# EDGAR Filing Document

**Accession Number:** 0001134765
**File Stem:** 0001437749-25-035731
**Filing Date:** 2025-11
**Character Count:** 136443
**Document Hash:** 4826cc87e77d4a485363af37d62e2e8a
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001437749-25-035731.hdr.sgml**: 20251119

**ACCESSION NUMBER**: 0001437749-25-035731

**CONFORMED SUBMISSION TYPE**: 10-Q

**PUBLIC DOCUMENT COUNT**: 73

**CONFORMED PERIOD OF REPORT**: 20250930

**FILED AS OF DATE**: 20251119

**DATE AS OF CHANGE**: 20251119

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Charlie's Holdings, Inc.
- **CENTRAL INDEX KEY:** 0001134765
- **STANDARD INDUSTRIAL CLASSIFICATION:** MEDICINAL CHEMICALS & BOTANICAL PRODUCTS [2833]
- **ORGANIZATION NAME:** 03 Life Sciences
- **EIN:** 841575085
- **STATE OF INCORPORATION:** NV
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-Q
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-32420
- **FILM NUMBER:** 251499551

**BUSINESS ADDRESS:**
- **STREET 1:** 1007 BRIOSO DR.
- **CITY:** COSTA MESA
- **STATE:** CA
- **ZIP:** 92627
- **BUSINESS PHONE:** 949-570-0691

**MAIL ADDRESS:**
- **STREET 1:** 1007 BRIOSO DR.
- **CITY:** COSTA MESA
- **STATE:** CA
- **ZIP:** 92627

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** True Drinks Holdings, Inc.
- **DATE OF NAME CHANGE:** 20130122

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** BAZI INTERNATIONAL, INC.
- **DATE OF NAME CHANGE:** 20100803

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** XELR8 HOLDINGS, INC.
- **DATE OF NAME CHANGE:** 20070321

?xml version='1.0' encoding='ASCII'? chuc20250930_10q.htm

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the quarterly period ended September 30, 2025**

**☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT**

**For the transition period from _________ to _________**

**Commission file number 001-32420**

---

| |
|:---|
| **CHARLIE'S HOLDINGS, INC.** |
| (Exact Name of Registrant as Specified in Its Charter) |

---

---

| | |
|:---|:---|
| **Nevada** | **84-1575085** |
| (State or Other Jurisdiction of<br> Incorporation or Organization) | (IRS Employer<br> Identification No.) |

---

**<u>1007 Brioso Drive, Costa Mesa, CA 92627</u>**

(Address of Principal Executive Offices)

**<u>(949) 531-6855</u>**

(Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

---

| | |
|:---|:---|
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Non-accelerated filer ☒ | Smaller reporting company ☒ |
|  | Emerging growth company ☐ |

---

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-12 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act: None

---

| | | |
|:---|:---|:---|
| <u>Title of each class</u> | <u>Trading Symbol(s)</u> | <u>Name of each exchange on which</u> <br> <u>registered</u> |

---

There were 270,653,242 shares of the registrant's common stock outstanding as of November 19, 2025.

------

**CHARLIE**'**S HOLDINGS, INC.**

**QUARTERLY REPORT ON FORM 10-Q**

**FOR THE QUARTER ENDED SEPTEMBER 30, 2025**

**INDEX**

---

| | | | |
|:---|:---|:---|:---|
| | | | **Page** |
| **PART I. FINANCIAL INFORMATION** | **PART I. FINANCIAL INFORMATION** | **PART I. FINANCIAL INFORMATION** |  |
|  | ITEM 1. | Financial Statements |  |
|  |  | Condensed Consolidated Balance Sheets as of September 30, 2025 (unaudited) and December 31, 2024 | 2 |
|  |  | Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2025 and 2024 | 3 |
|  |  | Condensed Consolidated Statements of Stockholders' Deficit (unaudited) for the three and nine months ended September 30, 2025 and 2024 | 4 |
|  |  | Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2025 and 2024 | 5 |
|  |  | Notes to Condensed Consolidated Financial Statements (unaudited) | 6 |
|  | ITEM 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18 |
|  | ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
|  | ITEM 4. | Controls and Procedures | 26 |
| **PART II. OTHER INFORMATION**  | **PART II. OTHER INFORMATION**  | **PART II. OTHER INFORMATION**  |  |
|  | ITEM 1. | Legal Proceedings | 26 |
|  | ITEM 1A.  | Risk Factors | 27 |
|  | ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
|  | ITEM 3. | Defaults Upon Senior Securities | 27 |
|  | ITEM 4. | Mine Safety Disclosures | 27 |
|  | ITEM 5. | Other Information | 27 |
|  | ITEM 6. | Exhibits | 27 |
| SIGNATURES | SIGNATURES | SIGNATURES | 28 |

---

------

**PART I**

**ITEM 1. FINANCIAL STATEMENTS**

**CHARLIE**'**S HOLDINGS, INC.**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

(in thousands, except share and per share amounts)

---

| | | |
|:---|:---|:---|
|  | **September 30,** | **December 31,** |
|  | **2025** | **2024** |
|  | **(Unaudited)** |  |
| **ASSETS** |  |  |
| Current assets: |  |  |
| Cash | $1150 | $211 |
| Accounts receivable, net | 1149 | 365 |
| Inventories, net | 4252 | 2667 |
| Prepaid expenses and other current assets | 3290 | 477 |
| Total current assets | 9841 | 3720 |
| Non-current assets: |  |  |
| Property, plant and equipment, net | 20 | 53 |
| Right-of-use asset, net | 569 | 71 |
| Other assets | 128 | 101 |
| Total non-current assets | 717 | 225 |
| **TOTAL ASSETS** | $**10558** | $**3945** |
| **LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)** |  |  |
| Current liabilities: |  |  |
| Accounts payable and accrued expenses | $3744 | $3396 |
| Notes payable, net |  | 520 |
| Notes payable - related parties | 2481 | 1488 |
| Lease liabilities | 163 | 73 |
| Deferred revenue | 374 | 98 |
| Total current liabilities | 6762 | 5575 |
| Non-current liabilities: |  |  |
| Note payable, net of current portion | 150 | 150 |
| Lease liabilities, net of current portion | 407 |  |
| Total non-current liabilities | 557 | 150 |
| Total liabilities | 7319 | 5725 |
| **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; 94,278 and 122,930 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively |  |  |
| Series B, 1,500,000 shares designated; 0 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively |  |  |
| Common stock ($0.001 par value); 500,000,000 shares authorized; 270,568,616 and 257,286,631 shares issued and outstanding as of September 30, 2025 and December 31, 2024, respectively | 270 | 257 |
| Additional paid-in capital | 11300 | 10662 |
| Accumulated deficit | (8331) | (12699) |
| Total stockholders' equity (deficit) | 3239 | (1780) |
| **TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)** | $**10558** | $**3945** |

---

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

------

**CHARLIE**'**S HOLDINGS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

(in thousands, except share and per share amounts)

**(Unaudited)**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **For the three months ended** | **For the three months ended** | **For the nine months ended** | **For the nine months ended** |
|  | **September 30,** | **September 30,** | **September 30,** | **September 30,** |
|  | **2025** | **2024** | **2025** | **2024** |
| Product revenue, net | $7084 | $1624 | $11934 | $6718 |
| Cost of goods sold | 5322 | 994 | 8980 | 4366 |
| Gross profit | 1762 | 630 | 2954 | 2352 |
| **Operating costs and expenses:** |  |  |  |  |
| General and administrative | 1685 | 1420 | 4231 | 4388 |
| Sales and marketing | 398 | 169 | 737 | 620 |
| Research and development | 18 | (83) | 28 | (103) |
| Total operating costs and expenses | 2101 | 1506 | 4996 | 4905 |
| Loss from operations | (339) | (876) | (2042) | (2553) |
| **Other income (expense):** |  |  |  |  |
| Interest expense | (37) | (146) | (614) | (485) |
| Debt extinguishment gain (loss) |  |  | (50) | (75) |
| Change in fair value of derivative liabilities |  |  |  | 79 |
| Gain on sale of intellectual property | 1000 |  | 7500 |  |
| Total other income (loss) | 963 | (146) | 6836 | (481) |
| **Income (loss) before provision for income taxes** | 624 | (1022) | 4794 | (3034) |
| Income tax provision |  |  | (426) |  |
| **Net income (loss)** | $**624** | $**(1022)** | $**4368** | $**(3034)** |
| Net earnings (loss) per share |  |  |  |  |
| Basic | $0.00 | $0.00 | $0.02 | $(0.01) |
| Diluted | $0.00 | $0.00 | $0.02 | $(0.01) |
| Weighted average number of common shares outstanding |  |  |  |  |
| Basic | 256287204 | 242568389 | 254755134 | 230763079 |
| Diluted | 277562715 | 242568389 | 276030645 | 230763079 |

---

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

------

**CHARLIE**'**S HOLDINGS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS**' **EQUITY (DEFICIT)**

(in thousands)

&nbsp;&nbsp;&nbsp;&nbsp;**(Unaudited)**

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Three Months Ended September 30, 2025** | **For the Three Months Ended September 30, 2025** | **For the Three Months Ended September 30, 2025** | **For the Three Months Ended September 30, 2025** | **For the Three Months Ended September 30, 2025** | **For the Three Months Ended September 30, 2025** | **For the Three Months Ended September 30, 2025** |
|  | **Series A**  | **Series A**  |  |  |  |  |  |
|  | **Convertible Preferred Stock** | **Convertible Preferred Stock** | **Common Stock** | **Common Stock** | **Additional** | **Accumulated** | **Total Stockholders'**  |
|  | **Shares**  | **Par value**  | **Shares**  | **Par value**  | **Paid-in Capital** | **Deficit** | **Equity (Deficit)** |
| **Balance at July 1, 2025** | **122** | $**-** | **259946** | $**260** | $**10885** | $**(8955)** | $**2190** |
| Conversion of Series A convertible preferred stock | (28) |  | 6339 | 6 | (6) |  |  |
| Warrants exercised for vendor credit |  |  | 3700 | 4 | 366 |  | 370 |
| Stock compensation |  |  | 600 |  | 56 |  | 56 |
| Forfeiture of restricted stock awards |  |  | (17) |  | (1) |  | (1) |
| Net income |  |  |  |  |  | 624 | 624 |
| **Balance at September 30, 2025** | **94** | $**-** | **270568** | $**270** | $**11300** | $**(8331)** | $**3239** |

