UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

☒	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2024~~2025 or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file No. 001-32420

CHARLIE’S HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada		84-1575085
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

1007 Brioso Drive, Costa Mesa, CA 92627

(Address of Principal Executive Offices)

(949) 531-6855

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered under Section 12(g) of the Exchange Act:

Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock ($0.001 par value)	CHUC	OTC Markets

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☐ No ☒

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, ~~2024~~2025 was approximately $1417.19 million based on a closing market price of $0.~~145~~099 per share, as reported on the OTCQB Venture Market.

There were ~~257~~274,~~413~~203,~~570~~242 shares of the registrant’s common stock outstanding as of ~~May~~March 2931, ~~2025~~2026.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its ~~2025~~2026 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K.

CHARLIE’S HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K

YEAR ENDED DECEMBER 31, ~~2024~~2025

TABLE OF CONTENTS

		Page
PART I
Item 1.	Description of Business	2
Item 1A.	Risk Factors	139
Item 1B.	Unresolved Staff Comments	2517
Item 1C.	Cybersecurity	2517
Item 2.	Properties	2618
Item 3.	Legal Proceedings	2618
Item 4.	Mine Safety Disclosures	2618
PART II
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	2719
Item 6.	[Reserved]	2719
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2820
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	3931
Item 8.	Financial Statements and Supplementary Data	3931
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	3931
Item 9A.	Controls and Procedures	3931
Item 9B.	Other Information	4032
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspection	4032
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	4032
Item 11.	Executive Compensation	4335
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	4335
Item 13.	Certain Relationships, Related Transactions, and Director Independence	4335
Item 14.	Principal Accountant Fees and Services	4335
PART IV
Item 15.	Exhibits, Financial Statement Schedules	4436
Item 16.	10-K Summary	4537
Signatures		46

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by those sections. We intend to identify forward-looking statements in this report by using words such as “believes”, “intends”, “expects”, “may”, “will”, “should”, “plan”, “projected”, “contemplates”, “anticipates”, “estimates” “predicts”, “potential”, “continue” or similar terminology. These statements are based on our beliefs as well as assumptions we made using information currently available to us. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. These risks include changes in production and demand for our products, changes in the level of operating expense, our ability to expand our network of customers, changes in general economic conditions that impact consumer behavior and spending, product supply, the availability, amount, and cost of capital to us and our use of such capital, changes in regulation that negatively impact our ability to sell our products and other risks discussed in this report. Additional risks that may affect our performance are discussed below under the section entitled “Risk Factors”.

As used in this Annual Report, unless otherwise stated or the context otherwise requires, references to the “Company”, “we”, “us”, “our” or similar references mean Charlie’s Holdings, Inc. and its subsidiaries.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

As used in this Annual Report, unless otherwise stated or the context otherwise requires, references to the “Company”, “we”, “us”, “our” or similar references mean Charlie’s Holdings, Inc. (formerly True Drinks Holdings, Inc.), its subsidiaries and consolidated variable interest entity on a consolidated basis. References to “Charlie’s” and “CCD” refer to Charlie’s Chalk Dust, LLC, a California limited liability company and wholly-owned subsidiary of the Company, and “Don Polly” refers to Don Polly, LLC, a Nevada limited liability company that is owned by an entity controlled by Ryan Stump, the Company’s current Chief Operating Officer, and a consolidated variable interest for which the Company is the primary beneficiary.

Overview

~~The Company’~~Charlie's ~~objective~~ is ~~to become~~ a leader in ~~three~~the ~~broad~~premium ~~product~~vapor ~~categories:~~products ~~(i)~~industry. ~~non-combustible~~Long ~~nicotine-related~~known ~~products~~for ~~and~~its ~~(ii)~~pioneering ~~alternative~~history ~~alkaloid~~and ~~vapor~~award-winning products., ~~Through~~the ~~our Charlie~~Company’s ~~subsidiary,~~mission weis ~~formulate,~~to ~~market,~~provide ~~and~~adult ~~distribute~~smokers ~~premium,~~with ~~nicotine-based~~better ~~and~~alternatives ~~alternative~~to ~~alkaloid~~combustible ~~vapor products~~cigarettes. To this end, Charlie’s ~~products~~has ~~are~~developed ~~produced~~a ~~through~~family ~~contract~~of ~~manufacturers~~proprietary ~~for~~e-liquids ~~sale~~as ~~through~~well ~~select~~as ~~distributors,~~an ~~specialty~~array ~~retailers~~of compact, ~~and third~~easy-~~party~~to-use ~~online~~disposable ~~resellers~~vaping ~~throughout the United States, and in select international markets~~devices.

