  

dividends payable on Series A convertible preferred

$ 1,650  

of reverse merger 

$ 2,378  

of Series B convertible preferred stock

The accompanying notes are an integral part of these consolidated

financial statements.

CHARLIE’S HOLDINGS, INC.

Conversion of Series A convertible preferred stock

Issuance of common stock for dividend payment

Accrued dividends payable on Series A convertible preferred stock

Reclassification of liability awards to equity

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

CHARLIE ’

S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 –

DESCRIPTION OF THE BUSINESS AND BASIS OF

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 (“

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 ”

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

All Natural Energy.

At this time, we do not intend to

continue sales of the Bazi product in its current

The Company's Common Stock, par value $0.001 per

share (the " Common

Stock "), trades under the

symbol "CHUC" on the OTC:

Acquisition of True Drinks Holdings, Inc.

On April 26, 2019 (the “

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 (“

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

Preferred ”), convertible

into an aggregate of 13,963,047,716 shares of Common Stock, issued

to certain individuals in lieu of Common Stock);

shares of a newly created class of Series A Convertible Preferred

Stock, par value $0.001 per share (“

Preferred ”), convertible

into an aggregate of 4,654,349,239 shares of Common Stock;

(iii) warrants to purchase an aggregate of 3,102,899,493 shares of

Common Stock (the “

Warrants ”) (the

Exchange ”).

As a result of the Share Exchange,

Charlie’s became a wholly owned subsidiary of the

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 ”).

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.

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.

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.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

The Share Exchange is accounted for as a reverse

recapitalization in accordance with accounting principles generally

accepted in the United States (“

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.

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.

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 premium, nicotine-based vapor products.

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, New Zealand, Australia, 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 former Chief Executive Officer and current 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 ”) and other compounds derived from hemp.

Our hemp-based products are produced, marketed and sold through, Don Polly, and the Company currently intends to develop and launch additional products containing hemp-derived cannabinoids in the future.

In addition to Don Polly, we also wholly-own Charlie’s Chalk Dust, LLC (“

Charlie ’

CCD ”), which also produces and sells our premium, nicotine-based vapor products.

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

Reverse Stock Split

The Company’s Board of Directors approved a reverse stock split of the Company’s authorized, issued and outstanding shares of Common Stock, par value $ 0.001 per share, at a ratio of 1 -for- 100 (the “Reverse Split”).

The Reverse Split was effective as of June 16, 2021 ( the “

Effective Date ”).

All share and per share amounts in the Form 10 -K have been retroactively adjusted to account for the reverse stock split.

Basis of Presentation

The consolidated financial statements have been

prepared pursuant to the rules and regulations of the Securities

and Exchange Commission (the “

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

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

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

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.

Company operates in a rapidly changing legal and regulatory

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.

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 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 was required to obtain approval from the United States Food and Drug Administration (" FDA ") to continue selling and marketing certain of products used for the vaporization of nicotine in the United States.

Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA.

There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application.

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, 2021, the Company generated income from operations of approximately $ 0.6 million and a consolidated net income of approximately $ 4.8 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.

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).

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.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

equity of approximately $ 3.1 million as of December 31, 2021.

During the year ended December 31, 2021, the Company’s working capital requirements changed significantly as inventory increased to $ 5.0 million, from $1.6 million as of December 31, 2020, and cash on hand decreased to approximately $ 0.9 million, from $ 1.4 million as of December 31, 2020.

Though the Company’s balance sheet and overall performance generally improved during 2021, the issuance of one or several Marketing Denial Orders (“

MDO ”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables.

These regulatory risks, as well as other industry-specific challenges remain factors that 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 the expenditure of approximately $ 4,400,000 to date, to complete the Premarket Tobacco Application (“

PMTA ”) registration process.

On March 23, 2021, The Company closed a $ 3,000,000 capital raise through the private sale of 3,517,000 shares of its common stock to the Company’s founders Brandon Stump and Ryan Stump.

The Company has used the proceeds to fund future growth, increase working capital, retire outstanding debt, and for other general corporate purposes.

However, the Company may require additional financing in the future should the FDA require additional testing for one, or several, of the Company’s PMTA submissions.

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.

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.

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.

Company is also seeking additional financing to support potential

future PMTA related expenses and general working capital.

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

March 11, 2020, the World Health Organization designated the

ongoing and evolving COVID-19 outbreak as a pandemic.