---

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Three Months Ended September 30, 2024** | **For the Three Months Ended September 30, 2024** | **For the Three Months Ended September 30, 2024** | **For the Three Months Ended September 30, 2024** | **For the Three Months Ended September 30, 2024** | **For the Three Months Ended September 30, 2024** | **For the Three Months Ended September 30, 2024** |
|  | **Series A**  | **Series A**  |  |  |  |  |  |
|  | **Convertible Preferred Stock** | **Convertible Preferred Stock** | **Common Stock** | **Common Stock** | **Additional** | **Accumulated** | **Total Stockholders'**  |
|  | **Shares**  | **Par value**  | **Shares**  | **Par value**  | **Paid-in Capital** | **Deficit** | **Deficit** |
| **Balance at July 1, 2024** | **126** | $**-** | **249602** | $**250** | $**10006** | $**(10552)** | $**(296)** |
| Forfeiture of restricted stock awards |  |  | (37) |  | (1) |  | (1) |
| Stock compensation |  |  |  |  | 57 |  | 57 |
| Net loss |  |  |  |  |  | (1022) | (1022) |
| **Balance at September 30, 2024** | **126** | $**-** | **249565** | $**250** | $**10062** | $**(11574)** | $**(1262)** |

---

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Nine Months Ended September 30, 2025** | **For the Nine Months Ended September 30, 2025** | **For the Nine Months Ended September 30, 2025** | **For the Nine Months Ended September 30, 2025** | **For the Nine Months Ended September 30, 2025** | **For the Nine Months Ended September 30, 2025** | **For the Nine Months Ended September 30, 2025** |
|  | **Series A**  | **Series A**  |  |  |  |  |  |
|  | **Convertible Preferred Stock** | **Convertible Preferred Stock** | **Common Stock** | **Common Stock** | **Additional** | **Accumulated** | **Total Stockholders'**  |
|  | **Shares**  | **Par value**  | **Shares**  | **Par value**  | **Paid-in Capital** | **Deficit** | **Equity (Deficit)** |
| **Balance at January 1, 2025** | **123** | $**-** | **257286** | $**257** | $**10662** | $**(12699)** | $**(1780)** |
| Conversion of Series A convertible preferred stock | (29) |  | 6466 | 6 | (6) |  |  |
| Warrants exercised for vendor credit |  |  | 3700 | 4 | 366 |  | 370 |
| Stock compensation |  |  | 3200 | 3 | 134 |  | 137 |
| Forfeiture of restricted stock awards |  |  | (84) |  | (4) |  | (4) |
| Issuance of warrant in connection with a settlement of accounts payable |  |  |  |  | 148 |  | 148 |
| Net income |  |  |  |  |  | 4368 | 4368 |
| **Balance at September 30, 2025** | **94** | $**-** | **270568** | $**270** | $**11300** | $**(8331)** | $**3239** |

---

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **For the Nine Months Ended September 30, 2024** | **For the Nine Months Ended September 30, 2024** | **For the Nine Months Ended September 30, 2024** | **For the Nine Months Ended September 30, 2024** | **For the Nine Months Ended September 30, 2024** | **For the Nine Months Ended September 30, 2024** | **For the Nine Months Ended September 30, 2024** |
|  | **Series A**  | **Series A**  |  |  |  |  |  |
|  | **Convertible Preferred Stock** | **Convertible Preferred Stock** | **Common Stock** | **Common Stock** | **Additional** | **Accumulated** | **Total Stockholders'**  |
|  | **Shares**  | **Par value**  | **Shares**  | **Par value**  | **Paid-in Capital** | **Deficit** | **Deficit** |
| **Balance at January 1, 2024** | **128** | $**-** | **228535** | $**229** | $**8204** | $**(8540)** | $**(107)** |
| Issuance of common shares for cash |  |  | 12875 | 13 | 1017 |  | 1030 |
| Issuance of common shares from debt redemption |  |  | 7500 | 8 | 668 |  | 676 |
| Conversion of Series A convertible preferred stock | (2) |  | 339 |  |  |  |  |
| Forfeiture of restricted stock awards |  |  | (209) |  | (2) |  | (2) |
| Stock compensation |  |  | 525 |  | 175 |  | 175 |
| Net loss |  |  |  |  |  | (3034) | (3034) |
| **Balance at September 30, 2024** | **126** | $**-** | **249565** | $**250** | $**10062** | $**(11574)** | $**(1262)** |

---

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

------

**CHARLIE**'**S HOLDINGS, INC.**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

(in thousands)

&nbsp;&nbsp;&nbsp;&nbsp;**(Unaudited)**

---

| | | |
|:---|:---|:---|
|  | **For the nine months ended** | **For the nine months ended** |
|  | **September 30,** | **September 30,** |
|  | **2025** | **2024** |
| **Cash Flows from Operating Activities:** |  |  |
| **Net income (loss)** | $4368 | $(3034) |
| **Reconciliation of net loss to net cash used in operating activities:** |  |  |
| Allowance for doubtful accounts | (38) | 70 |
| Depreciation and amortization | 33 | 90 |
| Accretion of debt discount | 465 | 200 |
| Change in fair value of derivative liabilities |  | (79) |
| Debt extinguishment loss | 50 | 75 |
| Amortization of operating lease right-of-use asset | 85 | 312 |
| Stock based compensation | 133 | 173 |
| Gain on sale of intellectual property | (7500) |  |
| Subtotal of non-cash charges | (6772) | 841 |
| **Changes in operating assets and liabilities:** |  |  |
| Accounts receivable | (746) | 135 |
| Inventories | (1585) | 1094 |
| Prepaid expenses and other current assets | (2443) | 143 |
| Other assets | (27) |  |
| Accounts payable and accrued expenses | 843 | (160) |
| Deferred revenue | 276 | 50 |
| Lease liabilities | (86) | (313) |
| Net cash used in operating activities | (6172) | (1244) |
| Cash Flows from Investing Activities: |  |  |
| Proceeds from sale of intellectual property | 7500 |  |
| Net cash provided by investing activities | 7500 |  |
| **Cash Flows from Financing Activities:** |  |  |
| Proceeds from issuance of common shares |  | 1030 |
| Proceeds from issuance of notes payable | 546 | 742 |
| Repayment of notes payable | (1924) | (744) |
| Proceeds from issuance of notes payable to related party | 2100 | 500 |
| Repayment of notes payable to related party | (1111) | (50) |
| Net cash (used in) provided by financing activities | (389) | 1478 |
| Net increase in cash | 939 | 234 |
| Cash, beginning of the period | 211 | 367 |
| **Cash, end of the period** | $1150 | $601 |
| **Supplemental disclosure of cash flow information** |  |  |
| Cash paid for interest | $30 | $59 |
| Cash paid for interest to related party | $45 | $98 |
| **Supplemental disclosure of cash flow information** |  |  |
| Conversion of Series A convertible preferred stock | $6 | $- |
| Exchange accounts payable with a note payable and warrants | $495 | $- |
| Issuance of common shares from debt redemption | $- | $676 |
| Issuance of warrant for settlement of accounts payable | $148 | $- |
| Warrants exercised for vendor credit | $370 | $- |
| Right-of-use asset recognized in exchange for lease liability | $583 | $- |

---

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

------

**CHARLIE'S HOLDINGS, INC.**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

&nbsp;&nbsp;&nbsp;&nbsp;**(Unaudited)**

**NOTE 1** – **DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION**

***Description of the Business***

Charlie's Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries and consolidated variable interest entity (collectively, the "*Company*"), currently formulates, markets and distributes premium, non-combustible nicotine-related products and alternative alkaloid vapor products. The Company's products are produced through contract manufacturers for sale by select distributors, specialty retailers, and third-party online resellers throughout the United States, as well as in nine primary countries worldwide. In Q4 2025 the Company intends to begin manufacturing certain of its products in a Company operated facility located in the United States.

Charlie's Chalk Dust, LLC ("*Charlie*'*s*" or "*CCD*"), is the Company's wholly owned subsidiary which produces and sells nicotine-based and alternative alkaloid vapor products. Don Polly is a consolidated variable interest entity, for which the Company is the primary beneficiary, which develops, markets and distributes other alternative products. In October 2025, the Company's Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division. (See Subsequent Events.)

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

***Substantial Doubt to Continue as a Going Concern***

Our consolidated 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. For the nine months ended September 30, 2025, the Company's revenue increased, the Company generated loss from operations of approximately $2,042,000, and a consolidated net income of approximately $4,368,000. Net cash used in operating activities was approximately $6,172,000. The Company had a stockholders' equity of $3,239,000 at September 30, 2025. During the nine months ended September 30, 2025, the Company's working capital was increased to $3,079,000 from a deficit of $1,855,000 as of December 31, 2024. Given these factors, there remains a substantial doubt about the Company's ability to continue as a going concern. During the nine months ended September 30, 2025, the Company entered into and closed an Asset Purchase Agreement (the "*Agreement*") and subsequent amendment with R.J. Reynolds Vapor Company (the "*Buyer*") pursuant to which the Buyer purchased 16 of the Company's PACHA synthetic products and related assets (the "*Assets*") that are covered by a premarket tobacco application ("*PMTA*") first submitted by the Company in 2022. The combined purchase price for the Assets was $6.5 million paid at closings in April and May 2025, and an additional $1.0 million paid at closings in August 2025, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets. These asset sales have substantially improved the Company's debt and working capital short-term concerns, and the Company's cash position.

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts. The Company may require additional financing in the future to support the development of new product categories as well as general operations. There can be no assurance that additional 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. 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. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.

------

***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. In addition, in September 2022, the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive 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 nicotine, flavored e-cigarette liquid and other electronic nicotine delivery system ("*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 2020 submissions; however, there is no assurance that regulatory approval to sell our products will be granted or that Charlie's would be able to raise additional financing if required, which could have a significant impact on our sales. On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make the Company's synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs. The administrative appeal was granted on October 30, 2023 and the products were accepted to move forward in the PMTA review process. On October 28, 2025, the Company received an MDO from the FDA with respect to certain of our timely-submitted PMTAs. On November 5, 2025, the Company filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted the Company's opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. Though a very small percentage of our current sales are related to our affected PMTA Products, we intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation, and we plan to vigorously defend our PMTAs and pursue all available legal remedies. The FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our other pending applications at any time. More generally, FDA's regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA's priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry. In the event the FDA denies our PMTAs, absent a court-ordered stay, we would be required to remove products and cease selling them.

During the fourth quarter of 2024 the Company launched new disposable vape products, under the "SBX™" brand. The Company and its attorneys believe SBX products are not subject to FDA review. Based on the information provided by the Company's contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company's chemical supplier) in the Company's SBX products does not meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as "tobacco products" under 21 U.S.C. § 321(rr). Further, according to information provided by the Company's chemists, the other ingredients in the Company's SBX vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source. The documentary support for these facts, including a Certificate of Analysis ("*COA*") for the Metatine used in the Company's SBX products, corroborates these conclusions. However, should Congress bestow regulatory control over Metatine to the FDA, or should the FDA deem Metatine disposable vape devices "tobacco products" despite the facts that Metatine is not a salt or complex of nicotine, and is not itself derived from nicotine or tobacco, SBX products might then be subject to the FDA tobacco requirements, including, but not limited to, the requirement that all newly deemed tobacco products obtain premarket authorization before entering the U.S. market. If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization. More generally, FDA's regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA's priorities and/or potential jurisdiction over our products will prompt the Agency to attempt to require us to remove our products from the market and to cease selling them.