The Company’s objective is to become a sales leader in two broad product categories: (i) non-2combustible nicotine-related products and (ii) alternative alkaloid (non-nicotine) vapor products. In pursuit of these targets, Charlie’s primary strategic focus is on the development of intellectual property related to product access and compliance. The Company is investing in the development of advanced age-gating and access-control technologies designed to prevent youth access while maintaining availability for adult smokers who seek alternatives to combustible cigarettes. The Company believes that effective age-verification mechanisms are a critical component in supporting the Charlie’s Premarket Tobacco Applications (“PMTAs”) for both flavored and “plain” tobacco nicotine vapor products.

In December, the Company signed a definitive licensing agreement with IKE Tech LLC (“IKE”) to commercialize the first-ever AI-powered blockchain-based age-gating system for vapor products in the United States. Under this license, Charlie’s could become the first Company to demonstrate to the FDA that flavored ENDS products are “appropriate for the protection of public health.” Such a regulatory achievement could prove transformational for Charlie’s and for the entire vapor products industry.

Our Products

Charlie’s Product Line

Our business efforts consist primarily of formulating, marketing and distributing our portfolio of ~~premium~~proprietary (i) alternative alkaloid (non-~~combustible~~nicotine) vapor products, (ii) electronic nicotine~~-related~~ delivery devices (“ENDS”), and ~~alternative~~(iii) ~~alkaloid~~premium ~~vapor~~non-combustible ~~products~~e-liquids, which we collectively refer to as the “Charlie’s Product Line” or “Charlie’s Products”.

Alternative Alkaloid Products

Metatine™ (“Metatine” or “Alternative Alkaloid”) is a synthetically derived molecule that is structurally similar to, but chemically different from, other vaping alkaloids. Notably, even though Metatine is a nicotine salt analogue (a non-nicotine compound), vape devices that contain Metatine provide adult users with a strong sense of satisfaction, pleasure and enjoyment that is largely indistinguishable from that experience provided by traditional nicotine-based vape products. Metatine is ~~currently~~the ~~sold~~proprietary ingredient in the Company’s SBX Disposable device (“SBX”) ~~and~~product ~~in bulk supply to contract manufacturers and third-party alternative products brands~~line.

SBX Disposables, with Metatine inside, are currently available in 5-Packs, featuring a 17,000-~~25K~~25,000 puff delivery, 3 firing modes, and active battery and ~~eliquid~~e-liquid monitoring functions. The current portfolio of ~~ten~~eighteen unique flavors offers more value to consumers at a competitive retail price. Unlike the tens of thousands of flavored nicotine vapes that may not legally be sold in the United States, SBX contains Metatine and is not, therefore, subject to regulatory restrictions that apply to most other flavored vapes. Metatine is not a tobacco product as defined in the Food, Drug and Cosmetic Act (“FDCA”), as amended by the Tobacco Control Act. Accordingly, neither Metatine nor e-liquids and vape products made with Metatine are subject to the Tobacco Control Act and the various restrictions that apply to new tobacco products.

Similarly, SBX is not subject to sales restrictions in some states that have implemented “flavor bans” on ~~electronic nicotine delivery devices (“~~ENDS”). Notably, SBX is not subject to the New York State vapor product flavor ban because it is not a “flavored vapor product” as defined in Article 13-F of New York State’s Public Health Law. According to NYS Public Health Law § 1399-mm-1, a “flavored” vapor product is defined, in pertinent part, as “any vapor product intended or reasonably expected to be used with or for the consumption of nicotine ….” As such, because SBX is a closed, non-refillable zero-nicotine product and is not intended or reasonably expected to be used with or for the consumption of nicotine, it is not subject to the flavored vapor product ban in New York State (outside the five boroughs of Manhattan).