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

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 other ENDS products, could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution.

Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company may sell its products.

In the event the prevalence of such bans and/or changes in laws and regulations increase across the United States, or internationally, the Company’s business, results of operations and financial condition could be adversely impacted.

In addition, the Company is presently seeking to obtain marketing authorization for certain of its tobacco-derived nicotine e-liquid products.

The Company’s applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States.

Beginning in August 2021, the FDA began issuing Marketing Denial Orders (“

MDO ”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

The Company has not received an MDO for any of its submissions, however there is no assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which could have a significant impact on our sales.

On March 11, 2020, the World Health Organization designated the ongoing and evolving COVID- 19 outbreak as a pandemic.

The outbreak has caused and continues to cause a substantial disruption in international and U.S.

economies and markets.

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 impact from COVID- 19 has affected our supply chain, 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

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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.

The consolidated financial statements include the accounts of the Company and 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

preparation of financial statements in conformity with U.S.

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

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

Fair Value of Financial Instruments

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.

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.

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.

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.

The fair value of derivative liabilities was estimated using a Monte Carlo simulation method, based on both observable and unobservable inputs.

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 (“

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

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

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.

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

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.

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

Company considers all liquid investments purchased with original

maturities of ninety days or less to be cash

Accounts Receivable

receivable is recorded at the invoiced amount and does not bear

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.

The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents.

Accounts  

Accounts receivable are recorded at the invoiced amount and do 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 establish 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.

December 31, 2020 and 2019, the allowance for bad debt totaled

$355,000 and $639,000, respectively.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

primarily consist of finished goods and are stated at the lower of

cost (determined by the average cost method) or net realizable

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.

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, 2021 and 2020, the allowance for bad debt totaled $ 109,000 and $ 355,000 , respectively.

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, 2021 and 2020, the reserve for excess and obsolete inventories totaled $ 156,000 and $ 179,000 , respectively.

Plant, Property and Equipment

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.

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.

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.

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

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.

assets and liabilities are recognized at the lease commencement

date based on the present value of lease payments over the lease

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.

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.

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.

Property and equipment are stated at cost.

Depreciation and amortization are provided for using the straight-line method, 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.

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

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

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.

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.

recognize potential accrued interest and penalties related to

unrecognized tax benefits as income tax expense.

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 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, or all 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

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.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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:

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.

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, 2021 and 2020, respectively:

Geographic Market

International

United States

Customer Type

1 unchanged sentence

Measurement of Credit Losses on Financial Instruments

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.

ASU will result in earlier recognition of allowances for losses on

trade and other receivables and other contractual rights to receive

This standard is effective for fiscal years, and interim

periods within those fiscal years, beginning after December 15,

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

Improvements to Non-Employee Share-Based Payment

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.

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.

December 2019, the FASB issued ASU No.

2019-12, “Income Taxes

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

The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.

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.

On January 1, 2021, the Company adopted this standard without any material impact on its consolidated financial statements and related disclosures.

Debt –

Debt with conversion and Other Options

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

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

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 elected to early adopt this guidance on January 1, 2022 and there will be no impact on its consolidated financial statements and related disclosures.

Earnings per Share

In May 2021, the FASB issued ASU 2021 - 04, Earnings Per Share (Topic 260 ), Debt-Modifications and Extinguishments (Subtopic 470 - 50 ), Compensation-Stock Compensation (Topic 718 ), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815 - 40 ).

This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange.

This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic.

It specifically addresses:

( 1 ) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

( 2 ) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange;

and ( 3 ) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange.

This ASU will be effective for all entities for fiscal years beginning after December 15, 2021.

An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments.

Early adoption is permitted, including adoption in an interim period.

The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.

NOTE 3 –

FAIR VALUE MEASUREMENTS

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:

1 - Unadjusted quoted prices in active markets for identical

instruments that are accessible by the Company on the measurement

2 - Quoted prices in markets that are not active or inputs which

are either directly or indirectly observable

3 - Unobservable inputs for the instrument requiring the

development of assumptions by the Company

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):

Value at December 31, 2020  

liability - Warrants

$ 4,444  

Value at December 31, 2019  

liability - Warrants

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

Table of Conte

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, 2021 and 2020 (amounts in thousands):

Fair Value at December 31, 2021

Derivative liability - Warrants

Total liabilities

Fair Value at December 31, 2020

Derivative liability - Warrants

Total liabilities

$ 4,444  

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2021 and 2020.

