Charlie's Holdings, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES   (a)    Evaluation of Disclosure Controls and Procedures.   Our management, with the participation of our 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.   -40- Table of Contents     Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of our principal executive and financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“ COSO ”). Based on that evaluation, our principal executive and financial officer concluded that our internal control over financial reporting was effective as of December 31, 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.   (c) Changes in internal control over financial reporting.   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.   ITEM 9B. OTHER INFORMATION   None.     PART III   ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE   Directors and Executive Officers   The Company’s Board of Directors (the “ Board ”) and executive officers consist of the persons named in the table below. Each director serves for a one-year term, until his or her successor is elected and qualified, or until earlier resignation or removal. Our Bylaws provide that the authorized number of directors shall be fixed by the Board from time to time. The directors and executive officers are as follows:   Name   Age   Position Henry Sicignano   54   President (Principal Executive Officer) Matthew P. Montesano   36   Chief Financial Officer Ryan Stump   33   Chief Operating Officer and Director Adam Mirkovich   36   Chief Information Officer Scot Cohen   52   Director Jeffrey Fox   58   Director Edward Carmines   67   Director   The following biographical information regarding the foregoing directors and officers of the Company is presented below:   Henry Sicignano, President (Principal Executive Officer). Mr. 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: ACB). Mr. Sicignano holds a B.A. Degree in Government from Harvard College and an M.B.A. Degree from Harvard University.   -41- Table of Contents     Matthew P. Montesano, Chief Financial Officer. Mr. 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. Mr. Stump was appointed as a director and the Company’s Chief Marketing Officer on April 26, 2019 in connection with the Share Exchange. Mr. Stump has served as the Chief Operating Officer of Charlie’s since 2014, during which time he has been responsible for all global operations of Charlie’s. Prior to joining Charlie’s, Mr. Stump worked as an Associate Territory Manager and then as a Territory Manager for ConMed, a medical sales device company, from 2010 to 2013. Mr. Stump also co-founded and continues to be engaged with multiple companies, including The Ohio House since 2011, the Buckeye Recovery Network since 2017, and The Mend California since 2018. Mr. Stump earned a B.S. and B.A. in Sports Marketing and Marketing from Duquesne University   The Board of Directors believes that Mr. Stump’s experience operating high growth companies, as well as entrepreneurial experience, is valuable to the Board as it manages the Company’s anticipated continued growth.   Adam Mirkovich, Chief Information Officer. Mr. Mirkovich was appointed as the Company’s Chief Information Officer on May 20, 2019. Mr. Mirkovich has over a decade of experience managing supply chains for consumer products. Mr. Mirkovich has served as an independent management consultant specializing in building and optimizing value chains for startups and growth stage companies in the beverage, nicotine vape, and nutritional supplements industries since 2013. Prior to joining the Company, Mr. Mirkovich served as the Chief Operating Officer of Orchid Ventures, Inc. (CSE: ORCD), a multi-state premium cannabis vape company, from September 2018 to April 2019. From December 2014 to February 2016, Mr. Mirkovich served as the Director of Supply Chain and Operations at Space Jam Juice, LLC, a distributor of premium vapor products. From November 2010 to April 2013, Mr. Mirkovich served as the Product Lifecycle Management Program Manager for Niagara Bottling, LLC, a leading bottled water manufacturer. While there, he led the product revision, introduction, and discontinuance practices for customers’ private labeled water, flavored, and carbonated beverages. Prior to that, Mr. Mirkovich served as a member of the Supply Chain Logistics team at Niagara Bottling, providing strategic support of company expansion activities and tactical support of purchasing, production planning, and multi-region logistics in North American operations. Mr. Mirkovich earned a Bachelor of Science degree in Business Administration and Economics from Chapman University.   Scot Cohen ,   Director . Mr. Cohen was appointed to the Board in March 2013 and is the Founder and Managing Partner of V3 Capital Partners, a private investment firm focused on early-stage companies primarily in the consumer products industry, and Co-Manager of Red Fortune Fund, a private equity fund based in Hong Kong. Mr. Cohen also is the Founder of Petro River Oil, LLC and Chairman of Petro River Oil Corp. (OTCBB: PTRC), a publicly traded oil and gas producer with assets in Kansas and Oklahoma, and Petro Spring, a global oil and gas technology solutions provider. Prior to creating V3 Capital Partners, Mr. Cohen was the Founder and Managing Partner at Iroquois Capital Opportunity Fund, a special situations private equity investment fund, and a Co-Founder of Iroquois Capital, a hedge fund with investments in small and micro-cap private and public companies. Mr. Cohen currently serves as a director on the Board of Directors of Wrap Technologies, Inc. (NASDAQ: WRTC), and is active in philanthropic activities with numerous charities including the Jewish Enrichment Council. Mr. Cohen received a Bachelor of Science degree from Ohio University in 1991.   The Board of Directors believes Mr. Cohen’s success with multiple private investment firms, his extensive contacts within the investment community, and his financial expertise are a valuable resource to the Company’s efforts to expand and implement its business plan.   Jeffrey Fox, Director . Mr. Fox was appointed to the Board effective July 16, 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. Mr. Fox holds a bachelor's degree in Journalism from San Diego State University and received a master's degree in Mass Communications from California State University, Northridge.    The Board of Directors believes that Mr. Fox’s strong experience in brand building across several diverse Fortune 100 consumer product companies will be significantly valuable to the Company as it continues to rapidly grow its product offerings and launch new brands and products around the world.   -42- Table of Contents     Dr. Edward Carmines, Director. Dr. 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. Dr. 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 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   We have adopted a Code of Ethics that applies to all of our directors, officers and employees, a copy of which is attached as an exhibit to our Annual Report on Form 10-K, filed with the SEC on April 1, 2019.   Board Leadership Structure   The Board does not have a policy regarding the separation of the roles of the Chief Executive Officer and Chair of the Board, as the Board believes it is in the best interest of the Company 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   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   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.   -43- Table of Contents     The Board of Directors identifies director nominees by first considering those current members of the Board who are willing to continue service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. Nominees for director are selected by a majority of the members of the Board. Although the Company does not have a formal diversity policy, in considering the suitability of director nominees, the Board considers such factors as it deems appropriate to develop a Board that is diverse in nature and comprised of experienced and seasoned advisors. Factors considered by the Board include judgment, knowledge, skill, diversity, integrity, experience with businesses and other organizations of comparable size, including experience in the software and/or technology industries, software, intellectual property, business, finance, administration or public service, the relevance of a candidate’s experience to our needs and experience of other Board members, experience with accounting rules and practices, the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members, and the extent to which a candidate would be a desirable addition to the Board and any committees of the Board.   