On● ~~December~~SBX ~~23,~~20mL ~~2024,~~Disposable. ~~the~~SBX ~~New~~Disposables ~~York~~offer ~~State~~adult ~~Department~~consumers ofCharlie’s ~~Health~~award-winning ~~(“NYSDOH”)~~flavors ~~issued~~in a ~~field~~zero-nicotine ~~memorandum~~device tothat ~~all~~provides ofadult ~~its~~users ~~local~~with ~~health~~a ~~departments~~strong ~~confirming~~sense ~~that~~of ~~NYSDOH~~satisfaction ~~has determined~~ that ~~flavored~~is ~~vaping~~largely ~~products~~indistinguishable ~~containing~~from ~~non-nicotine~~that ~~ingredients,~~experience ~~such~~provided ~~as Metatine™ in the case of SBX, are not prohibited~~ by ~~Public~~traditional ~~Health Law Article 13~~nicotine-F.based ~~This~~vape ~~determination confirms that SBX flavored vapes are legal to sell in New York State~~products. ~~Due to local ordinances, however, the sale of the~~ SBX is ~~not~~currently ~~permitted~~offered in ~~New~~eighteen ~~York~~flavors ~~City~~with ~~(including~~three ~~all~~power ~~five boroughs~~modes, ~~e.g.,~~and ~~the~~an ~~Bronx,~~attractive ~~Brooklyn,~~screen ~~Manhattan, Queens, and Staten Island)~~display.

Nicotine-Based Disposables

Disposable vapes, also referred to as (“Disposables”), are pre-filled and pre-charged vapor delivery systems. These single-use electronic vaporizers offer a draw-activated mouthpiece and are infused with e-liquid, making them ready to use ~~immediately~~upon ~~after~~ purchase. Our Disposables are available in a variety of sizes (~~2ml,~~currently 4ml, 8ml, 12ml and ~~12ml~~20ml) and flavors, including some of our award-winning proprietary blends.

Charlie’s disposable nicotine products are produced under ~~three~~two brand names (Pacha, ~~PACHAMAMA~~ and ~~SBX~~PACHAMAMA) distinguished by their size and intended market, and offer users a variety of premium flavors containing synthetic nicotine (not derived from tobacco), ~~tobacco~~and tobacco-derived nicotine, ~~or alternative alkaloids~~ in a compact, discrete format. All ~~disposables~~Disposables are shipped in flavor-specific consumer display units (“~~CDU~~CDUs”) which hold five-ten individually packaged disposables for quick and convenient retail sales.

●

Pacha 4mL Disposable. Pacha 4mL Disposables were designed for the US market with the objective of providing a convenient and satisfying user experience.

	●	Pacha 8mL Disposable. Pacha 8mL Disposables offer customers a moderately higher puff count and are available in a variety of flavors ranging from our innovative “Clear” (flavorless) offering, to novel fruit blends and distinctive dessert flavors.
	●	Pacha 12mL Disposable. Pacha 12mL Disposables offer customers one of Charlie’s most popular puff count options, and are available in fruit and “ice” varieties.

●

Pacha 8mL Disposable. Pacha 8mL Disposables offer customers a moderately higher puff count and are available in a variety of flavors ranging from our innovative “Clear” (flavorless) offering, to novel fruit blends and distinctive dessert flavors.

	●	PACHAMAMA 20mL Disposable. PACHAMAMA 20mL Disposables provide the ultimate vaping experience with “the most desirable flavors on earth,” three power modes, and an eye-catching screen display.
	●	SBX 20mL Disposable. SBX 20mL Disposables offer customers Charlie’s award-winning flavors in a zero-nicotine device that is largely indistinguishable from traditional nicotine-based vape products. SBX is currently offered in 10 flavors with three power modes, and an eye-catching screen display.

-2-

●

Pacha 12mL Disposable. Pacha 12mL Disposables offer customers one of Charlie’s most popular puff-count options, and are available in fruit and “ice” varieties.

●

PACHAMAMA 20mL Disposable. PACHAMAMA 20mL Disposables provide the ultimate vaping experience with “the most desirable flavors on earth,” three power modes, and an attractive screen display.

E-Liquids

E-liquids used to produce vapor in vaping devices are sold separately for use in refillable tanks of open system vaporizers. Liquids are available in variable nicotine concentrations (currently 0 mg, 3 mg, and 6 mg per milliliter) to suit user preferences. Liquids are available in a variety of our proprietary-blended flavors. The liquid solution consists of flavoring and/or nicotine dissolved in one or several hygroscopic components, which turns the water in the solution into the smoke-like vapor when heated. The most commonly used hygroscopic components are propylene glycol (“PG”), vegetable glycerin (“VG”) or polyethylene glycol 400. VG imparts sweetness and produces vapor clouds, while PG produces more “throat hit,” which simulates the feeling of smoking. Our proprietary e-liquid brands are manufactured by ISO Class 7 certified manufacturers in the United States, which helps ensure their purity and quality.