The following table presents changes in Level 3 liabilities measured at fair value for the years ended December 31, 2021 and 2020.

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 (amounts in thousands).   

Derivative liability - Warrants

Balance at January 1, 2020

$ 4,144  

were no transfers between Level 1, 2 or 3 during the years ended

December 31, 2020 and 2019.

following table presents changes in Level 3 liabilities measured at

fair value for the year ended December 31, 2020 and 2019.

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).   

liability - Warrants

at January 1, 2019

in fair value

at December 31, 2019

in fair value

at December 31, 2020

Change in fair value

Balance at December 31, 2020

Change in fair value

Balance at December 31, 2021

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, 2021 and 2020 is as follows:

For the years ended

Exercise price

$ 0.4431  

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:

$ 0.4431  

Contractual term (years)

Volatility (annual)

85.0 %  

yield (per share)

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Risk-free rate

Dividend yield (per share)

On April 26, 2019 ( the “

Closing Date ”), the Company entered into a Securities Exchange Agreement (“

Share Exchange ”) with each of the former members (“

Members ”) of Charlie’s, and certain direct investors in the Company (“

Direct Investors ”), pursuant to which the Company acquired all outstanding membership interests of Charlie’s beneficially owned by the Members in exchange for the issuance by the Company of units.

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 ”).

In conjunction with the Share Exchange, the Company issued to holders of its Series A Convertible Preferred Stock (“

Series A Preferred ”) warrants to purchase an aggregate of 31,028,996 shares of Common Stock (the “

Investor Warrants ”) and to its placement agent Katalyst Securities LLC warrants to purchase an aggregate of 9,308,699 shares of Common Stock (the “

Placement Agent Warrants ”).

Both the Investor Warrants and Placement Agent Warrants have a five -year term and a strike price of $ 0.44313 per share.

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 ”).

In accordance with ASC 815, the Company has recorded the Investor Warrants and Placement Agent Warrants as derivative instruments on its consolidated balance sheet.

ASC 815 requires derivatives to be recorded on the balance sheet as an asset or liability and to be measured at fair value.

Changes in fair value are reflected in the Company’s earnings for each reporting period.

NOTE 4 - PROPERTY AND EQUIPMENT

Equipment detail as of December 31, 2020 and 2019 are as follows

(amount in thousands):

and equipment

of lease term or estimated useful life

Depreciation and

amortization expense totaled $181 ,000 and $73 ,000 , respectively, during the years ended

December 31, 2020 and 2019.

Property and Equipment detail as of December 31, 2021, and 2020 are as follows (amounts in thousands):

Estimated Useful Life (in Years)

Machinery and equipment

Trade show booth

Office equipment

Leasehold improvements

Lesser of lease term or estimated useful life

Accumulated depreciation

Depreciation and amortization expense totaled $ 210,000 and $ 181,000 , respectively, during the years ended December 31, 2021, and 2020.

NOTE 5 - CONCENTRATIONS

Company’s concentration of purchases are as

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

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.

The Company’s concentration of purchases are as follows:

For the years ended

During the year ended December 31, 2021, purchases from two vendors represented 73% of total inventory purchases.

During the year ended December 31, 2020, purchases from four vendors represented 90 % of total inventory purchases.

As of December 31, 2021, and 2020, amounts owed to these vendors totaled $ 1,494,000 and $ 270,000 respectively, which are included in accounts payable in the accompanying consolidated balance sheets.

Table of Content

Accounts Receivable

Company’s concentration of accounts receivable are as

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.

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.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

For the years ended

One customer made up 27 % of net accounts receivable at December 31, 2021 and two customers accounted for 27 % of net accounts receivable at December 31, 2020.

Customer C owed the Company a total of $ 454,000 , representing 27 % of net receivables at December 31, 2021.

Customer A owed the Company a total of $ 210,000 , representing 17 % of net receivables at December 31, 2020.

Customer B owed the Company a total of $ 127,000 , representing 10 % of net receivables at December 31, 2020.

No customer exceeded 10% of total net sales for the years ended December 31, 2021 and 2020, respectively.

NOTE 6 –

DON POLLY, LLC.

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.

formulates, sells and distributes the Company’s CBD product

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

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.

Don Polly, LLC is a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, a former and current executive officer of the Company, respectively, and a consolidated variable interest for which the Company is the primary beneficiary.