A stockholder who wishes to recommend a prospective nominee for the Board may notify the Secretary of the Company in writing with any supporting material the stockholder considers appropriate. Nominees recommended by stockholders are considered in the same way as nominees suggested from other sources.    In addition, the Company’s Bylaws contain provisions that address the process by which a stockholder may nominate an individual to stand for election to the Board at the Company’s annual meeting of stockholders. In order to nominate a candidate for director, a stockholder must give timely notice in writing to the Secretary of the Company and otherwise comply with the provisions of the Company’s Bylaws. Information required by the Company’s Bylaws to be in the notice include: the name, contact information and share ownership information for the candidate and the person making the nomination, and other information about the nominee that must be disclosed in proxy solicitations under Section 14 of the Exchange Act and its related rules and regulations. The Board may also require any proposed nominee to furnish such other information as may reasonably be required by the Board to determine the eligibility of such proposed nominee to serve as director of the Company. The recommendation should be sent to: Secretary, Charlie’s Holdings, Inc., 1007 Brioso Drive, Costa Mesa, California 92627.    Board of Directors; Attendance at Meetings   The Board held 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, 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   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   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.   -44- Table of Contents     Nominating and Corporate Governance Committee   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.   ITEM 11. EXECUTIVE COMPENSATION   Summary Compensation Table   The following table sets forth the compensation paid to the following persons for our fiscal years ended December 31, 2021 and 2020:   (a) our principal executive officer;     (b) our most highly compensated executive officers who were serving as an executive officer at the end of the fiscal year ended December 31, 2021 and 2020 who had total compensation exceeding $100,000 (together, with the principal executive officer, the “ Named Executive Officers ”); and     (c) any additional individuals who would have been considered Named Executive Officers, but for the fact that they were not serving in such capacity at the end of our most recently completed fiscal year.   Name and Principal Position Year   Salary ($)     Bonus ($)     Equity Awards ($) (1)     Total ($)                                       Henry Sicignano (2) 2021   $ 145,000     $ 8,000     $ 65,000     $ 218,000   President 2020   $ -     $ -     $ -     $ -   Matthew P. Montesano (3) 2021   $ 234,000     $ 45,000     $ -     $ 270,000   Chief Financial Officer 2020   $ 200,000     $ 45,000     $ -     $ 245,000   Ryan Stump 2021   $ 476,000     $ 100,000     $ -     $ 576,000   Chief Operating Officer and Director 2020   $ 382,000     $ -     $ -     $ 382,000                                       Former Named Executive Officers                                 Brandon Stump (4) 2021   $ 476,000     $ 250,000     $ -     $ 726,000   Former Chief Executive Officer and Chair of the Board 2020   $ 382,000     $ –     $ -     $ 382,000   David Allen (5) 2021   $ 57,000     $ 30,000     $ -     $ 87,000   Chief Financial Officer 2020   $ 122,000     $ 20,000     $ -     $ 142,000     (1) 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.     (2) Mr. Sicignano was appointed as President of the Company on April 1, 2021.     (3) Mr. Montesano was appointed as Chief Financial Officer of the Company on May 10, 2021.     (4) Mr. 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.     (5)   Mr. 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. Mr. Allen’s compensation does not include compensation earned as member of the Company’s Board of Directors.   -45- Table of Contents     Outstanding Equity Awards at Fiscal Year-End 2021   The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2021:   Name   Number of Securities Underlying Unexercised Options and Warrants (#) Exercisable     Number of Securities Underlying Unexercised Options and Warrants (#) Unexercisable     Exercise Price ($)     Expiration Date   Henry Sicignano President     -       -       -       -   Ryan Stump Chief Operating Officer     –       –       –       –   Matthew Montesano Chief Financial Officer     333,333       166,667     $ 0.44313     10/28/29   Former Named Executive Officers                                 Brandon Stump Former Chief Executive Officer and Chairman of the Board     –       –       –       –   David Allen Former Chief Financial Officer and Board Member     100,000       –     $ 0.44313     05/02/22     Executive Compensation Arrangements   Employment Agreements     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 “ B. Stump Employment Agreement ”) pursuant to which (i) Mr. Stump serves as the Company’s Chief Executive Officer, initially for a term of three years, renewable for one-year periods thereafter; (ii) Mr. Stump is subject to a non-competition requirement for three years after his termination; (iii) Mr. Stump is subject to a non-solicitation requirement for one year after his termination, and be entitled to receive the following compensation for his services as Chief Executive Officer: (a) an annual base salary of $500,000, which shall increase on an annual basis by an amount not less than $25,000 per year, as determined by the Compensation Committee of the Company’s Board, (b) an annual cash bonus of up to $750,000 per year, which cash bonus will be determined based on the Company’s achievement of audited gross revenue targets of $35.0 million per year, as more particularly set forth in the B. Stump Employment Agreement, (c) certain milestone based bonuses, (d) an annual award of shares of common stock having an aggregate value equal to one-half of Mr. Stump’s annual base salary in effect for such year, which shares shall vest quarterly in equal amounts over a three year period commencing on the issuance date, (e) participation in the Company’s retirement plan, if any, (f) reimbursement of all reasonable business-related expense incurred by Mr. Stump, (e) full health insurance coverage for he and his dependents, and at least $5.0 million of life insurance, (g) 21 paid vacation days per year, and (h) an automobile allowance of $750 per month.   The B. 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; provided, however, that at no time may the Company terminate him without Cause. Mr. Stump may terminate the B. Stump Employment Agreement at any time for any reason. In the event that his employment is terminated by him without Good Reason, as defined in the B. Stump Employment Agreement, or by the Company for Good Cause as a result of a Change in Control, he shall be entitled to the following compensation: (i) any earned but unpaid salary through the termination date, (ii) unpaid and unreimbursed expense, (iii) earned but unpaid bonuses, and (iv) any accrued vacation days; provided, however, that in the event that the B. Stump Employment Agreement is terminated by Mr. Stump for any reason, he shall also be entitled to one year’s severance, consisting of one year’s base salary, milestone bonuses and certain other benefits. In the event his employment is terminated by the Company without Cause or Mr. Stump terminates it for Good Reason, as defined in the B. Stump Employment Agreement, then he shall be entitled to the following compensation: (i) all amounts due to him through the termination date, (ii) full vesting of any and all previously granted equity-based incentive awards, and (iii) health insurance coverage for a period of 18 months after the termination date. In addition, effective upon a Change in Control, regardless of whether the B. Stump Employment Agreement is terminated, his base salary for the year in which the Change in Control occurred and any years thereafter shall automatically increase by 20% and the milestone bonuses shall automatically decrease by 30%.   -46- Table of Contents     The B. 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; (ii) pay Mr. 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.   