Charlie’s e-3-liquid products are sold primarily under the Pacha (domestic) and PACHAMAMA™ (international) brand names, distinguished by their flavor profiles, packaging art, and ingredient transparency. Consisting of eclectic mixes of natural fruit flavors such as passion fruit raspberry yuzu, blood orange banana gooseberry, and huckleberry pear acai, these products were originally launched in 2016.

Charlie’s e-liquid products are primarily sold under the Pacha (domestic) and Pachamama (international)™ brand names, distinguished by their flavor profiles, packaging art and ingredient transparency. These products were launched in 2016 consisting of eclectic mixes of natural fruit flavors such as passion fruit raspberry yuzu, blood orange banana gooseberry, and huckleberry pear acai.

In 2024, using our proprietary nicotine salt analog, we launched our PACHAMAMA PLUS+ e-liquid line. Combining the smoothness of an open pod system and the vibrant flavor profiles of disposable vape products, PACHAMAMA PLUS+ provides boosted flavor with an ultra-smooth, uniquely satisfying experience. In addition, PACHAMAMA PLUS+ e-liquids are not subject to sales restrictions in some states that have implemented “flavor bans” on nicotine products.

Nicotine Salt Products

Nicotine salt e-liquids (“NIC salts”) are formulated for use in lower wattage open, semi-open, and closed system vaporizers and are available in higher nicotine concentrations (25mg and 50mg per milliliter) than traditional e-liquids. Nicotine salts consist of nicotine dissolved in an acid that results in a lower PH level than other e-liquids. This form of nicotine has a higher bioavailability resulting in faster blood stream absorption and more closely mimics the effects of combustible tobacco products. We broadly released Pachamama™ Salts, an extension of the Pachamama™ line, which now includes 17 flavors domestically and 31 internationally, packaged in 10ml, 30ml, 50ml 60ml, and 100ml bottles. We will continue to evaluate our product offering in this category as demand continues to evolve.

~~Don~~Age-Gating ~~Polly~~Technology

~~Don~~As ~~Polly~~part isof aCharlie’s ~~company~~regulatory ~~under~~strategy, ~~common ownership with~~ the Company, ~~and~~is ~~was~~investing ~~established~~ in ~~April~~the ~~2019~~development ~~for~~of ~~the~~advanced ~~specific~~age-gating ~~purpose~~and ofaccess-control ~~developing,~~technologies ~~marketing,~~designed ~~and~~to ~~distributing~~prevent ~~proprietary~~youth ~~and~~access ~~innovative~~while ~~offerings~~maintaining availability for ~~the~~adult ~~alternative~~smokers ~~products~~who ~~category~~seek alternatives to combustible cigarettes. The Company isbelieves ~~not~~that ~~currently~~effective ~~developing~~age-verification ~~new~~mechanisms ~~products~~are a critical component in ~~this~~supporting ~~category~~the Company’s Premarket Tobacco Applications (“PMTAs”) for both flavored and “plain” tobacco nicotine vapor products.

~~Don~~On ~~Polly~~December is18, ~~owned~~2025, byCharlie’s ~~one~~Holdings, ~~limited~~Inc. ~~liability~~entered ~~company~~a Master Hardware, ~~wholly~~Software, and Cloud Subscription Agreement with IKE to integrate IKE’s age-~~owned~~verification bytechnology ~~Ryan~~into ~~Stump,~~certain of the Company’s ~~Chief~~nicotine ~~Operating~~analogue ~~Officer~~and electronic nicotine delivery system (“ENDS”) products. ~~Pursuant~~Under the agreement, IKE will supply proprietary Bluetooth Low Energy (“BLE”) chips designed to ~~the~~be ~~Licensing~~embedded ~~Agreement,~~in ~~Charlie~~the Company’s ~~granted~~devices ~~Don~~and ~~Polly~~to enable wireless communication with a ~~limited~~cloud-based ~~right~~software platform that supports device authentication, age-gating, and ~~license~~age-verification functionality prior to ~~use~~device ~~certain~~activation. ofThe ~~Charlie’s~~agreement ~~trademarks,~~also ~~copyrights,~~provides for access to a subscription-based software platform and ~~original~~related ~~artwork~~development services, inincluding ~~connection~~the ~~with~~potential ~~Don~~creation ~~Polly’s~~of ~~branded~~a ~~alternative products~~customized, aswhite-labeled ~~well~~application. The Company believes the technologies contemplated by the agreement will support its efforts to enhance product-level age-verification and compliance capabilities as aregulatory ~~Services~~requirements ~~Agreement~~for ~~pursuant~~nicotine products continue to ~~which~~ evolve. Under the IKE license, Charlie’s ~~provides~~could ~~certain~~become ~~services to~~the ~~Don~~first ~~Polly~~Company ~~related~~to demonstrate to the ~~sales,~~ ~~marketing,~~FDA ~~and~~that ~~brand~~flavored ~~development~~ENDS products are “appropriate for the protection of ~~Don~~public ~~Polly~~health.” Such a regulatory achievement could prove transformational for Charlie’s and for the entire vapor products industry.