Don Polly formulates, sells and distributes the Company’s hemp-derived 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 still 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 since April 25, 2019.

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, 2021, and 2020 are as follows (amounts in thousands):

Accounts payable

and accrued expenses as of December 31, 2020 and 2019 are as

follows (amount in thousands):

accrued expenses

$ 2,476  

Accrued compensation

Accrued income taxed  

Other accrued expenses

$ 4,068  

$ 2,525  

NOTE 8 –

1 unchanged sentence

Red Beard Holdings, LLC Note Payable

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 ").

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

August 27, 2020, the Company’s Board of Directors, entered

into Amendment No.

1 to Secured Promissory Note and Security

Agreement (“

Beard Note ”), by and between the Company and Red

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

All other terms of the respective Red Beard Note remain

in full force and effect.

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

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.

October 29, 2020, the Company entered into Amendment No.

(" Third Amended Red Beard

Note "), by and between the Company and Red Beard.

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

December 1, 2020, the Company entered into Amendment No.

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

January 19, 2021, the Company entered into Amendment No.

Secured Promissory Note and Security Agreement ( “Fifth Amended Red Beard

), by and between the Company and Red Beard.

Fifth Amended Note is retroactively effective as of January 1,

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

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

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.  

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 "), requiring a guaranteed minimum interest amount of $ 75,000 (“

Minimum Interest ”).

The Red Beard 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 ").

The Red Beard Note was subsequently amended on August 27, 2020, September 30, 2020, October 29, 2020, December 1, 2020, and January 19, 2021, ultimately increasing Principal Amount to $ 1,400,000 and Minimum Interest to $ 150,000 .

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 $ 1,550,000 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.

Table of Cont

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.

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 matures on April 30, 2022 and accrues 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, 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.

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 matures on April 14, 2022 and accrues interest at a rate of 1.00% per annum.

Payments of principal and interest were deferred for six months from the date of the Polly PPP Loan, or until November 14, 2020.

Interest, however, continued to accrue during this time.

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 the Polly 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.

Promissory Note (the " Charlie's

PPP Loan ") with TBK Bank, SSB

Lender "), pursuant to the

Paycheck Protection Program (" PPP ")

of the Coronavirus Aid, Relief, and Economic Security Act (the

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.

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

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

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.

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

There is no further action required on the part of Don Polly to satisfy this liability.

For the period ended March 31, 2021, the Company recorded a debt extinguishment gain of approximately $ 217,000 , including principal and accrued interest, which is reflected in the other income section of the Company’s consolidated statements of operations.

On March 17, 2021, Don Polly obtained a second draw PPP loan (“

Polly PPP Loan 2 ”) under the CARES Act from Polly Lender.

The Polly PPP Loan 2 obtained by Don Polly provided general working capital in the amount of $ 184,200 .

The Polly PPP Loan 2 matures on March 17, 2026 and accrued interest at a rate of 1.00% per annum.

Payments of principal and interest were deferred, however interest continued to accrue.

During the year ended December 31, 2021, Charlie’s received notice from SBA Lender that the Charlie’s 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

On June 24, 2020, SBA

authorized (under Section 7(b) of the Small Business Act, as

amended) an Economic Injury Disaster Loan

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

The following summarizes the Company’s note payable

maturities as of December 31, 2020 (amount in

Ended December 31, 2021

There is no further action required on the part of Charlie’s to satisfy this liability.

During the year ended December 31, 2021, Don Polly received notice from the Polly Lender, that the Polly PPP Loan 2 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.

During the year ended December 31, 2021, the Company recorded a debt extinguishment gain of approximately $ 1,060,000 , including principal and accrued interest, which is reflected in the other income section of the Company’s consolidated statements of operations.

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 the 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 notes payable maturities as of December 31, 2021 ( amounts in thousands): 

Remaining months Ending December 31, 2021

Year Ending December 31, 2022

Year Ending December 31, 2023

Year Ending December 31, 2024

Year Ending December 31, 2025

NOTE 9 –

EARNINGS (LOSS) PER SHARE BASIC AND FULLY DILUTED

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

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

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

For the years ended December 31, 2021, and 2020, net income (loss) is adjusted for gain (loss) from changes in the fair value of warrant liabilities.