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**NOTE 2** – **SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

*<u>Basis of Presentation</u>*

The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "*SEC*"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States ("*U.S. GAAP*") have been omitted pursuant to SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented in this Report not misleading. The unaudited interim financial statements furnished in this document reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.

*<u>Use of Estimates</u>*

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.

*<u>Significant Accounting Policies</u>*

There have been no material changes in the Company's significant accounting policies to those previously disclosed in the 2024 Annual Report.

***<u>Recently Adopted Accounting Standards</u>***

*<u>Improvements to Income Tax Disclosures</u>*

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which improves the transparency of income tax disclosures by requiring consistent categories and greater disaggregation of information in the effective tax rate reconciliation and income taxes paid disaggregated by jurisdiction. It also includes certain other amendments to improve the effectiveness of income tax disclosures. This guidance will be effective for the annual periods beginning the year ended December 31, 2025. Early adoption is permitted. Upon adoption, the guidance can be applied prospectively or retrospectively. The Company adopted this standard as of January 1, 2025. The adoption of this ASU did not have any material impact on the Company's quarterly condensed consolidated financial statements.

*<u>Scope Applications of Profits Interests and Similar Awards</u>*

In March 2024, the FASB issued ASU No. 2024-01, "Compensation-Stock Compensation (Topic 718): Scope Applications of Profits Interests and Similar Awards" (ASU 2024-01). ASU 2024-01 adds an example to Topic 718 which illustrates how to apply the scope guidance to determine whether profits interests and similar awards should be accounted for as share-based payment arrangements under Topic 718 or under other U.S. GAAP. ASU 2024-01 is effective for annual periods beginning after December 15, 2024, although early adoption is permitted. The Company adopted this standard as of January 1, 2025. The adoption of ASU 2024-01 has no material impact on the Company's quarterly condensed consolidated financial statements.

***<u>Recently Issued Accounting Standards, Not</u> <u>Yet Adopted</u>***

*<u>Intangibles - Goodwill and Other - Internal-Use Software</u>*

In September 2025, the FASB issued ASU No. 2025-06, Intangibles - Goodwill and Other - Internal-Use Software ("ASU 2025-06"), which amends the guidance for accounting for software costs to reflect current software development practices, including iterative and agile methodologies, by removing references to development stages. It also clarifies the criteria for capitalization, which begins when both of the following occur: (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed, and the software will be used to perform the function intended. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and interim periods within those fiscal years. Early adoption is permitted. The amendments may be applied either prospectively, retrospectively, or utilizing a modified transition approach. The Company is currently assessing the impact of ASU 2025-06 on its condensed consolidated financial statements and disclosures.

*<u>Induced Conversions of Convertible Debt Instruments</u>*

In November 2024, the FASB, issued ASU 2024-04, Induced Conversions of Convertible Debt Instruments, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion or extinguishment of convertible debt. The standard is effective for annual reporting periods beginning after December 15, 2025, and interim periods within those annual periods. The Company is currently evaluating the impact of the standard on its consolidated financial statements and related disclosures.

*<u>Income</u> <u>Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures</u>*

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date to clarify the effective date of ASU 2024-03. The amendments require disclosure of additional information about specific expense categories in the notes to the financial statements. This standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments are to be applied either prospectively to financial statements issued for reporting periods after the effective date of this Update or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that the adoption of this standard will have on the consolidated financial statements.

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**NOTE 3** – **FAIR VALUE MEASUREMENTS**

In accordance with Accounting Standards Codification ("*ASC*") Topic 820 "*Fair Value Measurements and Disclosures*" ("*ASC 820*"), the Company uses various inputs to measure the outstanding warrants on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:

Level 1 – Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date.

Level 2 – Quoted prices in markets that are not active or inputs which are either directly or indirectly observable.

Level 3 – Unobservable inputs for the instrument requiring the development of assumptions by the Company.

The asset or liability's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The valuation of assets and liabilities recognized in business combinations are considered level 3 fair value measurements on the closing date of the acquisition. These assets and liabilities are not remeasured at each reporting period.

As of September 30, 2025 and December 31, 2024, the Company did not have any Level 1, 2 or 3 assets, liabilities or debt instrument at fair value measured on a recurring basis.

**NOTE 4** – **INVENTORY**

The components of inventory as of September 30, 2025 and December 31, 2024 are summarized as follows:

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| | | |
|:---|:---|:---|
|  | September 30, | December 31, |
|  | 2025 | 2024 |
| Finished goods | $3566 | $2737 |
| Raw materials | 883 | 775 |
| Overhead allocation | 24 | 22 |
| Inventory in transit | 775 | 132 |
| Less: inventory reserves | (996) | (999) |
| Total | $4252 | $2667 |

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**NOTE 5** – **PROPERTY AND EQUIPMENT**

Depreciation and amortization expense totaled $33,000 and $90,000, respectively, during the nine months ended September 30, 2025 and 2024. Property and equipment as of September 30, 2025 and December 31, 2024, are as follows (dollar amounts in thousands):

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| | | |
|:---|:---|:---|
|  | September 30, | December 31, |
|  | 2025 | 2024 |
| Machinery and equipment | $41 | $41 |
| Trade show booth | 202 | 202 |
| Office equipment | 539 | 539 |
| Leasehold improvements | 254 | 254 |
|  | 1036 | 1036 |
| Accumulated depreciation | (1016) | (983) |
|  | $20 | $53 |

---

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**NOTE 6** – **CONCENTRATIONS**

*Vendors*

The Company's concentration of inventory purchases is as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | For the three months | For the three months | For the nine months | For the nine months |
|  | ended September 30, | ended September 30, | ended September 30, | ended September 30, |
|  | 2025 | 2024 | 2025 | 2024 |
| Vendor A | -% | 32% | -% | 28% |
| Vendor B | 8% | 31% | 11% | 21% |
| Vendor C | -% | 30% | 1% | 6% |
| Vendor D | 60% | 1% | 53% | 8% |
| Vendor E | 11% | -% | 12% | 4% |

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During the three months ended September 30, 2025 and 2024, purchases from three vendors represented 79% and four vendors represented 94%, respectively, of total inventory purchases. During the nine months ended September 30, 2025 and 2024, purchases from five vendors represented 77% and 67%, respectively, of total inventory purchases.

As of September 30, 2025, and December 31, 2024, amounts owed to these vendors totaled $1,210,000 and $539,000 respectively, which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

*Accounts Receivable*

The Company's concentration of accounts receivable is as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | September 30, 2025 | September 30, 2025 | December 31, 2024 | December 31, 2024 |
|  | Amount | Percentage | Amount | Percentage |
| Customer A | $52000 | 4% | $125000 | 31% |
| Customer B | $106000 | 9% | $52000 | 13% |
| Customer C |  |  | $85000 | 21% |
| Customer D |  |  | $66000 | 16% |
| Customer E | $145000 | 12% |  |  |
| Customer F | $134000 | 11% |  |  |

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Four customers made up more than 36% of net accounts receivable at September 30, 2025. Four customers made up more than 81% of net accounts receivable at December 31, 2024. No customer exceeded 10% of total net sales for the three and nine month periods ended September 30, 2025 and 2024, respectively.

**NOTE 7** – **DON POLLY, LLC**

Don Polly is a Nevada limited liability company that is owned by entities controlled by Ryan Stump, a current executive officer of the Company, respectively, and a consolidated variable interest for which the Company is the primary beneficiary. Don Polly markets and distributes third-party product lines.

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Don Polly is classified as a variable interest entity ("*VIE*") for which the Company is the primary beneficiary. Under ASC 810-10-15, Variable Interest Entities, a VIE is an entity that: (1) has an insufficient amount of equity investment at risk to permit the entity to finance its activities without additional subordinated financial support by other parties; (2) the equity investors are unable to make significant decisions about the entity's activities through voting rights or similar rights; or (3) the equity investors do not have the obligation to absorb expected losses or the right to receive residual returns of the entity. The Company is required to consolidate a VIE if it is determined to be the primary beneficiary, that is, the enterprise has both (1) the power to direct the activities of a VIE that most significantly impact the entity's economic performance and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE. The Company evaluates its relationships with a VIE to determine whether it is the primary beneficiary of a VIE at the time it becomes involved with the entity and it re-evaluates that conclusion each reporting period. Effective April 25, 2019, the Company began consolidating the financial statements of Don Polly and it is still considered a VIE of the Company.

Don Polly operates under exclusive licensing and service contracts with the Company whereby the Company receives 100% of the net income, or incurs 100% of the net loss of the VIE. There are no non-controlling interests recorded. **In October 2025, the Company's Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division.** (See Subsequent Events.)

**NOTE 8** – **ACCOUNTS PAYABLE AND ACCRUED EXPENSES**

Accounts payable and accrued expenses as of September 30, 2025 and December 31, 2024, are as follows (amounts in thousands):

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| | | |
|:---|:---|:---|
|  | September 30, | December 31, |
|  | 2025 | 2024 |
| Accounts payable | $2228 | $2131 |
| Accrued compensation | 507 | 555 |
| Accrued income taxes | 555 | 128 |
| Customer deposits | 123 | 106 |
| Other accrued expenses | 331 | 476 |
|  | $3744 | $3396 |

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**NOTE 9** – **NOTES PAYABLE**

*February 2025 Short-Term Loan* – *Related Party*

On February 27, 2025, the Company entered into a two-month short-term loan agreement (the "Loan") with the Company's President, Henry Sicignano III for principal amount of $100,000 which bears interest at the rate of 10% per annum. The Loan was fully repaid in April 2025.

*January 2025 Chemular Secured Promissory Note*

On January 7, 2025, the Company issued a secured promissory note ("*Chemular Note*") to one of its vendors Chemular, Inc. ("*Chemular*") to settle the outstanding accounts payable of $495,000, in the principal amount of $370,000 which bears interest at the rate of 10% per annum. Commencing on January 15, 2025 and continuing on the first (1st) day and the fifteenth (15th) day of each month thereafter until September 15, 2025, (the "*Maturity Date*"), the Company shall pay $10,000 in accordance with the repayment schedule. The Company also issued 3,700,000 warrants ("*Chemular Warrants*") to Chemular in conjunction with the Chemular Note. On September 24, 2025, the Vendor exercised the Warrants entirely. The Vendor issued the Company a $370,000 vendor credit as the purchase price consideration for the warrant exercise. The Company recognized the $370,000 vendor credit in prepaid expenses and other current assets on the consolidated balance sheet as of September 30, 2025.

The fair value of the Chemular Warrants was $148,000 as of the issuance date (see Note 11). As a result, the Company recognized a debt extinguishment loss of $23,000 during the nine months ended September 30, 2025.

As part of the closing of the Asset Purchase Agreement on April 16, 2025, R.J. Reynolds Vapor Company wired directly to Chemular approximately $319,000 to satisfy the Chemular Note in full.