Ryan Stump . On April 26, 2019, in connection with the Share Exchange and his appointment as Chief Operating Officer, the Company and Mr. Ryan Stump entered into an employment agreement (the “ R. Stump Employment Agreement ”), pursuant to which (i) Mr. Stump serves as the Company’s Chief Operating Officer for a term of three years, renewable for one-year periods thereafter, during which time he shall report to the Company’s Chief Executive Officer; (ii) Mr. Stump is subject to a non-competition requirement for three years after his termination; (iii) Mr. Stump is subject to a non-solicitation requirement for one year after his termination, and be entitled to receive the following compensation for his services as Chief Operating Officer: (a) an annual base salary of $500,000, which shall increase on an annual basis by amount that is not less than $25,000 per year, as determined by the Compensation Committee of the Company’s Board, (b) an annual cash bonus of up to $750,000 per year, which cash bonus will be determined based on the Company’s achievement of a gross revenue target of $35.0 million per year, as more particularly set forth in the R. Stump Employment Agreement, (c) certain milestone based bonuses, (d) an annual award of shares of Common Stock having an aggregate value equal to one-half of Mr. Stump’s annual base salary in effect for such year, which shares shall vest quarterly in equal amounts over a three year period commencing on the issuance date, (e) participation in the Company’s retirement plan, if any, (f) reimbursement of all reasonable business-related expense incurred by Mr. Stump, (e) full health insurance coverage for he and his dependents, and at least $5.0 million of life insurance, (g) 21 paid vacation days per year, and (h) an automobile allowance of $750 per month.   The Company may terminate the R. Stump Employment Agreement in the event of Mr. Stump’s death or disability, or for Cause, as defined in the R. Stump Employment Agreement; provided, however , that at no time may the Company terminate him without Cause. Mr. Stump may terminate the R. Stump Employment Agreement at any time for any reason. In the event that his employment is terminated by him without Good Reason, as defined in the R. Stump Employment Agreement, or by the Company for Good Cause as a result of a Change in Control, he shall be entitled to the following compensation: (i) any earned but unpaid salary through the termination date, (ii) unpaid and unreimbursed expense, (iii) earned but unpaid bonuses, and (iv) any accrued vacation days; provided, however , that in the event that the R. Stump Employment Agreement is terminated by Mr. Stump for any reason, he shall also be entitled to one year’s severance, consisting of one year’s base salary, milestone bonuses and certain other benefits. In the event that his employment is terminated by the Company without Cause or he terminates it for Good Reason, as defined in the R. Stump Employment Agreement, then Mr. Stump shall be entitled to the following compensation: (i) all amounts due to him through the termination date, (ii) full vesting of any and all previously granted equity-based incentive awards, and (iii) health insurance coverage for a period of 18 months after the termination date. In addition, effective upon a Change in Control, regardless of whether the R. Stump Employment Agreement is terminated, his base salary for the year in which the Change in Control occurred and any years thereafter shall automatically increase by 20% and the milestone bonuses shall automatically decrease by 30%.   On February 12, 2020, the Board of Directors (the “ Board ”) of the Company, entered into a form of Amended and Restated Employment Agreement with 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.   -47- Table of Contents     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. Mr. Sicignano was awarded 1,500,000 restricted shares (subject to forfeiture) (“ Restricted Shares ”) of the Company. Mr. 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   The Company’s Director Compensation Plan currently provides that non-employee directors receive (a) a $60,000 annual retainer, payable in equal monthly installments in cash and (b) reimbursement for expenses related to Board meeting attendance and committee participation. In addition, directors receive a one-time grant of an option to purchase 25 million shares of the Company’s common stock at an exercise price equal to the closing price of the Company’s common stock on the date of issuance, as reported on the OTCQB Venture Market. Directors that were also employees of the Company did not receive additional compensation for serving on the Board.   The following table discloses certain information concerning the compensation of the Company’s non-employee directors for the year ended December 31, 2021:   Name   Fees Earned or Paid in Cash ($)     Equity Awards ($) (1)     Total ($)   Scot Cohen   $ 30,000     $ –     $ 30,000   Jeff Fox   $ 110,000     $ 12,775     $ 122,775   Keith Stump (2)   $ –       –       –   David Allen (3)   $ 90,000     $ –     $ 90,000   Edward Carmines (4)   $ –     $ –     $ –     (1) 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.     (2) Mr. Stump resigned from his position as a member of the Board of Directors on October 29, 2021.     (3) Mr. Allen resigned from his position as a member of the Board of Directors on October 29, 2021. Mr. Allen’s compensation excludes compensation earned during 2021 as the Company’s former Chief Financial Officer.     (4) Dr. 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   -48- Table of Contents     Outstanding Equity Awards as of December   31, 2021   The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2021:   Name   Number of Securities Underlying Unexercised Options and Warrants (#) Exercisable     Number of Securities Underlying Unexercised Options and Warrants (#) Unexercisable     Exercise Price ($)     Expiration Date                                                                       Henry Sicignano President     –       –       –       –   Ryan Stump Chief Operating Officer     –       –       –       –   Matthew Montesano Chief Financial Officer     333,333       166,667     $ 0.44313     10/28/29   Former Named Executive Officers                                                                   Brandon Stump Former Chief Executive Officer and Chairman of the Board     –       –       –       –   David Allen Former Chief Financial Officer and Board Member     100,000       –     $ 0.44313     05/02/22     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 (a))       (a)     (b)     (c)   Equity compensation plans approved by stockholders     8,872,937     $ 0.5417       2,765,876                             Equity compensation plans not approved by stockholders     –     $ –       –                             Total     8,872,937     $ 0.5417       2,765,876     -49- Table of Contents     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 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.   -50- Table of Contents     ITEM 12. 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:   (i) Each of our officers and directors; (ii) All officer and directors as a group; and (iii) Each person known by us to beneficially own five percent or more of the outstanding shares of our Series A Preferred and common stock.   Percent ownership is calculated based on 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 (1) Series A Convertible Preferred Stock % Ownership of Class   Executive Officers and Directors           Scot Cohen           Director   3,750   2.7 % Keith Stump           Former Director   3,000   2.1 % Total Officers and Directors   6,750   4.8 % Greater Than 5% Stockholders           Red Beard Holdings, LLC (2)           17595 Harvard Avenue, Suite C511           Irvine, California 92614   33,750   23.9 % Hudson Bay Capital Management, LP (3)           777 Third Avenue, 30 th Floor           New York, New York 10017   10,450   7.4 % Empery Asset Management, LP (4)           1 Rockefeller Plaza, Suite 1205           New York, New York   16,875   12.0 % Altium Growth Fund, LP (5)           551 Fifth Avenue, 19 th Floor           New York, New York 10176   11,025   7.8 %   (1) Each of the Company’s officers and directors who will not hold shares of Series A Preferred were excluded from this table. Unless otherwise indicated, the address for each stockholder is 1007 Brioso Drive, Costa Mesa, California 92627.     (2) Based on Company records as of February 2, 2022. Mr. Smith is a manager of Red Beard, and has dispositive power and voting power over the securities reported herein.     (3) Based on Company records 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.     (4) 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.     (5) 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.   -51- Table of Contents     Beneficial Ownership of Common Stock   Name, Address and Title (if applicable) (1)   Shares of Common Stock     Shares Issuable Upon Conversion of Preferred A Stock (2)     Shares Issuable upon Exercise of Warrants (3)     Shares Issuable upon Exercise of Vested Stock Options     Total Number of Shares Beneficially Owned     % Ownership of Class                                             Brandon Stump                                         Former Chief Executive Officer and Director     64,754,089       -       -       -       64,754,089       29.9 % Ryan Stump                                         Chief Operating Officer and Director     27,751,754       -       -       -       27,751,754       12.8 % Henry Sicignano                                         President     8,000,001       -       -       -       8,000,001       3.7 % Matthew Montesano                                         Chief Financial Officer     1,975,409       -       -       333,334       2,308,743       1.1 % David Allen                                         Former Chief Financial Officer and Director     300,000       -       -       100,000       400,000       0.2 % Adam Mirkovich                                         Chief Information Officer     473,100       -       -       66,666       539,766       0.2 % Scot Cohen (4)                                         Director     1,179,935       846,246       564,164       72,448       2,662,793       1.2 % Jeff Fox                                         Director     650,000       -       -       250,000       900,000       0.4 % Dr. Edward Carmines                                         Director     400,000       -       -       -       400,000       0.2 % Keith Stump                                                 Former Director     2,435,030       676,995       451,331       333,334       3,896,690       1.8 %                                                   Executive Officers and Directors, as a group (10 persons)     107,919,318       1,523,241       1,015,494       1,155,782       111,613,836       50.6 %                                                   Greater Than 5% Stockholders                                                 Vincent C. Smith (5)                                                 17595 Harvard Avenue, Suite C511                                                 Irvine, California 92614     40,765,596       7,595,929       4,400,476       -       52,762,001       23.1 % Red Beard Holdings, LLC (6)                                                 17595 Harvard Avenue, Suite C511                                                 Irvine, California 92614     40,128,254       7,595,929       4,400,476       -       52,124,659       22.8 % Iroquois Capital Management, LLC (7)                                                 125 Park Avenue, 25th Floor                                                 New York, New York 10017     15,976,531       -       4,936,431       -       20,912,962       9.4 %   (1)  Unless otherwise indicated, the address for each stockholder is 1007 Brioso Drive, Costa Mesa, California 92627.   (2)  Pursuant to the Certificate of Designation of the Series A Preferred (“ Series A COD ”), shares of Series A Preferred may not be converted or exercised, as applicable, to the extent that the holder and its affiliates would own more than 4.99% (or 9.99% upon the election of any holder of Series A Preferred) of the Company’s outstanding common stock after such conversion (the “ Series A Ownership Limitation ”); provided ,  however , that any holder of shares of Series A Preferred may waive the Conversion Limitation upon 61 days written notice to the Company. The Series A COD also entitles each share of Series A Preferred to vote, on an as converted basis, along with the common stock;  provided, however,  that the Series A Preferred may not be voted to the extent that the holder and its affiliates would control more than 9.99% of the Company’s voting power (the “ Series A Voting Limitation ”). Ownership percentages in this table were calculated in accordance with Section 13(d) of the Exchange Act, and do not reflect any adjustments due to the Series A Ownership Limitation or the Series A Voting Limitation.   (3)  Certain of the warrants included in this table are subject to blockers that prevent a holder from exercising Investor Warrants or Placement Agent Warrants in the event that such exercise would result in the holder and its affiliates beneficially owning in excess of 4.99% of the Company’s issued and outstanding common stock immediately thereafter, which limit may be increased to 9.99% at the election of the holder (the “ Warrant Exercise Limitation ”). Ownership percentages in this table were calculated in accordance with Section 13(d) of the Exchange Act, and do not reflect any adjustments due to the Warrant Exercise Limitation.   (4)  Includes securities held by V3 Capital Partners and the Scot Jason Cohen Foundation. Mr. Cohen is the Managing Partner of V3 Capital Partners and an officer of the Scot Jason Cohen Foundation, and has dispositive and/or voting power over these shares.     -52- Table of Contents     (5)  Includes securities held by LB 2, LLC (“ 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 November 21, 2019. Mr. Smith is manager of LB 2 and Red Beard. As such, Mr. Smith has dispositive power and voting power over, and may be deemed to be the beneficial owner of the securities held by each of these entities.   (6)  Based on Company records and ownership information from Amendment No. 5 to Schedule 13D filed by Vincent C. Smith on November 21, 2019. Mr. Smith is a manager of Red Beard, and has dispositive power and voting power over the securities reported herein.   (7) Based on Company records and ownership information from Schedule 13G filed by Iroquois Capital Management, LLC (“ Iroquois Capital Management ”), Mr. Richard Abbe and Ms. Kimberly Page on September 21, 2021. Mr. Abbe shares authority and responsibility for the investments made on behalf of Iroquois Master Fund with Ms. Kimberly Page, each of whom is a director of the Iroquois Master Fund. As such, Mr. Abbe and Ms. Page may each be deemed to be the beneficial owner of all shares of common stock underlying the common stock held by Iroquois Master Fund.   ITEM 13. CERTAIN 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. Messrs. Stump, Stump and Stump purchased the property that is the subject of the Lease in July 2019. The Lease, which was effective as of September 1, 2019, on a month-to-month basis, was then formalized on November 1, 2019 to have a term of five years and a base rent rate of $22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease. The terms of the Lease were negotiated and approved by the independent members of the Board, and executed by 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.   -53- Table of Contents     Director and Executive Officer Compensation   See “Executive Compensation” and “Director Compensation” for information regarding compensation of directors and executive officers.   Employment Agreements   We have entered into employment agreements with our executive officers. For more information regarding these agreements, see “ Executive Compensation — Narrative to Summary Compensation Table and Outstanding Equity Awards at 2021 Fiscal Year End ”.   Independent Directors   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 Board.   ITEM 14. 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.       2021     2020                     Audit Fees (1)   $ 157,350     $ 140,000   Audit-Related Fees (2)   $ -     $ 7,500   Tax Fees (3)   $ -     $ -   All Other Fees   $ -     $ -   Total   $ 157,350     $ 147,500     (1) 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.     (2) Audit-related fees consist of fees billed for services that are normally provided by our independent registered public accountants in connection with registration statements and other regulatory filings that are reasonably related to the performance of the audit or review of our consolidated financial statements but are not reported under “Audit Fees.”     (3) For permissible professional services related to income tax return preparation and compliance.       -54- Table of Contents   PART IV   ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES   Exhibit No.     Description 3.1   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. 3.2   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. 4.1   Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, dated April 25, 2019, incorporated by reference to Exhibit 3.7 to the Current Report on Form 8-K, filed April 30, 2019. 4.2   Certificate of Designations, Preferences and Rights of the Series B Convertible Preferred Stock, dated April 26, 2019, incorporated by reference to Exhibit 3.9 to the Current Report on Form 8-K, filed April 30, 2019. 4.3   Form of Investor Warrant, dated April 26, 2019, incorporated by reference to Exhibit 3.8 to the Current Report on Form 8-K, filed April 30, 2019. 10.1   Debt Conversion Agreement by and between True Drinks Holdings, Inc. and Red Beard, LLC, dated April 26, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed April 30, 2019. 10.2   Form of Exchange Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed April 30, 2019. 