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

For the years ended

Net income (loss) - basic

$ 4,808  

Ended December 31, 2022

Ended December 31, 2023

Ended December 31, 2024

Ended December 31, 2025

Reversal of gain due to change in fair value of warrant liability

( 3,545 )  

NOTE 9 –

LOSS PER SHARE BASIC AND FULLY DILUTED

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

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):

years ended  

Net income (loss) - diluted

$ 1,263  

Weighted average shares outstanding - basic

203,589,531  

A convertible preferred shares

189,844,867  

Diluted stock options

168,309  

Diluted warrants

1,912,544  

Diluted preferred shares

32,016,491  

Weighted average shares outstanding - diluted

237,686,875  

189,844,867  

Basic earnings (loss) per share

$ 0.02  

Diluted earnings (loss) per share

$ 0.01  

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

For the years ended

Series A convertible preferred shares

55,643  

38,425  

40,338  

45,380  

103,484  

NOTE 10 –

STOCKHOLDERS ’

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 “

COD ”), with the Nevada

Secretary of State of the State, designating 300,000 shares of its

preferred stock as Series A Convertible Preferred Stock.

of Series A Preferred has a stated value of $100 per share (the

Series A Stated

Value ”).

Preferred rank senior to all of the Company’s outstanding

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 “

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

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

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.

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; 

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.

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

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

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.

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”

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 “

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.

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,

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

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31 , 2020 and 2019, no

shares of Series B Preferred were outstanding.

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.

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.

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.

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).

Series A Preferred Share Dividend & Share Waiver

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 .

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 ”).

On April 21, 2021 , the Company issued a waiver and exchange agreement (“

Waiver Agreement ”) to shareholders of its Series A Preferred shares (“

Stock Payees ”) requesting such Stock Payee's respective amount of the dividend payment (each individual Stock Payee's respective amount the "Stock Payee Indebtedness" ) to be paid in the form of shares of Common Stock (the "Stock Payment" ) and agreeing to consummate an exchange of such Stock Payee's right to the Stock Payee Indebtedness in cash for shares of Common Stock (the "Exchange" ), pursuant to which the entire Stock Payee Indebtedness shall be exchanged for that number of shares of Common Stock (the “

Shares ”) equal to the total Stock Payee Indebtedness divided by $ 0.44313 .

On May 25, 2021 , the Company entered into a Dividend Waiver and Exchange Agreement (the “

Exchange Agreement ”), between the Company and the holders (the “

Series A Holders ”) of its Series A Convertible Preferred Stock, par value $ 0.001 (“

Series A Preferred ”), pursuant to which the Company paid to the Series A Holders total consideration of approximately $ 1,650,000 (the “

Dividend Amount ”), which Dividend Amount was paid in the form of 1,736,501 shares of the Company’s common stock, par value $ 0.001 (“

Common Stock ”), valued at $ 0.44313 per share (the “

Shares ”), and approximately $ 880,000 in cash.

During the year ended December 31, 2021 , the Company incurred an additional $ 3,000 dividend payment in order to fully satisfy the Series A Preferred dividend.

As of December 31, 2021 , all dividend liability has been satisfied, which is reflected on the Company’s consolidated balance sheet.

Conversion of Series A Preferred Shares

For the year ended December 31, 2021 , the Company issued approximately 13,977,000 shares of Common Stock upon conversion of 61,937 shares of Series A Preferred.

For the year ended December 31, 2020 , the Company issued approximately 16,925,000 shares of Common Stock upon conversion of 750 shares of Series A Preferred.

March 2021 Private Placement

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 and Mr.

Ryan Stump, the Company's former Chief Executive Officer and Chief Operating Officer, respectfully, are trustees and beneficiaries (the " Purchase Agreements "), for the private placement of an aggregate of 3,517,000 shares of its common stock, par value $ 0.001 (" Common Stock "), at a purchase price per share of $ 0.853 (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.

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.

NOTE 11 –

STOCK-BASED COMPENSATION

The True Drinks

Holdings, Inc.

2013 Stock Incentive Plan (the

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

Plan Amendment ”).

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

The Company will not grant any additional awards or shares of

common stock under the Prior Plan beyond those that are currently

May 8, 2019, our Board of Directors approved the Charlie’s

Holdings, Inc.

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 0.2 million shares of common stock for issuance as equity-based awards, which amount was increased to 1.2 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 0.9 million awards were issued under the Prior Plan and the Prior Plan Amendment, consisting entirely of outstanding stock options.

As of December 31, 2021 , approximately 0.6 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 “

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

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 11,072,542 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. 