*September 2024 and January 2025 Pinnacle Receivables Financing*

On September 6, 2024, the Company entered into a future receivables sale agreement ("*Pinnacle Receivables Financing Agreement*") with Pinnacle Business Funding ("*Pinnacle*") by which Pinnacle purchased from the Company its future accounts receivable and contracted rights arising from the sale of goods or services to the Company's customers. The purchase price, as defined by the Pinnacle Receivables Financing Agreement, was $750,000 which was paid to the Company on September 12, 2024, net of a 1% origination fee. The Pinnacle Receivables Financing Agreement required forty equal payments of $25,687.50 to be paid weekly for a total repayment of $1,027,500 over the term of the agreement.

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On January 10, 2025, the Company entered into another future receivables sale agreement ("*Amended Pinnacle Receivables Financing Agreement*") with Pinnacle pursuant to which Pinnacle restructured the existing Pinnacle Receivables Financing Agreement as described above by amending the outstanding amount to $1,644,000 for gross proceeds to the Company of $1,188,000, less the outstanding balance under the Pinnacle Receivables Financing Agreement of $591,000, resulting in net proceeds to the Company of $597,000. The Amended Pinnacle Receivables Financing Agreement was to be repaid by the Company in 52 weekly installments of $31,615. The amendment to the Pinnacle Receivables Financing Agreement was accounted for as a debt extinguishment, which resulted in a debt extinguishment loss of approximately $126,000 during the nine months ended September 30, 2025.

On April 16, 2025 the Company issued a payment of approximately $1,250,000 to satisfy all outstanding principal and interest owed to Pinnacle. By satisfying the balance in full prior to April 16, 2025, the Company was able to secure a discount of approximately $99,000, which was recognized as a gain from debt extinguishment.

*July* 2023 *Note Financing*

Between July 17, 2023 and August 1, 2023, the Company issued unsecured promissory notes (the "*Notes*") to several of its executives and employees, Ryan Stump, Henry Sicignano III, Keith Stump, and Jessica Greenwald, and to three of its largest stockholders, Brandon Stump, Red Beard Holdings LLC, and Michael King (the "*Lenders*"), in the cumulative principal amount of $1,400,000. Notes bore interest at twenty-one percent (21%) per annum and had maturity dates ranging from November 17, 2023 to December 10, 2023.

During the year ended December 31, 2023, the Company made a $1,070,000 repayment to the Notes, including a $70,000 interest payment. On April 28, 2025, Ryan Stump and Henry Sicignano III were each paid approximately $75,000 of accrued interest and agreed to modify the Notes to include a 10% interest rate, with monthly payments of principal and interest of approximately $18,000. The maturity date was extended to April 28, 2026. As of September 30, 2025, approximately $238,000 of the Notes remained outstanding.

*Secured Promissory Notes*

On April 6, 2022, the Company issued a secured promissory note (the "*Note*") to one of its large individual stockholders, Michael King (the "*Lender*"), in the principal amount of $1,000,000, which Note was secured by accounts receivable of the Company pursuant to the terms of a Security Agreement entered into by and between the Company and the Lender (the "*Note Financing*"). On September 28, 2022, the Company and the Lender entered into a modification to the Note to extend the maturity date to March 28, 2023 and the Company paid all accrued interest under the Note through such date.

On March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to March 28, 2025, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note. Principal was to be paid on the 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including March 28, 2025 whereby a balloon payment for the remaining principal balance would be paid. Interest would accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and would be payable on the same day as the installments of principal are payable. The Company could prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty. All outstanding principal and interest were due the earlier of March 28, 2025, or upon a liquidity event. The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing.

On May 31, 2024, as part of the May 2024 capital raise, the Lender converted his next four debt repayments for the period from June to September 2024, for a total amount of $100,000, in lieu of cash payment for the subscription agreement.

On April 28, 2025 the Lender agreed to accept a payment of approximately $420,000 and entered into a further modification for the remaining balance that includes monthly payments of approximately $37,000 and a maturity date of April 28, 2026. As of September 30, 2025, approximately $243,000 of the Note remained outstanding.

On August 6, 2025, the Company issued an additional secured promissory note (the "*August Note*") to the Lender in the principal amount of $2,000,000, which is secured by accounts receivable of the Company pursuant to the terms in the same Note Financing. The August Note bears an annual interest rate of 13% and has a term of one year.

*August* 2022 *Note Financing* – *Related Party*

On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the "*Stump Lender*") entered into a loan agreement (the "*Loan*") in the principal amount of $300,000. The Loan was due in full in 120 days or sooner if, before the end of term, the Company secured (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan bore an annual interest rate of 10%. The Company also incurred an additional $3,000 issuance cost resulting from the payment of the Stump Lender's legal fees. On December 17, 2022, the Company and Stump Lender entered into a modification to the Loan to extend the maturity date to April 16, 2023, and the Company paid all accrued interest under the Loan through such date. On April 13, 2023, the Company and Stump Lender entered into a second modification to the Loan to extend the maturity date to August 14, 2023. On August 7, 2023, the Company and Stump Lender entered into a third modification to the Loan to extend the maturity date to December 15, 2023. On December 15, 2023, the Company and Stump Lender entered into a fourth modification to the Loan to extend the maturity date to April 15, 2024. On April 15, 2024, the Company and Stump Lender entered into a fifth modification to the Loan to extend the maturity date to August 21, 2024. On August 21, 2024, the Company and Stump Lender entered into a nineth modification to the Loan to extend the maturity date to December 31, 2024. On April 28, 2025, the Company paid to Ryan Stump approximately $308,000 to satisfy all outstanding principal and interest due on the Loan entered into August 17, 2022.

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*Economic Injury Disaster Loan*

On September 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. The balance of principal and interest will be payable thirty years from the date of the EID Loan and interest will accrue at the rate of 3.75% per annum.

The following summarizes the Company's notes payable maturities as of September 30, 2025 *(*amounts in thousands):

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| | |
|:---|:---|
| Three Months Ending December 31, 2025 | $- |
| Year Ending December 31, 2026 | 2481 |
| Year Ending December 31, 2027 |  |
| Year Ending December 31, 2028 |  |
| Year Ending December 31, 2029 |  |
| Thereafter | 150 |
| Total | $2631 |

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**NOTE 10** – **EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS**

Basic earnings (loss) per common share is computed by dividing net income 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.

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

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| | | | | |
|:---|:---|:---|:---|:---|
|  | For the three months ended | For the three months ended | For the nine months ended | For the nine months ended |
|  | September 30, | September 30, | September 30, | September 30, |
|  | 2025 | 2024 | 2025 | 2024 |
| Net income (loss) - basic and diluted | $624 | $(1022) | $4794 | $(3034) |
| Weighted average shares outstanding - basic | 256287204 | 242568389 | 254755134 | 230763079 |
| Diluted preferred shares | 21275511 |  | 21275511 |  |
| Weighted average shares outstanding - diluted | 277562715 | 242568389 | 276030645 | 230763079 |
| Basic earnings (loss) per share | $0.00 | $0.00 | $0.02 | $(0.01) |
| Diluted earnings (loss) per share | $0.00 | $0.00 | $0.02 | $(0.01) |

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

---

| | | |
|:---|:---|:---|
|  | For the nine months ended | For the nine months ended |
|  | September 30, | September 30, |
|  | 2025 | 2024 |
| Options | 4648 | 4648 |
| Series A convertible preferred shares |  | 28588 |
| Total | 4648 | 33236 |

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All common stock options outstanding as of September 30, 2025 were out of the money and were not included in net earnings per share calculation.

**NOTE 11** – **STOCKHOLDERS**' **EQUITY**

*<u>Conversion of Series A Preferred Shares</u>*

During the nine months ended September 30, 2025, the Company issued approximately 6,465,000 shares of Common Stock upon conversion of 28,652 shares of Series A Preferred.

*<u>Common Stock Warrants</u>*

On January 7, 2025, the Company issued 3,700,000 warrants (the "Warrants") along with a promissory note to a third-party vendor (the "Vendor") to settle the outstanding accounts payable. Each warrant entitles the holder to purchase one share of the Company's common stock at an exercise price of $0.10 per share. The warrants vest immediately, and are exercisable through December 30, 2027, and are subject to the terms and conditions of the warrant agreement.

On September 24, 2025, the Vendor exercised the Warrants entirely. The Vendor issued the Company a $370,000 vendor credit as the purchase price consideration for the warrant exercise. The Company recognized the $370,000 vendor credit in prepaid expenses and other current assets on the consolidated balance sheet as of September 30, 2025.

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The fair value of the warrants on the issuance date was $148,000 and was determined using the Black-Scholes option pricing model with the following assumptions:

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| | |
|:---|:---|
| Exercise price | $0.1 |
| Contractual term (years) | 2.98 |
| Volatility (annual) | 131.5% |
| Risk-free rate | 4.3% |
| Dividend yield (per share) | 0.0% |

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**NOTE 12** – **STOCK-BASED COMPENSATION**

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. Up to 11,072,542 stock options were originally grantable under 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 "2019 *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 Exchange Act, our Board of Directors' authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders.

*Non-Qualified Stock Options*

The following table summarizes stock option activities during the three months ended September 30, 2025 (all option amounts are in thousands):

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Stock Options** | **Weighted Average** <br> **Exercise Price** | **Weighted Average** <br> **Remaining Contractual** <br> **Life (in years)** | **Aggregate** <br> **Intrinsic Value** |
| Outstanding at January 1, 2025 | 4648 | $0.46 | 4.8 | $- |
| Options forfeited/expired |  |  |  |  |
| Outstanding at September 30, 2025 | 4648 | $0.46 | 4.1 | $- |
| Options vested and exercisable at September 30, 2025 | 4648 | $0.46 | 4.1 | $- |

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*<u>Restricted Stock Awards</u>*

The following table summarizes restricted stock awards activities during the nine months ended September 30, 2025 (all share amounts are in thousands):

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| | | |
|:---|:---|:---|
|  | **Number of Shares** | **Weighted Average** <br> **Grant Date Fair** <br> **Value per Share** |
| Nonvested at January 1, 2025 | 5630 | $0.054 |
| Restricted stock granted | 3200 | 0.027 |
| Vested | (2730) |  |
| Forfeited | (83) |  |
| Nonvested at September 30, 2025 | 6017 | $0.054 |

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During the nine months ended September 30, 2025, the Company granted 3,200,000 restricted stock awards ("*RSAs*") to employees of the Company pursuant to the 2019 Plan, as amended. The RSAs are subject to a vesting schedule and 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 grant date fair value was approximately $126,000. During the nine months ended September 30, 2025, approximately 83,000 RSAs issued to employees were forfeited.