10.3   Form of Registration Rights Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed April 30, 2019. 10.4   Engagement Letter by and between True Drinks Holdings, Inc., Charlie’s Chalk Dust LLC and Katalyst Securities LLC, dated February 15, 2019, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed April 30, 2019. 10.5   Amendment to Engagement Letter, dated April 16, 2019, incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, filed April 30, 2019. 10.6   Subscription Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K, filed April 30, 2019. 10.7   Employment Agreement by and between True Drinks Holdings, Inc. and Brandon Stump, dated April 26, 2019, incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K, filed April 30, 2019. 10.8   Employment Agreement by and between True Drinks Holdings, Inc. and Ryan Stump, dated April 26, 2019, incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K, filed April 30, 2019. 10.9   License Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 11, 2019. 10.10   Services Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed June 11, 2019. 10.11   Commercial Lease Agreement, by and between Charlie’s Chalk Dust, LLC and Brandon Stump, Ryan Stump and Keith Stump, dated November 19, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 22, 2019. 10.12   Promissory Note issued to Red Beard Holdings, LLC dated April 8, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed on April 14, 2020). 10.13   Security Agreement by and among the Company and Red Beard Holdings, LLC dated April 8, 2020, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed April 14, 2020. 10.14   Amendment No. 1 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated August 27, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed September 1, 2020. 10.15   Amendment No. 2 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated September 30, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed October 2, 2020. 10.16   Amendment No. 3 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated October 29, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 3, 2020. 10.17   Amendment No. 4 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, executed as of December 12, 2020 but effective as of December 1, 2020, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed December 15, 2020. 10.18   Amendment No. 5 to Secured Promissory Note and Security Agreement, by and among the Company and Red Beard Holdings, LLC, dated January 19, 2021 and effective as of January 1, 2021, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed January 20, 2021. 10.19   Satisfaction and Release, incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K, filed April 5, 2021. 10.20   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. 10.21   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. 10.22   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. 10.23   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 14.1   Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference. 14.2   Board Charter filed with Form 10-K on March 31, 2011 and incorporated herein by reference. 21.1   Subsidiaries of Charlie's Holdings, Inc, filed herewith. 23.1   Consent of Squar Milner LLP, dated June 26, 2018, filed herewith. 31.1   Certification of Principal Executive Officer as Required by Rule 13a-14(a)/15d-14, filed herewith. 31.2   Certification of Principal Financial Officer as Required by Rule 13a-14(a)/15d-14, filed herewith. 32.1   Certification of Principal Executive Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith. 32.2   Certification of Principal Financial Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith. 101.INS   Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH   Inline XBRL Taxonomy Extension Schema 101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase 101.DEF   Inline XBRL Taxonomy Extension Definition Linkbase 101.LAB   Inline XBRL Taxonomy Extension Label Linkbase 101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase 104   Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)   ITEM 16. FORM 10-K SUMMARY   None.     -55- Table of Contents     SIGNATURES   In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.   Date: April 12, 2022   CHARLIE’S HOLDINGS, INC.               By: /s/ Henry Sicignano       Henry Sicignano President (Principal Executive Officer)               /s/ Matthew P. Montesano       Matthew P. Montesano Chief Financial Officer (Principal Financial and Accounting Officer)         In accordance with the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.   Signature   Title   Date /s/ Henry Sicignano Henry Sicignano   President (Principal Executive Officer)   April 12, 2022           /s/ Matthew P. Montesano Matthew P. Montesano   Chief Financial Officer (Principal Financial and Accounting Officer)   April 12, 2022           /s/ Ryan Stump Ryan Stump   Chief Operating Officer and Director   April 12, 2022           /s/ Scot Cohen Scot Cohen   Director   April 12, 2022           /s/ Jeffrey Fox Jeffrey Fox   Director   April 12, 2022           /s/ Edward Carmines Edward Carmines   Director   April 12, 2022       -56- Table of Contents     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     To the Stockholders and the Board of Directors Charlie’s Holdings, Inc. and Subsidiaries   Opinion on the Financial Statements   We have audited the accompanying consolidated balance sheets of Charlie’s Holdings, Inc. and its subsidiaries (the Company) as of December 31, 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 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 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   Matter   The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the 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.     F-1 Table of Contents     Fair Value of Derivative Liabilities   Critical Audit Matter Description   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   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   We have served as the Company's auditor since 2018.   Irvine, California April 12, 2022    F-2 Table of Contents       CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)       December 31,     December 31,       2021     2020   ASSETS                 Current assets:                 Cash   $ 866     $ 1,422   Accounts receivable, net     1,368       1,258   Inventories, net     5,005       1,593   Prepaid expenses and other current assets     755       450   Total current assets     7,994       4,723                     Non-current assets:                 Property, plant and equipment, net     431       531   Right-of-use asset, net     755       1,200   Other assets     68       71   Total non-current assets     1,254       1,802                     TOTAL ASSETS   $ 9,248     $ 6,525                     LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                 Current liabilities:                 Accounts payable and accrued expenses   $ 4,068     $ 2,525   Derivative liability     899       4,444   Lease liabilities     329       456   Notes payable, current portion     -       1,400   Dividends payable     -       1,650   Deferred revenue     238       268   Total current liabilities     5,534       10,743                     Non-current liabilities:                 Notes payable, net of current portion     150       1,016   Lease liabilities, net of current portion     433       762   Total non-current liabilities     583       1,778                     Total liabilities     6,117       12,521                     COMMITMENTS AND CONTINGENCIES (see Note 12)                                       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     211       190   Additional paid-in capital     7,775       3,477   Accumulated deficit     ( 4,855 )     ( 9,663 ) Total stockholders' equity (deficit)     3,131       ( 5,996 ) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)   $ 9,248     $ 6,525     The accompanying notes are an integral part of these consolidated financial statements.   F-3 Table of Contents       CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts)       December 31,       2021     2020   Revenues:                 Product revenue, net   $ 21,496     $ 16,692   Total revenues     21,496       16,692   Operating costs and expenses:                 Cost of goods sold - product revenue     10,423       7,478   General and administrative     8,750       10,873   Sales and marketing     1,734       1,733   Research and development     24       3,378   Total operating costs and expenses     20,931       23,462   Income (loss) from operations     565       ( 6,770 ) Other income (expense):                 Interest expense     ( 34 )     ( 134 ) Change in fair value of derivative liabilities     3,545       ( 300 ) Gain on debt extinguishment     1,060       -   Other income     14       17   Total other income (loss)     4,585       ( 417 ) Income (loss) before income taxes     5,150       ( 7,187 ) Income tax expense     ( 342 )     -   Net income (loss)   $ 4,808     $ ( 7,187 )                   Net earnings (loss) per share                 Basic   $ 0.02     $ ( 0.04 ) Diluted   $ 0.01     $ ( 0.04 ) Weighted average number of common shares outstanding                 Basic     203,589,531       189,844,867   Diluted     237,686,875       189,844,867     The accompanying notes are an integral part of these consolidated financial statements.     