Plan Amendment ”).

Furthermore, the Company received written consents approving the 2019 Plan Amendment from holders of approximately 50.3 % of our outstanding voting securities.

In accordance with Rule 14c of the Securities Exchange Act of 1934, Our Board of Directors’

authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders.

The 2019 Plan Amendment will allow the Company to maintain a sufficient number of available shares for future grants under the 2019 Plan.

Non-Qualified Stock Options

following table summarizes stock option activities during the year

ended December 31, 2020 and 2019 (all option amounts are in

The following table summarizes stock option activities during the year ended December 31, 2021 and 2020 (all option amounts are in thousands):

Stock Options

2 unchanged sentences

Aggregate Intrinsic Value

at January 1, 2019

85,991  

$ 0.02  

788,882  

forfeited/expired

at December 31, 2019

Outstanding at January 1, 2020

$ 0.54  

Options granted

Options forfeited/expired

( 560 )  

forfeited/expired

at December 31, 2020

Outstanding at December 31, 2020

Options granted

Options forfeited/expired

( 460 )  

Outstanding at December 31, 2021

$ 0.54  

vested and exercisable at December 31, 2020

Options vested and exercisable at December 31, 2021

$ 0.57  

During the year ended December 31, 2021, and 2020, the Company granted 80,000 and 50,000 options under the 2019 Plan, respectively.

The fair value of the option on the grant date was approximately $ 12,000 and $ 5,400 , respectively based on the following weighted average assumptions:

For the years ended

Exercise price

$ 0.4431  

During the year ended December 31, 2020 and 2019,

the Company granted 5.0 million and 788.9 million options

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:

years ended  

$ 0.4431  

Contractual term (years)

Volatility (annual)

85.0 %  

yield (per share)

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.

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,

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

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.

expected to be recognized over a weighted average period of 2.8

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.

Risk-free rate

Dividend yield (per share)

During the year ended December 31, 2020, the Company modified 0.6 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.

As of December 31, 2021, there was approximately $ 40,000 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 2.7 years.

For the year ended December 31, 2021, and 2020, the Company recorded compensation expense of $ 151,000 and $ 590,000 , respectively, related to the issuance of stock options.

Common Stock Awards

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.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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:

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

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

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.

Company recorded stock-based compensation of approximately

$1,128,000 and $ 752,000

during the year ended

December 31 , 2020 and 2019, respectively.

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, the Company recorded an expense of $ 1,322,000 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.

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 3 above), the Company issued an aggregate of 9.0 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 $ 0.32 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 71,000 shares of common stock and 69,815 shares of Series B Preferred (or 6.98 million shares of common stock equivalents) due to the effect of the Share Exchange.

The 7.1 million shares of common stock vested over a two -year period.

The fair value of a share of common stock was $ 0.32 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 $ 376,000 and $ 1,128,000 during the years ended December 31, 2021, and 2020, respectively.

On April 1, 2021, the Board of Directors of the Company entered into an Employment Agreement (the " Agreement ") with Henry Sicignano III, MBA, pursuant to which the Company appointed Mr.

Sicignano to serve as President of the Company.

Pursuant to the Agreement, Mr.

Sicignano will serve as President for an initial period of two years, renewable on an annual basis unless earlier terminated by the Company or Mr.

Sicignano was awarded 1,500,000 restricted shares (subject to forfeiture) (“

Restricted Shares ”) of the Company.

Restricted Shares will be subject to forfeiture in 750,000 share increments on April 1, 2022, and April 1, 2023, and will also be subject to additional forfeiture-release features set forth in Addendum A to the Employment Agreement of Henry Sicignano, III, included in the Company’s 8 -K filed April 6, 2021.

The grant date fair value of the 1,500,000 restricted shares was approximately $ 65,000 .

On November 1, 2021 (“

Grant Date ”) the Company granted to Jeff Fox, an Independent Director, 250,000 shares of Common Stock of the Company (“

Fox Shares ”) pursuant to the 2019 Plan.

The grant of the Fox Shares was made in consideration for services rendered by Mr.

Fox to the Company.

Fox will have all the rights of a shareholder of the Company with respect to voting the 250,000 restricted shares awarded under this grant and share adjustments, receipt of dividends (if any) and distributions (if any) on such shares.

Fox Shares will be subject to forfeiture in 125,000 share increments until the first to occur of the following:

(i) each anniversary of the Grant Date;

(ii) the event of a change in control of the Company;

or (iii) the death, disability, or retirement of Mr.