As of September 30, 2025, there was approximately $153,000 of total unrecognized compensation expense related to non-vested restricted share-based compensation arrangements granted under the 2019 Plan, as amended. That cost is expected to be recognized over a weighted average period of 2.85 years. The Company recorded total stock-based compensation of approximately $133,000 and $173,000 during the nine months ended September 30, 2025 and 2024 related to the RSAs, respectively.

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**NOTE 13** – **COMMITMENTS AND CONTINGENCIES**

*<u>Leases</u>*

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 expired on September 30, 2024, and effective October 1, 2024, the lease will be on a month-to-month basis, and its warehouse in Huntington Beach, California, which was renewed in May 2022 and expires May 2025. On April 29, 2022, the Company entered into a commercial lease agreement for the Company's sales and marketing operations in Williamsville, New York ("*Williamsville Lease*") with Henry Sicignano Jr., a relative of the Company's President, Henry Sicignano III. The Williamsville Lease, which became effective on May 1, 2022, had a term of one year and a base rent of $1,650 per month. The Williamsville Lease has been subsequently extended for additional one-year periods, with the same terms. The Williamsville Lease is considered a modified gross lease and therefore the Company is also responsible for additional monthly expenses including gas, electricity, and internet. The Williamsville Lease was evaluated and approved by the Company's Board of Directors.

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 ASC Topic 842, "*Leases*", 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 of Directors, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. Effective October 1, 2024, the lease was on a month-to-month basis. The total rent paid to related parties for the nine months ended September 30, 2025 and 2024 was approximately $207,000 and $207,000, respectively.

Effective June 2, 2022, the Company's lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025. On August 12, 2025, the Company renewed this lease for an additional three years commencing on September 1, 2025 and ending August 31, 2028. The renewal resulted in an additional $583,000 in right-of-use assets and $583,000 in lease liabilities.

At September 30, 2025, the Company had operating lease liabilities of approximately $570,000 and right of use assets of approximately $569,000 which were included in the condensed consolidated balance sheet.

The following table summarizes quantitative information about the Company's operating leases for the three and nine months ended September 30, 2025 and 2024 (amounts in thousands):

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| | | | | |
|:---|:---|:---|:---|:---|
|  | For the three months ended | For the three months ended | For the nine months ended | For the nine months ended |
|  | September 30, | September 30, | September 30, | September 30, |
|  | 2025 | 2024 | 2025 | 2024 |
| Operating leases |  |  |  |  |
| Operating lease cost | $19 | $113 | $73 | $338 |
| Variable lease cost |  |  |  |  |
| Operating lease expense | 19 | 113 | 73 | 338 |
| Short-term lease rent expense | 104 | 5 | 163 | 15 |
| Total rent expense | $123 | $118 | $236 | $353 |

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Maturities of our operating leases as of September 30, 2025, excluding short-term leases, are as follows (amounts in thousands):

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| | | |
|:---|:---|:---|
|  | For the nine months ended | For the nine months ended |
|  | September 30, | September 30, |
|  | 2025 | 2024 |
| Right of use assets exchanged for new operating lease liabilities | $583 | $- |
| Operating cash flows from operating leases | $93 | $340 |
| Weighted-average remaining lease term – operating leases (in years) | 2.92 | 0.26 |
| Weighted-average discount rate – operating leases | 12.0% | 12.0% |

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*<u>Legal Proceedings</u>*

As of the date hereof, the Company is not a party to any material legal or administrative proceedings. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management's time and attention.

*<u>New Executive Employment Agreement</u>*

On September 15, 2023, the Company entered into a new employment agreement with Ryan Stump (the "*New Agreement*"). Pursuant to the New Agreement, Mr. Stump will earn a base salary of $300,000 per year and serve as Chief Operating Officer for a term of two years, renewable on an annual basis unless earlier terminated by the Company or Mr. Stump. In the event that Mr. Stump is terminated by the Company without Cause (as defined therein) or for Good Reason (as defined therein), he will be entitled to receive his base salary and benefits for a period of one year. In the event of a change in control, all unvested equity awards will immediately vest. Mr. Stump has elected to reduce his current compensation to the rate of $225,000 annually. As a point of reference, all the Company's other executives have also elected to reduce their current compensation. It is anticipated that, when financial circumstances permit, executive base salaries will revert to their previous levels.

**NOTE 14** – **INCOME TAXES**

Income taxes for the three months ended September 30, 2025 and September 30, 2024 have been calculated based on an estimated annual effective tax rate. For the three months ended September 30, 2025, the Company did not record an income tax expense. The Company's income tax expense for the three months ended September 30, 2025 was related to current year projected income that is not eligible to be offset with prior year tax attribute carryovers.

Income tax expense is comprised of domestic (US federal and state) income taxes at the applicable tax rates, adjusted for non-deductible expenses, stock compensation expenses, and other permanent differences. Our income tax provision may be affected by changes to our estimates. However, due to the full valuation allowance on our deferred tax assets, the net impact to our overall income tax expense is limited.

For the nine months ended September 30, 2025, we recorded a tax expense of approximately $426,000. The Company's income tax expense for the nine months ended September 30, 2025 was related to current year projected income that is not eligible to be offset with prior year tax attribute carryovers. For the nine months ended September 30, 2024, our tax expense was determined not to be significant and therefore wasn't included in the Company's condensed financial statements and related disclosures.

Under Sections 382 and 383 of the Code, if a corporation undergoes an "ownership change" (generally defined as a greater than 50 percentage points (by value) in the ownership of its equity over a three-year period), the corporation's ability to use its pre-change tax attributes to offset its post change income may be limited. We may have experienced such ownership changes in the past, and we may experience ownership changes in the future or subsequent shifts in our stock ownership, many of which are outside our control. As of December 31, 2024, we had state net operating losses (*"NOLs"*) of approximately $13.8 million and federal NOLs of approximately $10.9 million. The federal NOLs do not expire but the state NOLs expire if not utilized before 2043. Our ability to utilize these NOLs and tax credit carryforwards may be limited by any "ownership changes" as described above that have occurred in prior years or that may occur in the future. If we undergo future ownership changes, many of which may be outside of our control, our ability to utilize our NOLs and tax credit carryforwards could be further limited by Sections 382 and 383 of the Code. There is also a risk that due to regulatory changes, such as suspensions on the use of NOLs, or other unforeseen reasons, our existing NOLs could expire or otherwise become unavailable to offset future income tax liabilities. Additionally, our NOLs and tax credit carryforwards could be limited under state law. For these reasons, even if we attain profitability, we may be unable to use a material portion of our NOLs and other tax attributes.

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**NOTE 15** – **SUBSEQUENT EVENTS**

*<u>Discontinuation of Don Polly Business Operations</u>*

On October 7, 2025, the Company's Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division, the Company's variable interest entity.

*<u>Company Secures More Than $6MM in Sales During NACS Show; $4.4 million SBX purchase is the single largest sale in Charlie's history</u>*

On October 23, 2025, we reported that the Company secured more than $6 million in purchase orders during the National Association of Convenience Stores ("NACS") National Show in Chicago; one customer placed a cash deposit with a $4.4 million SBX purchase order. This is the single largest sale in Charlie's history. SBX is greatly expanding Charlie's retail distribution through chain convenience stores that wish to carry flavored disposable vapes that are not in violation of the FDA's PMTA review process. Early SBX sales continue to exceed Company expectations.

*<u>Marketing Denial Orders and Court-granted Administrative Stay on Certain Premarket Tobacco Applications</u>*

On October 28, 2025, we received a Marketing Denial Order ("MDO") from the U.S. Food and Drug Administration with respect to certain of our timely-submitted Premarket Tobacco Product Applications ("PMTAs"). On November 5, 2025, we filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted our opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation. Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies.

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**ITEM 2** – **MANAGEMENT**'**S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

*The following discussion of the financial condition and results of operations of Charlie*'*s Holdings, Inc. should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this Quarterly Report on Form 10-Q (this* "*Report*"*) and without audited financial statements and other information presented in our Annual Report on Form 10-K for the year ended December 31, 2024 (the* "*2024 Annual Report*")*. Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report, and in our other filings with the Securities and Exchange Commission (*"*SEC*"*), including particularly matters set forth under Part I, Item 1A (Risk Factors) of the 2024 Annual Report. Furthermore, such forward-looking statements speak only as of the date of this Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.* 

*As used in this Report, unless otherwise stated or the context otherwise requires, references to the* "*Company*"*,* "*we*"*,* "*us*"*,* "*our*"*, or similar references mean Charlie*'*s Holdings, Inc., its subsidiaries and consolidated variable interest entity on a consolidated basis.* 

**Overview**

The Company's objective is to become a leader in two broad product categories: (i) non-combustible nicotine-related products, and (ii) alternative alkaloid (non-nicotine) vapor products. Through our Charlie's subsidiary, we formulate, market, and distribute premium, nicotine-based and alternative alkaloid (non-nicotine) vapor products. Charlie's products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States and in select international markets. In Q4 2025 the Company intends to begin manufacturing certain of its products in a Company operated facility located in the United States.

**Operational Plan** 

In today's economic landscape, particularly within the vapor products industry, seeking and securing competitive advantage is paramount. Unlike many competitors in our industry, Charlie's has focused on achieving full compliance with FDA regulations – while also establishing a regulatory "hedge" through the development of alternative "zero-nicotine" product lines that are not currently subject to FDA review. Simultaneous to undertaking these initiatives, in 2024 management took aggressive steps to "right size" the business, preserve working capital, and achieve profitability in 2025. Our key initiatives include:

1. **Product Innovation:** In late 2023 Charlie's initiated a plan to dramatically expand its business from nicotine products only, to a portfolio of products that includes *nicotine substitute* products. This strategic hedge, and the market testing that the shift entailed, significantly reduced Company revenue in 2024. However, the Company believes that its nicotine substitute, Metatine™, in the SBX™ product line, will position the Company to capture very significant future sales and market share in the vapor products marketplace.

2. **PMTA Assets:** At this date, Charlie's has received FDA Acceptance Filings for more than 650 PMTAs. By investing an additional $1.2 million in Q4 2024 to amend and enhance certain of our 2022 PMTA submissions, we maintained our commitment to full regulatory compliance, and we enhanced the strategic value of our PMTA portfolio. On October 28, 2025, we received a Marketing Denial Order ("MDO") from the U.S. Food and Drug Administration with respect to CERTAIN OF our timely-submitted Premarket Tobacco Product Applications ("PMTAs"). On November 5, 2025, we filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted our opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation. Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies. The Company believes Charlie's 650+ PMTAs, as a stand-alone asset, have a monetary value that far exceeds Charlie's current market cap.

3. **Age-Gating Technology:** We have continued to develop intellectual property around, and to seek strategic partnerships for, technologies designed to prevent youth access to nicotine vapor products. We believe this is both a responsible business practice as well as a potential future competitive advantage in the marketplace.

4. **Cost Structure Optimization:** In order to right-size the Company during a time of significantly reduced revenue, we continue to reduce our overall cost structure while improving margins. Company executives voluntarily reduced their salaries by 20-50%.