F-4 Table of Contents       CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY (DEFICIT) (in thousands)       Series A Convertible Preferred Stock     Common Stock     Additional Paid-in     Accumulated     Total Stockholders' Equity       Shares     Par value     Shares     Par value     Capital     Deficit     (Deficit)   Balance at January 1, 2020     204     $ -       172,982     $ 173     $ 1,756     $ ( 2,476 )   $ ( 547 ) Conversion of Series A convertible preferred stock     -       -       16,925       17       ( 17 )     -       -   Reclassification of liability awards to equity     -       -       -       -       1,638       -       1,638   Accrue dividends payable on Series A convertible preferred stock     -       -       -       -       ( 1,650 )     -       ( 1,650 ) Stock compensation     -       -       -       -       1,750       -       1,750   Net loss     -       -       -       -       -       ( 7,187 )     ( 7,187 ) Balance at December 31, 2020     204       -       189,907       190       3,477       ( 9,663 )     ( 5,996 ) Issuance of common stock to related parties for cash     -       -       3,517       3       2,997       -       3,000   Conversion of Series A convertible preferred stock     ( 62 )     -       13,977       14       ( 14 )     -       -   Issuance of common stock for dividend payment     -       -       1,736       2       768       -       770   Accrue dividends payable on Series A convertible preferred stock     -       -       -       -       ( 3 )     -       ( 3 ) Stock compensation     -       -       1,750       2       550       -       552   Fraction shares adjustment due to reverse split     -       -       3       -       -       -       -   Net income     -       -       -       -       -       4.808       4,808   Balance at December 31, 2021     142     $ -       210,890     $ 211     $ 7,775     $ ( 4,855 )   $ 3,131     The accompanying notes are an integral part of these consolidated financial statements.     F-5 Table of Contents       CHARLIE ’ S HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)       For the years ended       December 31,       2021     2020   Cash Flows from Operating Activities:                 Net income (loss)   $ 4,808     $ ( 7,187 ) Reconciliation of net income (loss) to net cash used in operating activities:                 Provision for bad debt expense     109       60   Depreciation and amortization     210       181   Change in fair value of derivative liabilities     ( 3,545 )     300   Amortization of operating lease right-of-use asset     445       423   Stock based compensation     552       3,072   Gain from debt extinguishment     ( 1,060 )     -   Subtotal of non-cash charges     ( 3,289 )     4,036   Changes in operating assets and liabilities:                 Accounts receivable     ( 219 )     ( 400 ) Inventories     ( 3,412 )     ( 77 ) Prepaid expenses and other current assets     ( 305 )     279   Other assets     3       -   Accounts payable and accrued expenses     1,553       325   Deferred revenue     ( 30 )     177   Lease liabilities     ( 456 )     ( 426 ) Net cash used in operating activities     ( 1,347 )     ( 3,273 ) Cash Flows from Investing Activities:                 Purchase of property, plant and equipment     ( 110 )     ( 169 ) Net cash used in investing activities     ( 110 )     ( 169 ) Cash Flows from Financing Activities:                 Proceeds from issuance of common stock to related parties     3,000       -   Proceeds from issuance of notes payable     184       2,416   Repayment of notes payable     ( 1,400 )     -   Dividend payment     ( 883 )     -   Net cash provided by financing activities     901       2,416   Net decrease in cash     ( 556 )     ( 1,026 )                   Cash, beginning of the year     1,422       2,448   Cash, end of the year   $ 866     $ 1,422                     Supplemental disclosure of cash flow information                 Cash paid for interest   $ 150     $ -   Cash paid for income taxes   $ -     $ -                     Supplemental disclosure of cash flow information                 Conversion of Series A convertible preferred stock   $ 14     $ 17   Issuance of common stock for dividend payment   $ 770     $ -   Accrued dividends payable on Series A convertible preferred stock   $ -     $ 1,650   Reclassification of liability awards to equity   $ -     $ 1,638     The accompanying notes are an integral part of these consolidated financial statements.    F-6 Table of Contents     CHARLIE ’ S HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION   Description of the Business   Charlie’s Holdings, Inc., (formerly True Drinks Holdings, Inc.) a Nevada corporation, together with its wholly owned subsidiaries and consolidated variable interest entity (collectively, the “ Company ”, “ we ”), currently formulates, markets and distributes 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 ’ s ” or “ 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 “ SEC ”).     Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management ’ s plan of operation        The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company 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’ 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.   F- 7 Table of C ontents     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 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 POLICIES   Principles of 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   The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.   F- 8 Table of Contents     Fair Value of Financial Instruments   U.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.   In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. 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 (“ ASC ”) 606 – Contracts with Customers. Revenues are generated from contracts with customers that consist of sales to retailers and distributors. Contracts with customers are generally short term in nature with the delivery of product as a single performance obligation. Revenue from the sale of product is recognized at the point in time when the single performance obligation has been satisfied and control of the product has transferred to the customer. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, the right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are received by customers. Shipping generally occurs prior to the transfer of control to the customer and is therefore accounted for as a fulfillment expense.   In circumstances where shipping and handling activities occur after the customer has obtained control of the product, the Company has elected to account for shipping and handling activities as a fulfillment cost rather than an additional promised service. Contract durations are generally less than one year and, therefore, costs paid to obtain contracts, which generally consist of sales commissions, are recognized as expenses in the period incurred. Revenue is measured by the transaction price, which is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers, volume rebates and promotional discounts on current orders. Our volume rebates are short-term in nature and reset on a quarterly basis. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very short-term durations.   Amounts billed and due from customers are short term in nature and are classified as receivables since payments are unconditional and only the passage of time related to credit terms is required before payments are due. The Company does not grant payment financing terms greater than one year. Payments received in advance of revenue recognition are recorded as deferred revenue.   Cash and Cash Equivalents   The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents.   Accounts   Receivable   Accounts receivable 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. As of December 31, 2021 and 2020, the allowance for bad debt totaled $ 109,000 and $ 355,000 , respectively.   F- 9 Table of Contents     Inventories   Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2021 and 2020, the reserve for excess and obsolete inventories totaled $ 156,000 and $ 179,000 , respectively.   Plant, Property and Equipment   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.   