Manufacturing and Distribution

Manufacturing

Charlie’s Product Line. We work closely with contract manufacturing partners in the United States and China to manufacture our products. Our e-liquid and NIC salts products are manufactured to meet our proprietary formula specifications in facilities that are ISO Class 7 certified, which helps ensure their purity and quality. In 2020, we added an additional supplier and sourced over 90% of our e-liquid finished goods from three manufacturers in the United States. During 2021, we launched our Pacha line of synthetic nicotine disposable vapor products, which required expansion of our vendor network. Our SBX line of products is produced through a contract manufacturing arrangement in China. The Company closely monitors the supply-chain process for SBX to ensure amble supply and quality. While we have developed long-standing relationships with our manufacturing sources and take great care to ensure that they share our commitment to quality, we do not have any long-term term contracts with these parties for the production of our product lines. We maintain redundancies in our supply chain and are aware of several alternative sources for our products.

~~-4-~~Domestic Filling Operations. During the year ended December 31, 2025, the Company opened an ENDS filling operation in Huntington Beach, California. The establishment of this domestic operation is intended to (i) reduce production costs, (ii) mitigate supply chain disruptions associated with importing finished goods, and (iii) enable Charlie’s to meet stringent domestic manufacturing requirements of Texas and other large states. The Company's Huntington Beach facility also enhances the appeal of Charlie’s premium products, broadly, to adult consumers who prefer "Made in America" brands.

-3-

Distribution

Charlie’s Product Line. ~~Once manufactured,~~ Charlie’s ~~Products~~products are ~~directly~~ distributed throughout the United States and in select ~~countries~~international ~~internationally including, United Kingdom, Italy, Spain, New Zealand, Australia, and Canada~~markets. The Company’s products are ~~carried~~sold bythrough more than 3,000 specialty retailers ~~that~~and are ~~serviced~~distributed through ~~direct~~a ~~sales~~combination ~~and through distributors and wholesalers both in the United States and internationally. While growing the base~~ of ~~specialty~~direct ~~retailers~~sales, ~~the Company has also increased distribution of products in convenience stores~~distributors, ~~liquor stores,~~ and ~~gas stations. With respect to products that Charlie’s sells through third-party distributors and~~ wholesalers~~, the Company typically sells its products to these customers for their re-sale~~. ~~In select markets Charlie’s maintains exclusive arrangements with distributors and, when warranted, will memorialize these agreements contractually.~~

In addition to expanding its base of specialty retailers, the Company has increased product placement in convenience stores, liquor stores, and gas stations. Products sold through third-party distributors and wholesalers are typically sold for resale, and in certain markets the Company maintains exclusive distribution arrangements, which may be formalized through contractual agreements.

Online Sales

Charlie’s Product Line. We do not currently sell our Charlie’s Products on an e-commerce platform. However, we market Charlie’s Products and sell branded merchandise through our websites, charlieschalkdust.com, sbxvape.com, enjoypachamama.com,and pacha.co. Charlie’s does not engage in direct-to-consumer sales.

Sales and Marketing

Charlie’s Product Line. WeThe ~~have~~Company anmaintains ~~experienced,~~a ~~nine~~U.S.-~~person~~based sales team, ~~based~~responsible infor promoting the ~~United States, that promotes our~~ Charlie’s ~~Line~~product ~~globally.~~line ~~Salespeople seek~~ to ~~form~~distributors ~~long-term “360 degree” collaborative relationships with their clients, partnering with them on sell-through efforts, providing access to our marketing~~ and creative teams, and advising and educating them on not only the Charlie’s Line but also on industry-related issues. Currently, we advertise our products primarily through customer engagement through social media channels, print media, directed internet marketing, industry tradeshows and, collaborative events with retail partners. ~~Participation at industry-specific tradeshows has traditionally played a large role~~ in ~~our~~both ~~marketing~~domestic and ~~distribution~~international ~~strategy~~markets. InOur ~~addition,~~sales ~~we have allocated resources to collaborative events; our marketing~~ team isfocuses ~~now focusing its efforts~~ on ~~fostering~~building long-term relationships with ~~key~~customers ~~distributors and retailers~~ by ~~launching~~supporting ~~customer~~product sell-~~specific~~through ~~marketing campaigns~~initiatives, ~~in-person~~coordinating ~~visits~~with toour ~~new~~marketing ~~customer accounts,~~ and ~~other~~creative ~~forms of direct customer engagement. In 2024~~teams, ~~approximately~~and ~~10%~~providing ofguidance ~~our~~on ~~sales~~product ~~were~~positioning ~~made~~and toevolving ~~customers~~industry ~~outside of the United States~~dynamics.