5. **Headcount Reduction:** We have significantly reduced our headcount and associated salary expenses, focusing on maintaining a core group of key employees as we collectively right-size the business.

6. **Sales Team Improvement:** We have upgraded, and will continue to upgrade, our sales team from a solely account management-centric team to a skilled and driven sales team to acquire new customers while maintaining excellent service with our existing customers.

7. **Uplist to a National Securities Exchange:** As the business returns to growth, and as soon as we are able to meet listing requirements, we plan to uplist from the OTCQB exchange to a national securities exchange. An uplist will increase Charlie's market visibility, liquidity, and access to capital. Such a shift could lead to new strategic opportunities and, potentially, to a substantially higher market cap.

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Management believes that these initiatives will enhance Charlie's competitive position in the marketplace, significantly reduce costs, help accelerate the Company's path to profitability, support business growth, and, ultimately, allow the Company to achieve greater liquidity and visibility through an uplist to a national securities exchange.

Considering industry-specific hurdles, as well as the potential for future regulatory changes, management has prioritized several principal initiatives as opportunities for growth:

**Priority 1:** Over the last two years, we initiated a plan and began to invest substantial time and resources to develop various proprietary products and new technologies in order to achieve competitive advantages in the vapor and alternative products marketplace. Marshaling very significant internal and external research and development resources, we endeavored to identify a nicotine substitute ("*Metatine*™") to be used in lieu of tobacco-based and synthetically derived nicotine. We believe adult consumers will enjoy Metatine alternative alkaloid vapor products in much the same way that they enjoy traditional vapor products. Notably, because Metatine is not made or derived from tobacco, and because Metatine does not consist of or contain nicotine from any source, the FDA's Center for Tobacco Products does not have jurisdiction to regulate Metatine. Accordingly, if the Company is successful utilizing Metatine in a viable commercial product, such a product will allow us additional flexibility in offering both flavored and non-flavored vapor products to adult consumers looking to transition away from traditional combustible and smokeless tobacco products.

In 2024, to test consumer acceptance of nicotine substitute vapor products in the marketplace, we launched the SPREE BAR disposable flavor pod system (with Metatine inside) in select markets across the US. This initiative demonstrated that adult consumers: (i) overwhelmingly prefer "flavored" vapor products over plain tobacco products; (ii) are highly receptive to nicotine substitute products that offer the same vaping experience as that provided by conventional nicotine vapor products; and, surprisingly (iii) are not particularly interested in the cost savings that SPREE BAR flavor pods (with reusable batteries) represent vs. conventional disposable vapes (with single use batteries).

Applying these findings to our ongoing product development initiatives, by the end of 2024 Charlie's unveiled the Company's second-generation Metatine product line: SBX Disposables. SBX Disposables feature: (i) the modern disposable product format (with digital display) that consumers overwhelmingly prefer over pod system vapes; (ii) award-winning flavors (preferred over plain tobacco vapor by more than 80% of adult consumers); and, most significantly, for regional and national convenience store chains that are our largest potential customers, (iii) Charlie's proprietary nicotine substitute that makes SBX legal across most of the United States (without FDA PMTA review).

In a Company-sponsored focus group survey of adult consumers who vape, Charlie's SBX Disposables were overwhelming preferred over Juul tobacco-flavored vapes. Of 306 survey participants, 287 preferred SBX over Juul. In Company marketing materials, SBX advantages are highlighted: "Compared to mass-market vapes offered by Big Tobacco ̶ namely Juul ̶ SBX provides many MORE FLAVOR options, UNBEATABLE TAX ADVANTAGES, and THOUSANDS MORE PUFFS!"

Following up on these encouraging early results, we are currently test marketing SBX in mass market convenience chains. If one or more of these tests prove successful, regional and national rollouts could prove transformational for Charlie's.

Further, we have recently begun test-marketing Metatine-based e-liquids under the PACHAMAMA PLUS+ trademark. In response to the rapidly emerging new "pouch products" category in the nicotine products industry, we are also developing a Metatine-based pouch line that could be ready for market in late 2025. We do, however, recognize the challenges in marketing non-nicotine-based alternative alkaloid products in a market that is saturated with traditional nicotine products; accordingly, we are committed to continuous improvement of our Metatine-based products in order to satisfy the ever-evolving demands of US adult consumers.

**Priority 2:** Since our founding in 2014, Charlie's has created literally hundreds of products that provide adult smokers with a viable means of abandoning cigarettes. Not coincidentally, over the last 10-15 years e-cigarette usage in the United States has grown significantly, and cigarette smoking rates have dropped. Accordingly, tobacco and synthetically derived nicotine vapor products continue to provide significant growth opportunities for Charlie's. In 2021, we launched our synthetic nicotine (not derived from tobacco) Pacha (formerly Pachamama Disposable) product line, which provides access to additional sales channels and broadens our customer base. These innovative product formats continue to represent an important product category for Charlie's and we intend to develop new distribution partnerships in order to grow our nicotine disposable business in 2025-26.

As evidenced by our PMTA Products sales for $7.5 million plus $4.2 million in contingent payments with one of the world's largest "Big Tobacco" companies, we believe that our substantial investments in FDA regulatory compliance make Charlie's an attractive partner in this space. Charlie's received FDA Acceptance Filings for more than 650 PMTAs. By investing an additional $1.2 million in Q4 2024 to amend and enhance certain of our 2022 PMTA submissions, we maintained our commitment to full regulatory compliance. On October 28, 2025, we received a Marketing Denial Order ("MDO") from the U.S. Food and Drug Administration with respect to certain of our timely-submitted PMTAs. On November 5, 2025, we filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted our opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation. Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies. The Company continues to believe Charlie's 650+ PMTAs, as a stand-alone asset, have a monetary value that far exceeds Charlie's current market cap.

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Nonetheless, we are continuing to seek FDA marketing authorization for certain of both our nicotine vapor products and our synthetic nicotine vapor products. Obtaining one or more marketing orders from the FDA could, we believe, help to remediate perceived health issues related to vaping, and further position the Company as a trusted industry leader. More than 80% of adults in the United States prefer flavored vapor products over plain tobacco vapor products, Accordingly, while we continue in the FDA review process, we are continuing to seek out strategic partners to monetize our PMTAs . We believe that Charlie's PMTA portfolio represents an asset of significant strategic and monetary value.

**Priority 3:** The Company continues to develop intellectual property around, and to seek strategic partnerships for, technologies designed to prevent youth access to nicotine vapor products. Edward Carmines, Ph.D., a member of Charlie's Board of Directors and an accomplished scientist and regulatory affairs expert, is spearheading Charlie's development of patented "age-gating technology" for both Charlie's and potential licensees of the Company. Currently, there is a need for age-gated product technologies that can satisfy or accommodate concerns the FDA has related to under-age youth access in the ENDS market. We believe age-gating is both a responsible business practice as well as a potential future competitive advantage for Charlie's. If our age-gated e-cigarettes-in-development are recognized as "products of merit" by the FDA, Charlie's e-cigarettes could emerge among the select minority of flavored nicotine disposables able to be sold legally in the $8 billion U.S. vapor products market.

Underlining the importance of Charlie's work with age-gating technology are initiatives taken by JUUL Labs, Altria, and R.J. Reynolds, three of the largest competitors in our industry. In July 2023 JUUL announced that it had submitted a PMTA with the FDA for a new e-cigarette device that also included information on novel, data-driven technologies to restrict underage access. JUUL's chief product officer explained, "With our next-generation platform, we have designed a technological solution for two public-health problems: improving adult-smoker switching from combustible cigarettes and restricting underage access to vapor products..." In the second quarter of 2024, Altria and R.J. Reynolds announced news of their own PMTA submissions to the FDA for mobile applications that verify consumers' ages through third-party age verification providers. Similar to the age-gating technology under development at Charlie's, the Big Tobacco company devices include mobile and web-based apps that enable age-verification technology, including device-locking, and real-time product information and usage insights for age-verified consumers with industry-leading data-privacy protections.

**Priority 4**: We are in the process of launching a U.S.-filled product line to meet domestic manufacturing requirements of large states. Most notably, Texas implemented a new law, Senate Bill 2024, effective September 1, 2025, that bans the sale and possession of certain vape products, including those manufactured or marketed as coming from China or certain other "adversary countries." Tennessee and other states have similar legislation pending. To sell and distribute products in these markets, Charlie's plans to launch a U.S.-filled vapor product line in Q4 2025. The Company's new line will meet new domestic manufacturing requirements and will appeal, broadly, to adult consumers who prefer "Made in America" products.

**Priority 5**: In order to mitigate FDA regulatory risk in the domestic market and to capture what management continues to believe is a significant commercial opportunity, we have dedicated additional resources to efforts focused on growing our market share internationally. Presently, approximately 10% of our vapor product sales come from the international market and we are well positioned to increase sales in countries where we already have presence and, in additional overseas markets, as we have already built an international distribution platform.

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**Risks and Uncertainties and Ability to Continue as a Going Concern**

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. In addition, in September 2022, the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive 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 nicotine, flavored e-cigarette liquid, and other electronic nicotine delivery system ("*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 2020 PMTA 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 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make the Company's synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022*,* FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022*,* FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs. The administrative appeal was granted on October 30, 2023 and the products were accepted to move forward in the PMTA review process. On October 28, 2025, the Company received an MDO from the FDA with respect to certain of our timely-submitted PMTAs. On November 5, 2025, the Company filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted the Company's opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation. Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies. The FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our other pending applications at any time. More generally, FDA's regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA's priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry. In the event the FDA denies our PMTAs, absent a court-ordered stay, we would be required to remove products and cease selling them.

The Company recently launched new alternative alkaloid Metatine-based disposable vape products, under the "SBX™" brand, that the Company expects will (i) replace a significant portion of its legacy products and (ii) become the single largest, most important commercial opportunity in Charlie's history. The Company and its attorneys believe Metatine-based products are not subject to FDA review. Based on the information provided by the Company's contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company's chemical supplier) in the Company's alternative alkaloid products does not meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as "tobacco products" under 21 U.S.C. § 321(rr). Further, according to information provided by the Company's chemists, the other ingredients in the Company's alternative alkaloids vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source. The documentary support for these facts, including a Certificate of Analysis (COA) for the Metatine used in the Company's alternative alkaloid products, corroborates these conclusions. However, should Congress bestow regulatory control over Metatine to the FDA, or should the FDA deem Metatine disposable vape devices "tobacco products" despite the facts that Metatine is not a salt or complex of nicotine, and is not itself derived from nicotine or tobacco, Metatine-based products might then be subject to the FDA tobacco requirements, including, but not limited to, the requirement that all newly deemed tobacco products obtain premarket authorization before entering the U.S. market. If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization. More generally, FDA's regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA's priorities and/or potential jurisdiction over our products will prompt the Agency to attempt to require us to remove our products from the market and to cease selling them.