Leases   Subsequent to the adoption of the new leasing standard on January 1, 2019, the Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is, or contains a lease at contract inception. Operating leases with a duration greater than one year are included in right-of-use assets, lease liabilities, and lease liabilities, net of current portion in the Company’s consolidated balance sheets. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset.   The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred.   Stock-Based Compensation   We account for all stock-based compensation using a fair value-based method. The fair value of equity-classified awards granted to employees is estimated on the date of the grant using the Black-Scholes option-pricing model and the related stock-based compensation expense is recognized over the vesting period during which an employee is required to provide service in exchange for the award. We measure the fair value of liability-classified awards using a Monte Carlo valuation model. Compensation cost is recognized over the service period and is remeasured at each reporting period through settlement.   Income Taxes   Income taxes are computed under the liability method. This method requires the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. A valuation allowance is recorded when it is more likely than not that some, or all of the deferred tax assets will not be realized.   F- 10 Table of Contents     Financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. A tax position that meets the more-likely-than- not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that meets the more-likely-than- not threshold of being realized upon ultimate settlement with a taxing authority. We recognize potential accrued interest and penalties related to unrecognized tax benefits as income tax expense.   Research and Development   We expense the cost of research and development as incurred.  Research and development expenses include costs incurred in funding research and development activities, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made.   Segments   Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.   The following table disaggregates revenue from our single operating segment by geographic market and customer type for the periods ending December 31, 2021 and 2020, respectively:       December 31, 2021     December 31, 2020   Geographic Market                 International     17 %     19 % United States     83 %     81 %                   Customer Type                 Retailer     38 %     43 % Distribution     62 %     57 %   Recently Issued Accounting Pronouncements   Measurement of Credit Losses on Financial Instruments   In June 2016 the FASB issued ASU 2016 - 13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.   Income Taxes   In December 2019, the FASB issued ASU No. 2019 - 12, “Income Taxes (Topic 740 ): Simplifying the Accounting for Income Taxes (“ASU 2019 - 12” ), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019 - 12  removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. On January 1, 2021, the Company adopted this standard without any material impact on its consolidated financial statements and related disclosures.   F- 11 Table of Contents     Debt – Debt with conversion and Other Options   In August 2020, the FASB issued ASU No. 2020 - 06,  Debt—Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815 - 40 ): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for the Company on December 1, 2022, Early adoption is permitted, but no earlier than December 1, 2021. The Company 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   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   F- 12 Table of Conte nts     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       Total     Level 1     Level 2     Level 3   Liabilities:                                 Derivative liability - Warrants     899       -       -       899   Total liabilities   $ 899     $ -     $ -     $ 899         Fair Value at December 31, 2020       Total     Level 1     Level 2     Level 3   Liabilities:                                 Derivative liability - Warrants     4,444       -       -       4,444   Total liabilities   $ 4,444     $ -     $ -     $ 4,444   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   Change in fair value     300   Balance at December 31, 2020     4,444   Change in fair value     ( 3,545 ) Balance at December 31, 2021   $ 899     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       December 31,       2021     2020   Exercise price   $ 0.4431     $ 0.4431   Contractual term (years)     6.00       6.00   Volatility (annual)     85.0 %     75.0 % Risk-free rate     0.9 %     0.5 % Dividend yield (per share)     0 %     0 %   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.     F- 13 Table of Contents Table of Contents         NOTE 4 - PROPERTY AND EQUIPMENT   Property and Equipment detail as of December 31, 2021, and 2020 are as follows (amounts in thousands):       December 31, 2021     December 31, 2020   Estimated Useful Life (in Years) Machinery and equipment   $ 42     $ 38   5 Trade show booth     171       171   5 Office equipment     511       405   5 Leasehold improvements     380       380   Lesser of lease term or estimated useful life       1,104       994     Accumulated depreciation     ( 673 )     ( 463 )       $ 431     $ 531       Depreciation and amortization expense totaled $ 210,000 and $ 181,000 , respectively, during the years ended December 31, 2021, and 2020.     NOTE 5 - CONCENTRATIONS   Vendors   The Company’s concentration of purchases are as follows:       For the years ended       December 31,       2021     2020   Vendor A     31 %     25 % Vendor B     -       27 % Vendor C     -       26 % Vendor D     -       12 % Vendor E     42 %     -     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.   F- 14 Table of Content s     Accounts Receivable   The Company’s concentration of accounts receivable are as follows:       For the years ended       December 31,       2021     2020   Customer A     -       17 % Customer B     -       10 % Customer C     27 %     -     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.   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):       December 31,     December 31,       2021     2020   Accounts payable   $ 2,476     $ 629   Accrued compensation     902       1,420   Accrued income taxed     342       -   Other accrued expenses     348       476       $ 4,068     $ 2,525       NOTE 8 – NOTES PAYABLE   Red Beard Holdings, LLC Note Payable   On April 1, 2020, the Company, Charlie's and its VIE, Don Polly, issued a secured promissory note (the " Red Beard Note ") to one of the Company's largest stockholders, Red Beard Holdings, LLC (" Red Beard ") in the principal amount of $ 750,000 (the " Principal Amount "), 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.   F- 15 Table of Cont ents     Small Business Administration Loan Programs   On April 30, 2020, Charlie's, a wholly owned subsidiary of the Company, received approval to enter into a U.S. Small Business Administration (" SBA ") Promissory Note (the " Charlie's PPP Loan ") with TBK Bank, SSB (the " SBA Lender "), pursuant to the Paycheck Protection Program (" PPP ") of the Coronavirus Aid, Relief, and Economic Security Act (the " CARES Act ") as administered by the SBA (the " PPP Loan Agreement ").   The Charlie's PPP Loan provides for working capital to CCD in the amount of $ 650,761 . The Charlie's PPP Loan 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. 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 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.   F- 16 Table of Contents     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     -   Thereafter     150   Total   $ 150       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       December 31,       2021     2020   Net income (loss) - basic   $ 4,808     $ ( 7,187 ) Reversal of gain due to change in fair value of warrant liability     ( 3,545 )     -   Net income (loss) - diluted   $ 1,263     $ ( 7,187 )                   Weighted average shares outstanding - basic     203,589,531       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     $ ( 0.04 ) Diluted earnings (loss) per share   $ 0.01     $ ( 0.04 )   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       December 31,       2021     2020   Options     6,955       7,503   Series A convertible preferred shares     -       55,643   Warrants     38,425       40,338   Total     45,380       103,484       F- 17 Table of Contents Table of Contents       NOTE 10 – STOCKHOLDERS ’ EQUITY   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 “ 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.   