Industry trade shows continue to serve as an important platform for marketing and distribution efforts. In addition, the Company has increased its focus on direct engagement with distributors and retailers through targeted marketing initiatives, account visits, and collaborative promotional campaigns designed to strengthen customer relationships and to support product awareness across key markets.

Source and Availability of Raw Materials

Charlie’s Product Line. Our manufacturing partners source the ingredients ~~for~~used in our proprietary vapor products ~~from a variety of sources,~~ in accordance with ~~our~~the Company’s formulations and quality specifications. ~~The Company~~Charlie’s ~~SBX line of products is manufactured in China through collaboration with a contract manufacturer. The~~ proprietary ingredient Metatine™, (an alkaloid ~~that is~~ patented in the United States and in China by the Company’s chemical supplier), is ~~procured~~obtained through a domestic supply and distribution agreement and shipped to China tofor beuse ~~used~~ in the manufacturing process. ~~We source our proprietary e-liquids from multiple ISO Class 7 certified manufacturers in the United States~~Subsequently, ~~which helps ensure their purity and quality. Our disposable vapor products are designed in collaboration with our Chinese manufacturer; however,~~ the ~~manufacturer~~Company’s isSBX ~~responsible for procurement of all raw materials necessary to complete our purchase orders. In an effort to maintain consistency across our supply chain, we purchase directly certain~~ product ~~packaging~~line ~~and~~is ~~are~~manufactured ~~responsible~~in ~~for~~China ~~managing~~through ~~various~~a ~~third-party~~contract ~~supplier~~manufacturing ~~relationships~~relationship.

The Company sources its proprietary e-5-liquids from multiple ISO Class 7 certified manufacturers in the United States to support product quality and consistency. Our disposable vapor devices are developed in collaboration with our Chinese manufacturing partner, which is responsible for sourcing the raw materials required to fulfill our purchase orders.

Although we own the formulas for Charlie’s Products, we obtain certain components, such as packaging, flavors and certain raw materials, from third party suppliers. None of the third-party suppliers are considered to be material to the business on a standalone basis and the components are readily available from other suppliers on the market. However, given the rapid growth of the vaping, e-cigarette industries, there may be fluctuations in the availability of certain of the materials we obtain from third-parties due to high demand from our competitors. If any given supplier or distributor is lost or unavailable in a specific region, and we are unable to contract with alternative suppliers or distributors to provide the requisite service(s) and product(s), we may be unable to fulfill customer orders and our business could be materially harmed. Charlie’s SBX line of products depends on its ability to maintain a steady supply of Metatine™. Currently, the Company holds a supply and distribution agreement for the alkaloid that is Metatine™ in vapor products meant for resale in the United States. Should the availability of the alkaloid that is Metatine™ become constrained, or the Company’s supply and distribution agreement be terminated, it would significantly affect Charlie’s ability to continue selling the SBX line of products in their current form.

Competition

The industries in which we operate are highly competitive.

~~Charlie’s Product Line.~~ Our Charlie’s Product Line competes in a highly- fragmented and rapidly evolving industry. Some identifiable competitors of Charlie’s include Coastal Clouds, Juice Head, Breeze, Flum, Lost Mary, Geek Bar, and Raz. Other brands such as Juul, Vuse, Njoy, Logic, Blu, Vaporfi, Group Mark Ten, and Green Smoke all participate in a different but related segment of the electronic cigarette market which focuses heavily on distribution in national and regional chain stores (primarily convenience, gas, and grocery stores).

In the vapor products space, due to low barriers to entry, and despite FDA regulations for ~~many~~nicotine products, illicit new brands and illicit new products emerge frequently. The market is highly fragmented ~~and the barriers to entry are relatively low~~. Recently, the rapid emergence of disposable vapor products from companies such as Heaven Gifts / Elf Bar have become popular in the ENDS market. ~~Charlie’s~~In ~~new~~order to gain a competitive advantage over the illicit nicotine products, in markets where regulatory enforcement is a priority, the Company introduced SBX Disposables, a proprietary line of Metatine products. Charlie’s SBX vapor products ~~does~~do not contain compounds that meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore ~~does~~do not require FDA approval for sale in the United States. Currently, there are no known individual competitors with significant market share for this product category.