As discussed below, our financial statements and working capital raise substantial doubt about the Company's ability to continue as a going concern. Our 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. See Liquidity and Capital Resources below for additional information.

**Recent Developments**

*<u>Entry into a Material Definitive Agreement for the Disposition of Assets</u>*

On April 16, 2025, the Company entered into and closed an Asset Purchase Agreement (the "*Agreement*") with R.J. Reynolds Vapor Company (the "*Buyer*") pursuant to which the Buyer purchased 12 of the Company's PACHA synthetic products and related assets (the "*Assets*") that are covered by a premarket tobacco application ("*PMTA*") first submitted by the Company in 2022. The purchase price for the Assets was $5.0 million paid at closing, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets. The Agreement contains customary representations, warranties, and indemnities by each of the parties.

On May 29, 2025, the Company amended the Agreement with the Buyer pursuant to which the Buyer purchased three additional PACHA synthetic products and related assets (the "*May Additional Assets*") that are covered by a PMTA first submitted by the Company in 2022, bringing the total purchased by the Buyer, to date, to 15 products. The purchase price for the May Additional Assets was $1.5 million paid at closing.

On August 8, 2025, the Company entered into and closed on another Amendment to the Agreement with the Buyer pursuant to which the Buyer purchased one additional PACHA synthetic product and related asset (the "*August Additional Assets*") that are covered by a *PMTA* first submitted by the Company in 2022, bringing the total purchased by the Buyer to sixteen. The purchase price for the August Additional Assets was $1.0 million paid at closing.

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*<u>$2.0 Million Credit Facility with Independent Board Member</u>*

In order to facilitate increased SBX inventory purchases and to fuel the Company's growth in the mass market convenience store channel, on August 26, 2025 the Company announced that, it signed a very favorable $2 million credit facility with Michael D. King, one of the independent members of Charlie's Board of Directors.

Mr. King agreed to loan the Company up to $2,000,000 (in three separate tranches) at an interest rate of 13% for a period of 12 months per tranche, with a balloon payment for interest and principal to be paid at the one-year anniversary of each tranche. Accordingly, with an initial $1 million loan, and two subsequent $500,000 tranches, this debt/credit facility gave the Company the discretion to borrow funds, as needed, as demand continues to grow for the SBX product line. This credit facility is not convertible to equity, does not include warrants, and is exceptionally "company friendly."

**Results of Operations for the Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024**

Regarding results from operations for the quarter ended September 30, 2025, we generated revenue of approximately $7,084,000, as compared to revenue of $1,624,000 for the three months ended September 30, 2024. This $5,460,000 increase in revenue was due primarily to an increase of $4,683,000 in sales of nicotine and nicotine alternative products and $777,000 in other alternative products distributed through Don Polly.

We generated a net income for the three months ended September 30, 2025, of approximately $624,000 as compared to a net loss of $1,022,000 for the three months ended September 30, 2024.

A review of the three-month period ended September 30, 2025, follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | For the three months ended | For the three months ended |  |  |
|  | September 30, | September 30, | Change | Change |
|  | 2025 | 2024 | Amount | Percentage |
| ***($ in thousands)*** |  |  |  |  |
| Product revenue, net | $7084 | $1624 | $5460 | 336.2% |
| Cost of goods sold | 5322 | 994 | 4328 | 435.4% |
| Gross profit | 1762 | 630 | 1132 | 179.7% |
| **Operating costs and expenses:** |  |  |  |  |
| General and administrative | 1685 | 1420 | 265 | 18.7% |
| Sales and marketing | 398 | 169 | 229 | 135.5% |
| Research and development | 18 | (83) | 101 | -121.7% |
| Total operating costs and expenses | 2101 | 1506 | 595 | 39.5% |
| Loss from operations | (339) | (876) | 537 | -61.3% |
| **Other income (expense):** |  |  |  |  |
| Interest expense | (37) | (146) | 109 | -74.7% |
| Gain on sale of intellectual property | 1000 |  | 1000 | 100% |
| Total other income (loss) | 963 | (146) | 1109 | -759.6% |
| **Income (loss) before provision for income taxes** | 624 | (1022) | 1646 | -161.1% |
| Income tax provision |  |  |  | 100% |
| **Net income (loss)** | $**624** | $**(1022)** | $**1646** | -161.1% |

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***Revenue***

Revenue for the three months ended September 30, 2025, increased by approximately $5,460,000 or 336.2%, to approximately $7,084,000, as compared to approximately $1,624,000 for same period in 2024 due to an increase of $4,683,000 in sales of nicotine and nicotine alternative products. Sales of SBX, a non-nicotine, disposable vapor product which is not subject to FDA review, experienced a significant increase during the quarter ended September 30, 2025. The $777,000 increase in sales for Don Polly primarily consisted of other alternative products distributed on behalf of other companies' brands. These partnerships have allowed us to leverage existing customer relationships and sales infrastructure to generate incremental revenue, but are not a primary focus for the Company.

***Cost of Revenue***

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $4,328,000 or 435.4%, to approximately $5,322,000, or 75.1% of revenue, for the three months ended September 30, 2025, as compared to approximately $994,000, or 61.2% of revenue, for the same period in 2024. This cost increased compared to last year due primarily to an increase in the volume of products sold during the period. Sales of third-party brands carry a lower overall margin and therefore dilute the Company's margin overall.

***General and Administrative Expenses***

For the three months ended September 30, 2025, total general and administrative expenses were $1,685,000 as compared to approximately $1,420,000 for the same period in 2024. The increase was primarily comprised of an increase of approximately $190,000 of non-commission wages and benefits, $60,000 of merchant processing fees, as well as $91,000 in other general and administrative expenses, and offset by a decrease of $40,000 of bad debt expense and certain professional fees of $36,000. The increase in payroll and benefits costs was primarily driven by bonuses awarded to certain key employees during the period.

.

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***Sales and Marketing Expense***

For the three months ended September 30, 2025, total sales and marketing expense was approximately $398,000 as compared to approximately $169,000 for the same period in 2024. The increase was primarily due to increased sales commissions paid and display costs for "first-order" sales of the Company's SBX product as roll-out continued during the quarter. The Company continues to evaluate its spending on advertising, promotional and tradeshow related expenses as it aims to increase sales of its new SBX Disposable vapor products.

***Research and Development Expense***

For the three months ended September 30, 2025, total research and development expense was approximately $18,000 as compared to an income of $83,000 for the same period in 2024. The income in 2024 period was primarily due to a vendor refund of approximately $83,000.

***Income (Loss) from Operations***

We incurred a loss from operations of approximately $339,000 for the three months ended September 30, 2025, compared to a loss of approximately $876,000 for the three months ended September 30, 2024, due primarily to increased sales and gross profit. Net income (loss) is determined by adjusting loss from operations by the following items:

● Gain on sale of PMTA assets. For the three months ended September 30, 2025, we recorded a $1,000,000 gain related to the sales agreement entered with R.J. Reynolds Vapor Company.

● Interest Expense. For the three months ended September 30, 2025, and 2024, we recorded interest expense related to notes payable of approximately $37,000 and $146,000, respectively. The decrease was primarily due to the payoff of a significant amount of outstanding notes payable.

***Net Income (Loss)***

For the three months ended September 30, 2025, we incurred a net income of $624,000 as compared to a net loss of $1,022,000 for the same period in 2024.

**Results of Operations for the Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024**

Regarding results from operations for the nine months ended September 30, 2025, we generated revenue of approximately $11,934,000, as compared to revenue of $6,718,000 for the nine months ended September 30, 2024. This $5,216,000 increase in revenue was due primarily to an increase of $3,230,000 in sales of our nicotine and nicotine-alternative vapor products, and an increase of $1,987,000 in sales of other alternative products distributed through Don Polly.

We generated a net income for the nine months ended September 30, 2025, of approximately $4,368,000 as compared to a net loss of $3,034,000 for the nine months ended September 30, 2024.

A review of the nine months ended September 30, 2025, follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | For the nine months ended | For the nine months ended |  |  |
|  | September 30, | September 30, | Change | Change |
|  | 2025 | 2024 | Amount | Percentage |
| ***($ in thousands)*** |  |  |  |  |
| Product revenue, net | $11934 | $6718 | $5216 | 77.6% |
| Cost of goods sold | 8980 | 4366 | 4614 | 105.7% |
| Gross profit | 2954 | 2352 | 602 | 25.6% |
| **Operating costs and expenses:** |  |  |  |  |
| General and administrative | 4231 | 4388 | (157) | -3.6% |
| Sales and marketing | 737 | 620 | 117 | 18.9% |
| Research and development | 28 | (103) | 131 | -127.2% |
| Total operating costs and expenses | 4996 | 4905 | 91 | 1.9% |
| Loss from operations | (2042) | (2553) | 511 | -20.0% |
| **Other income (expense):** |  |  |  |  |
| Interest expense | (614) | (485) | (129) | 26.6% |
| Debt extinguishment loss | (50) | (75) | 25 | -33.3% |
| Change in fair value of derivative liabilities |  | 79 | (79) | -100.0% |
| Gain on sale of intellectual property | 7500 |  | 7500 | 100% |
| Total other income (loss) | 6836 | (481) | 7317 | -1521.2% |
| **Income (loss) before provision for income taxes** | 4794 | (3034) | 7828 | -258.0% |
| Income tax provision | (426) |  | (426) | 100% |
| **Net income (loss)** | $**4368** | $**(3034)** | $**7402** | -244.0% |

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***Revenue***

Revenue for the nine months ended September 30, 2025, increased by approximately $5,216,000 or 77.6%, to approximately $11,934,000, as compared to approximately $6,718,000 for same period in 2024 due primarily to of $3,230,000 in sales of nicotine and nicotine alternative products. Sales of SBX, a non-nicotine, disposable vapor product which is not subject to FDA review, experienced a significant increase during the quarter ended September 30, 2025. The $1,987,000 increase in sales for Don Polly primarily consisted of other alternative products distributed on behalf of other companies' brands. These partnerships have allowed us to leverage existing customer relationships and sales infrastructure to generate incremental revenue, but are not a primary focus for the Company.

***Cost of Revenue***

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $4,614,000 or 105.7%, to approximately $8,980,000, or 75.2% of revenue, for the nine months ended September 30, 2025, as compared to approximately $4,366,000, or 65.0% of revenue, for the same period in 2024. This cost increased compared to last year due primarily to an increase in the volume of products sold during the period. Sales of third-party brands carry a lower overall margin and therefore dilute the Company's margin overall.

***General and Administrative Expenses***

For the nine months ended September 30, 2025, total general and administrative expenses decreased by approximately $157,000 to $4,231,000 as compared to approximately $4,388,000 for the same period in 2024. This change was primarily due to decreases of approximately $395,000 in certain professional fees and $108,000 of bad debt expense, and offset by an increase of $306,000 in non-commission wages and benefits and $40,000 of other general and administrative costs. The decrease in professional fees was primarily the result of reductions in legal and audit costs as well as fees paid to members of our Board of Directors. The increase in payroll and benefits costs was primarily driven by bonuses awarded to certain key employees during the period.