The fair value of the 250,000 restricted shares was approximately $ 12,775 .

On March 2, 2022, the Company granted approximately 5.8 million restricted stock awards (“

RSAs ”) to employees, officers and directors of the Company pursuant to the 2019 Plan, as amended.

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

The Company recorded total stock-based compensation expense of approximately $ 552,000 and $ 3,072,000 during the years ended December 31, 2021, and 2020, respectively.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Company leases office space under agreements classified as

operating leases that expire on various dates through 2024.

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.

Stump, Stump and Stump

purchased the property that is the subject of the Lease in July

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.

The total amount paid to related parties for the

year ended December 31, 2020 and 2019 was $233,264 and $115,000,

respectively.

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

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

following summarizes quantitative information about the

Company’s operating leases (amount in

   Operating

   Variable

lease expense

lease rent expense

cash flows from operating leases

Weighted-average

remaining lease term –

operating leases (in

Weighted-average

discount rate –

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 expired 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, the Company’s former Chief Executive Officer, Ryan Stump, the Company’s Chief Operating Officer, and Keith Stump, a former member of the Company’s Board of Directors.

The Stumps purchased the property that is the subject of the Lease in July 2019.

The Lease, which was effective as of September 1, 2019, on a month-to-month basis, was then formalized on November 1, 2019 to have a term of five years and a base rent rate of $ 22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease.

The terms of the Lease were negotiated and approved by the independent members of the Board, and executed by Mr.

David Allen, the Company’s former 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 years ended December 31, 2021 and 2020 was $ 278,040 and $ 233,264 , respectively.

At December 31, 2021, the Company had operating lease liabilities of approximately $ 762,000 and right of use assets of approximately $ 755,000 , which were included in the consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases (amounts in thousands):

For the years ended

Operating leases

of our operating leases, excluding short-term leases, are as

Ended December 31, 2021

Ended December 31, 2022

Ended December 31, 2023

Ended December 31, 2024

present value discount

lease liabilities as of December 31, 2020

Operating lease cost

Variable lease cost

Operating lease expense

Short-term lease rent expense

Total rent expense

For the years ended

Operating cash flows from operating leases

Weighted-average remaining lease term –

operating leases (in years)

Weighted-average discount rate –

operating leases

12.0 %  

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

Year Ending December 31, 2022

Year Ending December 31, 2023

Year Ending December 31, 2024

Less present value discount

Operating lease liabilities as of December 31, 2021

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.

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.

Robinson Worldwide, Inc.

True Drinks, Inc .

September 5, 2018, C.H.

Robinson Worldwide

Robinson ”) filed a complaint against True Drinks,

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 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

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.

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

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.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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,  

operation loss

deferred income tax assets

income tax liabilities:

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 Charlie’s Holdings, Inc. 

This tax footnote also includes the tax impact of the Company’s VIE, Don Polly, LLC, which is also taxed as a C corporation, but which files a separate return from Charlie’s Holdings, Inc.

The table below presents the components of the provision for income taxes. 

The Company's provision is driven primarily current year operating income, nontaxable derivative fair value adjustments, and state taxes (in thousands).

As of December 31,

Total current provision

Total deferred benefit

Total provision for income taxes

The tax effects of temporary differences and tax loss carryovers that give rise to significant portions of deferred tax assets and liabilities at December 31, 2021 and 2020 are comprised of the following (in thousands):

As of December 31,

Deferred tax assets:

Accrued Expenses

Lease liability

Stock compensation

Transaction costs

Net operating loss carryovers

Total deferred income tax assets

Deferred income tax liabilities:

deferred income tax assets

tax asset, net of allowance

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.

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.

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.

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.

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.

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expected tax expense (benefit) based on the U.S.

federal statutory

rate is reconciled with actual tax expense (benefit) as

Total deferred income tax liabilities

Net deferred income tax assets

Valuation allowance

Deferred tax asset, net of allowance

The Company recognizes Federal, and state deferred tax assets or liabilities based on the Company's estimate of future tax effects attributable to temporary differences and carryovers. 

The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. 

In assessing the realizability of deferred tax assets, the Company 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 periods in which those temporary differences become deductible. 

The Company considers projected future taxable income and planning strategies in making this assessment. 