~~Part of our business strategy focuses on the establishment of relationships with distributors and prominent branding focused on performance and quality. We are aware that e~~-cigarette competitors in the industry are also seeking to enter into such relationships to try and create brand loyalty. In many cases, competitors for such relationships may have greater management, human, and financial resources than we do for attracting and maintaining distributor accounts. Furthermore, certain of our electronic cigarette competitors may have better control of their supply and distribution, and are more established, larger, and better financed than our Company.4-

We compete primarily on the basis of innovation, product quality, brand recognition, brand loyalty, service, marketing, and the development of intellectual property. We are subject to highly competitive conditions in all aspects of our business. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors’ introduction of low-priced products or innovative products, excise taxes, higher absolute costs, larger gaps between price categories, and product regulation that diminishes a company’s ability to differentiate its products.

We also compete against “Big Tobacco” – U.S. cigarette manufacturers of both conventional tobacco cigarettes and electronic cigarettes like Altria Group, Inc., Lorillard, Inc. and Reynolds American, Inc. We compete with Big Tobacco companies that offer not only conventional tobacco cigarettes and electronic cigarettes but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. Big tobacco has virtually limitless resources, existing global distribution networks, and a customer base that is fiercely loyal to their brands. Furthermore, we believe that Big Tobacco will devote more attention and resources to developing and offering electronic cigarettes as the market for electronic cigarettes continues to grow. Because of their well-established sales and distribution channels, marketing expertise, and significant resources, Big Tobacco companies may be better positioned than small competitors like Charlie’s to capture a larger share of the electronic cigarette market.

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Intellectual Property

Patents and Trademarks

We are the registered owner of a several federal trademarks for our Charlie’s lines. We also maintain registrations in several international markets and will work with our international distributors to manage intellectual property and trademark registrations when necessary.

We plan to continue to expand our brand names and our proprietary trademarks and designs worldwide as our business grows and plan to seek patent and/or trademark protection as we deem appropriate.

Age-Gating Device Licensing ~~Agreements~~Agreement

~~Don~~Under ~~Polly.~~our On April 25, 2019, the Company and Charlie’s entered into a Licensing Agreement with Don Polly. Don Polly is classified as a variable interest entity for which the Company is the primary beneficiary and is owned by an entity controlled by Ryan Stump, the Company’s Chief Operating Officer. Pursuant to the Licensing Agreement, Charlie’s provides Don Polly with a limited right and license toagreement ~~use certain of Charlie’s intellectual property rights, including certain trademarks, copyrights and original artwork, in connection~~ with ~~certain of Don Polly’s branded products. In exchange for such license~~IKE, ~~Don~~we ~~Polly~~will ~~(i)~~provide ~~pays~~its ~~Charlie’s~~proprietary ~~monthly~~Bluetooth ~~royalties~~Low ~~amounting~~Energy ~~to 75% of its net profits,~~ (ii“BLE”) ~~uses~~chips ~~its best efforts to market, promote~~ and ~~advertise~~develop ~~its~~a ~~products~~customized, ~~(iii)~~white-labeled ~~provides~~web ~~Charlie’s~~application ~~with~~specifically ~~most~~designed ~~favored~~for ~~nations~~our ~~pricing~~devices. inThe ~~the~~technology ~~event~~builds ~~that~~on ~~Charlie’~~IKE's ~~wishes~~FDA-submitted ~~to sell products sold by Don Polly~~platform, ~~(iv)~~which ~~provide~~achieved ~~Charlie’s~~effectiveness ~~with~~in ~~the~~clinical ~~exclusive~~validation ~~right~~studies ofat ~~first~~preventing ~~refusal~~underage toactivation. ~~purchase~~The ~~Don~~agreement ~~Polly,~~includes ~~including~~a ~~all~~limited ofexclusivity ~~its~~period ~~assets and liabilities,~~ for aour ~~purchase~~nicotine ~~price~~analogue ofline ~~$111,618 on or before December 31, 2025,~~ and ~~(v)~~allows ~~will~~integration ~~not~~into ~~license~~our ~~any~~FDA-regulated ~~intellectual~~ENDS ~~property from any other source other than Charlie’s in connection with its design, manufacture, advertisement, promotion distribution, and sale of certain products within the agreed upon territory~~devices. ~~The Licensing Agreement will continue in perpetuity unless terminated in accordance with its terms.~~