F- 18 Table of Contents     The Company will not grant any additional awards or shares of common stock under the Prior Plan beyond those that are currently outstanding.   On May 8, 2019, our Board of Directors approved the Charlie’s Holdings, Inc. 2019 Omnibus Incentive Plan (the “ 2019 Plan ”), and the 2019 Plan was subsequently approved by holders of a majority of our outstanding voting securities on the same date. The 2019 Plan will supersede and replace the Prior Plan and no new awards will be granted under the Prior Plan. Any awards outstanding under the Prior Plan on the date of stockholder approval of the 2019 Plan will remain subject to the terms in the Prior Plan, including those granted under the Prior Plan Amendment, and any shares subject to outstanding awards under the Prior Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the 2019 Plan. Up to 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.    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.   Non-Qualified Stock Options   The following table summarizes stock option activities during the year ended December 31, 2021 and 2020 (all option amounts are in thousands):       Stock Options     Weighted Average Exercise Price     Weighted Average Remaining Contractual Life (in years)     Aggregate Intrinsic Value   Outstanding at January 1, 2020     8,013     $ 0.54       8.5     $ -   Options granted     50       0.44       10.0       -   Options forfeited/expired     ( 560 )     0.63       -       -   Outstanding at December 31, 2020     7,503       0.54       8.5     $ -   Options granted     80       0.44       10.0       -   Options forfeited/expired     ( 460 )     0.44       -       -   Outstanding at December 31, 2021     7,123     $ 0.54       7.5     $ -   Options vested and exercisable at December 31, 2021     5,376     $ 0.57       7.3     $ -     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       December 31,       2021     2020   Exercise price   $ 0.4431     $ 0.4431   Contractual term (years)     6.00       6.00   Volatility (annual)     85.0 %     75.0 % Risk-free rate     0.9 %     0.5 % Dividend yield (per share)     0 %     0 %   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.   F- 19 Table of Contents     Common Stock Awards   On April 26, 2019, in connection with employment agreements with its Chief Executive Officer and Chief Operating Officer, the Company issued market condition awards contingent upon the achievement of certain market capitalization targets. The awards are subject to a three -year service vesting period. The awards are settleable in a variable number of common shares based on defined percentages of the Company's total shares determined by market capitalization targets and are, therefore, classified as liabilities in accordance with ASC 718. The fair value of the awards is remeasured at each reporting period until settlement. Compensation cost is attributed over the period encompassing the derived service period and the explicit service period. The fair value of the market condition awards on the termination date of February 12, 2020, was approximately $ 1,638,000 . The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 1.44 % and a volatility of 75 % based on volatility over 3 years using daily stock prices. For the year ended December 31, 2020, 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. Mr. Sicignano was awarded 1,500,000 restricted shares (subject to forfeiture) (“ Restricted Shares ”) of the Company. Mr. 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 .   F- 20 Table of Contents     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. Mr. 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. Fox. 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   Leases   The Company leases office space under agreements classified as operating leases that expire on various dates through 2024. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expires in 2024, its warehouse in Santa Ana, California, which 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.   F- 21 Table of Contents     The following summarizes quantitative information about the Company’s operating leases (amounts in thousands):       For the years ended       December 31,       2021     2020   Operating leases                 Operating lease cost   $ 566     $ 597   Variable lease cost     -       -   Operating lease expense     566       597   Short-term lease rent expense     -       -   Total rent expense   $ 566     $ 597         For the years ended       December 31,       2021     2020   Operating cash flows from operating leases   $ 456     $ 423   Weighted-average remaining lease term – operating leases (in years)     2.38       2.99   Weighted-average discount rate – operating leases     12.0 %     12.0 %   Maturities of our operating leases, excluding short-term leases, are as follows (amounts in thousands):     Year Ending December 31, 2022     399   Year Ending December 31, 2023     275   Year Ending December 31, 2024     206   Total     880   Less present value discount     ( 118 ) Operating lease liabilities as of December 31, 2021   $ 762     Legal proceedings   From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Other than as set forth below, there are no additional pending or threatened legal proceedings at this time.   C.H. Robinson Worldwide, Inc. v. True Drinks, Inc . On September 5, 2018, C.H. Robinson Worldwide (“ Robinson ”) filed a complaint against True Drinks, Inc. in the California Superior Court for the County of Orange located in Santa Ana, California alleging open book account, account stated, reasonable value of services received, agreement, and unjust enrichment related to shipping services provided by Robinson. Robinson has asserted $ 121,743 in damages plus interest, attorney’s fees and costs. On November 13, 2020 the Company and Robinson reached a Settlement Agreement and Mutual Release (“ Settlement Agreement ”) by which the Company agreed to pay the total sum of $ 50,000 in two equal installments of $ 25,000 . The first payment was to be due on or before November 19, 2020 and the second payment was to be due on or before December 17, 2020. The Company has satisfied its obligations set forth in the Settlement Agreement and has been relieved of any future liability in this matter.      F- 22 Table of Contents Table of Contents       NOTE 13 - INCOME TAXES   The Company was classified as a partnership through the Closing Date, and therefore, not subject to entity level tax. After the Closing Date, the Company is taxed as a C corporation and files a consolidated return with 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,       2021     2020   Current                 US Federal   $ 110     $ -   US State     232       -   Total current provision     342       -   Deferred                 US Federal     -       -   US State     -       -   Total deferred benefit     -       -   Total provision for income taxes   $ 342     $ -     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,       2021     2020   Deferred tax assets:                 Bad Debt   $ 47     $ 119   Inventory     43       48   Accrued Expenses     222       16   Lease liability     208       341   Stock compensation     255       201   Transaction costs     -       -   Net operating loss carryovers     1,224       1,835   Other     9       3   Contribution     -       1   Derivatives     56       287   Total deferred income tax assets     2,064       2,851                     Deferred income tax liabilities:                 ROU assets     ( 206 )     ( 336 ) Fixed assets     ( 18 )     ( 56 ) Total deferred income tax liabilities     ( 224 )     ( 359 )                   Net deferred income tax assets     1,840       2,459   Valuation allowance     ( 1,840 )     ( 2,459 ) Deferred tax asset, net of allowance   $ 0     $ 0     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.   F- 23 Table of Contents   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   Statutory federal income tax rate     21.0 %     21.0 % Non-taxed loss from VIE     0.0 %     0.0 % State taxes, net of federal tax benefit     3.3 %     5.1 % Stock compensation     10.1 %     ( 3.5 )% Permanent Items     ( 4.3 )%     ( 0.1 % ) Section 382 NOL Adjustments     3.1 %     0.0 % Derivatives     ( 11.1 )%     ( 0.7 )% Return to provision adjustments     ( 2.2 )%     ( 19.8 )% Other     ( 1.3 )%     0.0 % Change in valuation allowance     ( 12.0 )%     ( 2.0 % ) Income taxes provision (benefit)     6.6 %     0.0 %   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     32       -   Decreases related to prior year positions     -       -   Expiration of unrecognized tax benefits     -       -   Gross unrecognized tax benefits at the end of the year   $ 32     $ -     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   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.       F- 24