***Sales and Marketing Expense***

For the nine months ended September 30, 2025, total sales and marketing expense increased by approximately $117,000 to approximately $737,000 as compared to approximately $620,000 for the same period in 2024. The increase was primarily due to increased sales commissions paid and display costs for "first-order" sales of the Company's SBX product as roll-out continued during the nine-month period ended September 30, 2025. The Company continues to evaluate its spending on advertising, promotional and tradeshow related expenses as it aims to increase sales of its new SBX Disposable vapor products.

***Research and Development Expense***

For the nine months ended September 30, 2025, research and development expense was approximately $28,000 as compared to income of approximately $103,000 for the same period in 2024. The income in 2024 period was primarily due to a vendor refund of approximately $26,000.

***Income (Loss) from Operations***

We incurred loss from operations of approximately $2,042,000 for the nine months ended September 30, 2025, compared to a loss of approximately $2,553,000 for the nine months ended September 30, 2024, due primarily to decreased sales and gross profit. Net income (loss) is determined by adjusting loss from operations by the following items:

● Gain on sale of PMTA assets. For the nine months ended September 30, 2025, we recorded a $7,500,000 gain related to the sales agreement entered with R.J. Reynolds Vapor Company.

● Interest Expense. For the nine months ended September 30, 2025, and 2024, we recorded interest expense related to notes payable of approximately $614,000 and $485,000, respectively. The increase was primarily due to an increase of outstanding notes payable.

● Debt Extinguishment Loss. For the nine months ended September 30, 2025 and 2024, we recorded approximately $50,000 and $75,000 debt extinguishment loss related to various debt amendments, respectively.

● Change in Fair Value of Derivative Liabilities. For the nine months ended September 30, 2024, the gain in fair value of derivative liabilities was $79,000. The gain for the nine months ended September 30, 2024 was due to the expiration of the warrants in April 2024 which resulted the warrant liability being written off.

***Income Taxes Provision***

For the nine months ended September 30, 2025, the Company recorded an income tax provision of approximately $426,000.

***Net Income (Loss)***

For the nine months ended September 30, 2025, we incurred a net income of $4,368,000 as compared to a net loss of $3,034,000 for the same period in 2024.

***Effects of Inflation***

Inflation has not had a material impact on our business.

**Liquidity and Capital Resources**

As of September 30, 2025, we had working capital of approximately $3,079,000, which consisted of current assets of approximately $9,841,000 and current liabilities of approximately $6,762,000, as compared to working capital deficit of approximately $1,855,000 at December 31, 2024. The current liabilities include approximately $3,744,000 of accounts payable and accrued expenses, notes payable from related parties of $2,481,000, $163,000 of lease liabilities and approximately $374,000 of deferred revenue associated with product shipped but not yet received by customers.

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Our cash and cash equivalents balance at September 30, 2025 was approximately $1,150,000. As of September 30, 2025, we have the following notes outstanding:

● *August 2025 Notes.* As of September 30, 2025, $2,000,000 notes payable plus accrued interest held by Michael King remained outstanding.

● *July 2023 Notes.* As of September 30, 2025, $238,000 notes payable plus accrued interest held by Ryan Stump and Henry Sicignano III remained outstanding and the maturity dates of the outstanding notes had been extended to April 28, 2026.

● *April 2022 Note*. As of September 30, 2025, approximately $243,000 of principal plus accrued interest held by Michael King remained outstanding and the maturity dates of the outstanding notes had been extended to April 28, 2026.

For the nine months ended September 30, 2025, net cash used in operating activities was approximately $6,172,000, resulting from a net income of $4,368,000, and offset by a change in net non-cash activity of $6,772,000 and operating assets and liabilities of $3,768,000. For the nine months ended September 30, 2024, net cash used in operating activities was approximately $1,244,000, resulting from a net loss of $3,034,000, offset by a change in operating assets and liabilities of $949,000 and net non-cash activity of $841,000.

For the nine months ended September 30, 2025, cash provided by investing activities included $7,500,000 in proceeds from the sale of intellectual property related to certain of our PMTA products.

For the nine months ended September 30, 2025, we used approximately $389,000 in cash from financing activities related to the issuance of notes payable of $2,546,000, notes payable to a related party of $100,000 and the repayment of $3,036,000 in notes payable, including $1,111,000 to related parties. For the nine months ended September 30, 2024, we generated approximately $1,478,000 in cash from financing activities related to the issuance of common shares of $1,030,000, notes payable of $742,000, notes payable to a related party of $500,000 and the repayment of $795,000 in notes payable, including $50,000 to a related party.

***Substantial Doubt to Continue as a Going Concern***

Our consolidated 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. For the nine months ended September 30, 2025, the Company's revenue increased, the Company generated loss from operations of approximately $2,042,000, and a consolidated net income of approximately $4,368,000. Net cash used in operating activities was approximately $6,172,000. The Company had a stockholders' equity of $3,239,000 at September 30, 2025. During the nine months ended September 30, 2025, the Company's working capital was increased to $3,079,000 from a deficit of $1,855,000 as of December 31, 2024. Given these factors, remains a substantial doubt about the Company's ability to continue as a going concern. During the nine months ended September 30, 2025, the Company entered into and closed an Asset Purchase Agreement (the "*Agreement*") and subsequent amendment with R.J. Reynolds Vapor Company (the "*Buyer*") pursuant to which the Buyer purchased 16 of the Company's PACHA synthetic products and related assets (the "*Assets*") that are covered by a premarket tobacco application ("*PMTA*") first submitted by the Company in 2022. The combined purchase price for the Assets was $6.5 million paid at closings in April and May 2025, and an additional $1.0 million paid at closings in August 2025, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets. These asset sales have substantially improved the Company's debt and working capital short-term concerns, and the Company's cash position.

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts. The Company may require additional financing in the future to support the development of new product categories as well as general operations. There can be no assurance that additional 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. 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. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.

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***Off-Balance Sheet Arrangements***

The Company has no off-balance sheet arrangements other than operating lease commitments.

***Critical Accounting Policies***

The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expense in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of our Annual Report on the 2024 Annual Report.

**ITEM 3** – **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Not applicable.

**ITEM 4** – **CONTROLS AND PROCEDURES**

*(a) Evaluation of disclosure controls and procedures*

Our management, with the participation of our President 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 Report. 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 September 30, 2025, 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 and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

*(b) 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 quarter ended September 30, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

**PART II** – **OTHER INFORMATION**

**ITEM 1. LEGAL PROCEEDINGS**

As of the date hereof, we are not a party to any material legal or administrative proceedings. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest. From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management's time and attention.

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**ITEM 1A. RISK FACTORS**

Our results of operations and financial condition are subject to numerous risks and uncertainties described in the 2024 Annual Report. In addition to the other information set forth in this Report, you should carefully consider the risk factors discussed in Part 1, Item 1A, of the 2024 Annual Report and subsequent reports filed pursuant to the Exchange Act which could materially and adversely affect the Company's business, financial condition, results of operations, and stock price. Any losses or damages we incur could have a material adverse effect on our financial results and our ability to conduct business as expected. The risks described in our 2024 Annual Report and in our subsequent reports filed pursuant to the Exchange Act are not the only risks facing the Company. Additional risks and uncertainties not presently known to management, or that management presently believes not to be material, may also result in material and adverse effects on our business, financial condition, and results of operations.

**ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

None.

**ITEM 3. DEFAULTS UPON SENIOR SECURITIES**

None.

**ITEM 4. MINE SAFETY DISCLOSURES**

Not applicable.

**ITEM 5. OTHER INFORMATION**

During the quarter ended September 30, 2025, no director or Section 16 Officer of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.

**ITEM 6. EXHIBITS**

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| | |
|:---|:---|
| **(a)** | **Exhibits** |
| 31.1 | [Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a).](ex_886248.htm) |
| 31.2 | [Certification of the Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) and 15d-14(a).](ex_886247.htm) |
| 32.1 | [Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.](ex_886246.htm) |
| 32.2 | [Certification by the Principal Financial and Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.](ex_886245.htm) |
| 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 Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101) |

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**SIGNATURES**

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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| | | |
|:---|:---|:---|
| Date: November 19, 2025 | CHARLIE'S HOLDINGS, INC.  | CHARLIE'S HOLDINGS, INC.  |
|  | By: | /s/ Henry Sicignano, III |
|  |  | Henry Sicignano, III  |
|  |  | President  |
|  |  | (Principal Executive Officer) |
|  | By: | /s/ Matthew P. Montesano |
|  |  | Matthew P. Montesano  |
|  |  | Chief Financial Officer |
|  |  | (Principal Financial and Accounting Officer) |

---

## Exhibit 31.1

**EXHIBIT 31.1**

**CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER**

I, Henry Sicignano, III, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this quarterly report on Form 10-Q of Charlie's Holdings, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

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| | |
|:---|:---|
|  | */s/ Henry Sicignano, III* |
| Date: November 19, 2025 | Henry Sicignano, III |
|  | President<br> (Principal Executive Officer) |

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## Exhibit 31.2

**EXHIBIT 31.2**

**CERTIFICATION OF CHIEF FINANCIAL OFFICER**

I, Matthew P. Montesano, certify that:

&nbsp;&nbsp;&nbsp;&nbsp;1. I have reviewed this quarterly report on Form 10-Q of Charlie's Holdings, Inc.;

&nbsp;&nbsp;&nbsp;&nbsp;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

&nbsp;&nbsp;&nbsp;&nbsp;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

&nbsp;&nbsp;&nbsp;&nbsp;4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

&nbsp;&nbsp;&nbsp;&nbsp;5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
|  | */s/ Matthew P. Montesano* |
| Date: November 19, 2025 | Matthew P. Montesano |
|  | Chief Financial Officer<br> (Principal Financial and Accounting Officer) |

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## Exhibit 32.1

**EXHIBIT 32.1**

**CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Charlie's Holdings, Inc. (the "*Company*") on Form 10-Q for the quarter ended September 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the "*Report*"), I, Henry Sicignano, III, President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
|  | */s/ Henry Sicignano, III* |
|  | Henry Sicignano, III |
|  | President<br> (Principal Executive Officer) |
| Date: November 19, 2025 |  |

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## Exhibit 32.2

**EXHIBIT 32.2**

**CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

In connection with the Quarterly Report of Charlie's Holdings, Inc. (the "*Company*") on Form 10-Q for the quarter ended September 30, 2025, as filed with the Securities and Exchange Commission on the date hereof (the "*Report*"), I, Matthew P. Montesano, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

&nbsp;&nbsp;&nbsp;&nbsp;(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

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| | |
|:---|:---|
|  | */s/ Matthew P. Montesano* |
|  | Matthew P. Montesano |
|  | Chief Financial Officer<br> (Principal Financial and Accounting Officer) |
| Date: November 19, 2025 |  |

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