As of December 31, 2021, as a result of a three -year cumulative loss and lack of sufficient positive evidence, we concluded that a full valuation allowance was necessary to offset our deferred tax assets.

We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. 

The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized.

At December 31, 2021, the Company had federal and state net operating loss carryovers for income tax purposes of approximately $ 4.2 million and $ 6.1 million, respectively.

The Federal net operating losses can be carried forward indefinitely but are limited to offsetting only 80% of taxable income each year.

The state net operating losses expire at various dates through 2041, if not utilized beforehand.

The utilization of net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions, due to ownership change limitations that may have occurred previously or that could occur in the future. 

These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively.

In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three -year period. 

The Company has not conducted an analysis of an ownership change under section 382.

The Company experienced an ownership change in 2019.

Absent an analysis, the Company has assumed that net operating losses generated prior to the change are not available to offset income subsequent to the ownership change date. 

To the extent that a study is completed, and certain pre-acquisition losses are deemed to be available to be utilized to offset taxable income, the Company's tax liabilities could be reduced. 

To the extent that a study is completed and additional or future ownership changes are deemed to occur, the Company's net operating losses and tax credits could be further limited.

A reconciliation of the statutory income tax rates and the Company's effective tax rate for the years ended December 31, 2021, and December 31, 2020, are as follows:

Year ended December 31, 2021

Year ended December 31, 2020

federal income tax rate

taxes, net of federal tax benefit

Non-deductible

to provisoin adjustment

in valuation allowance

taxes provision (benefit)

As of December 31,  

current provision

deferred benefit

in valuation allowance

provision for income taxes

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.

benefits to be recognized, a tax position must be

more-likely-than-not to be sustained upon examination by taxing

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.

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

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. 

Company is under IRS audit for 2017, however no material

adjustments have currently been identified that would affect the

tax provision as stated.

Statutory federal income tax rate

Non-taxed loss from VIE

State taxes, net of federal tax benefit

Stock compensation

Permanent Items

Section 382 NOL Adjustments

Return to provision adjustments

Change in valuation allowance

Income taxes provision (benefit)

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.

The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2021, and December 31, 2020 ( in thousands):

Year ended December 31, 2021

Year ended December 31, 2020

Gross unrecognized tax benefits at the beginning of the year

Increases related to current year positions

Increases related to prior year positions

Decreases related to prior year positions

Expiration of unrecognized tax benefits

Gross unrecognized tax benefits at the end of the year

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. 

If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by an equal corresponding adjustment in the deferred tax asset valuation allowance. 

The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months.

The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense.

As of December 31, 2021, and December 31, 2020, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

The Company’s tax years from 2018 and 2017 forward remain open for examination by the Federal and state taxing authorities, respectively. 

In addition, to the extent that the Company's tax attributes are utilized in future years to offset income or income taxes, those years which generated the tax attributes are open and subject to examination by the taxing authorities. 

The Company is not aware of any examinations that are currently taking place by federal or state taxing authorities.

NOTE 14 - SUBSEQUENT EVENTS

Company has evaluated events subsequent to December 31, 2020 to

assess the need for potential recognition or disclosure in this

Such events were evaluated through the date these financial

statements were available to be issued.

Based upon this evaluation

the following items were noted:

March 19, 2021, the Company entered into Securities Purchase

Agreements by and between the Company and certain family trusts in

Brandon Stump, the Company's Chief Executive Officer, and

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

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.

On April 6, 2022, Charlie's Holding's, Inc., its wholly-owned subsidiary, Charlie's Chalk Dust, LLC and its variable interest entity, Don Polly LLC (collectively, the "Company" ), issued a secured promissory note ( "Note" ) to one of the Company's largest stockholders, Michael King (the "Lender" ) in the principal amount of $ 1,000,000 , which Note is secured by certain assets of the Company pursuant to the terms of a Security Agreement entered into by and between the Company and the Lender (the "Note Financing" ).

The Note requires the payment of principal and guaranteed interest in the amount of at least $ 90,000 on or before the earlier date of (i) a Liquidity Event, as defined under the terms of the Note;

or (ii) September 28, 2022.

The Company intends to use the proceeds from the Note Financing for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing.

The Company has evaluated events subsequent to December 31, 2021, to assess the need for potential recognition or disclosure in this report.

Such events were evaluated through April 12, 2022.

Based upon this evaluation, other than as set forth above, there were no items requiring disclosure.

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-K

Item 9A. Controls and Procedures