Concurrently with the execution of the Licensing Agreement, Charlie’s and Don Polly also entered into a Services Agreement (the “Services Agreement”), pursuant to which Charlie’s provides certain services to Don Polly, including, without limitation, (i) the development and creation of Don Polly’s sales, marketing, brand development, and customer service strategies and (ii) performing sales, branding, marketing, and other business functions at the request of Don Polly. Charlie’s will perform such services in the capacity of a contractor, and all materials and work product created by Charlie’s in its capacity as such will be the property of Don Polly. As consideration for the Services provided by Charlie’s, Don Polly (i) pays Charlie’s 25% of its net profits on a quarterly basis, and (ii) reimburse Charlie’s for all out-of-pocket business expenses that are preapproved in writing by Don Polly. The Services Agreement will continue in perpetuity unless terminated in accordance with its terms.

Government Regulations

Nicotine Products

The U.S. tobacco industry faces a number of business and legal challenges that have materially adversely affected and may continue to materially adversely affect our business and results of operations, including:

●

restrictions and requirements imposed by the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”), and restrictions and requirements (and related enforcement actions) that have been, and in the future will be, imposed by the FDA;

●

actual and proposed excise tax increases;

●

bans and restrictions on tobacco use imposed by governmental entities and private establishments and employers;

●

other federal, state and local government actions, including:

○

restrictions on the sale of certain tobacco products, the sale of tobacco products by certain retail establishments, the sale of tobacco products with characterizing flavors and the sale of tobacco products in certain package sizes;

○

additional restrictions on the advertising and promotion of tobacco products;

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○

other actual and proposed tobacco-related legislation and regulation;

○

reductions in consumption levels of nicotine products;

●

increased efforts by tobacco control advocates and other private sector entities (including retail establishments) to further restrict the availability and use of tobacco products and

●

additional regulation over synthetic nicotine products and/or nicotine analogues.

FSPTCA and FDA Regulation

The FSPTCA, its implementing regulations and its 2016 deeming regulations establish broad FDA regulatory authority over all tobacco products and, among other provisions:

○

impose restrictions on the advertising, promotion, sale and distribution of tobacco products (see Final Tobacco Marketing Rule below);

○

establish pre-market review pathways for new and modified tobacco products;

○

prohibit any express or implied claims that a tobacco product is or may be less harmful than other tobacco products without FDA authorization;

○

authorize the FDA to impose tobacco product standards that are appropriate for the protection of the public health; and

○

equip the FDA with a variety of investigatory and enforcement tools, including the authority to inspect product manufacturing and other facilities.

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The FSPTCA also bans descriptors such as “light,” “low” or “mild” when used as descriptors of modified risk, unless expressly authorized by the FDA.

In March 2022, the U.S. Congress expanded the statutory definition of tobacco products to include products containing nicotine derived from any source, including synthetic nicotine. The amendment became effective in April 2022.

Final Tobacco Marketing Rule: As required by the FSPTCA, in March 2010, the FDA promulgated a wide range of advertising and promotion restrictions for cigarettes and smokeless tobacco products (the “Final Tobacco Marketing Rule”). The May 2016 deeming regulations amended the Final Tobacco Marketing Rule to expand specific provisions to all tobacco products, including cigars, pipe tobacco, and e-vapor and oral nicotine products containing tobacco-derived nicotine or other tobacco derivatives.

The Final Tobacco Marketing Rule, as amended, among other things:

	○	restricts the use of non-tobacco trade and brand names on cigarettes and smokeless tobacco products;
	○	prohibits sampling of all tobacco products except that sampling of smokeless tobacco products is permitted in qualified adult-only facilities;
	○	prohibits the sale or distribution of items such as hats and tee shirts with cigarette or smokeless tobacco brands or logos;
	○	prohibits cigarettes and smokeless tobacco brand name sponsorship of any athletic, musical, artistic or other social or cultural event, or any entry or team in any event; and
	○	requires the development by the FDA of graphic warnings for cigarettes, establishes warning requirements for other tobacco products, and gives the FDA the authority to require new warnings for any type of tobacco product.

Subject to certain limitations arising from legal challenges, the Final Tobacco Marketing Rule took effect in June 2010 for cigarettes and smokeless tobacco products, in August 2016 for all other tobacco products, including e-vapor and oral nicotine pouch products containing tobacco-derived nicotine, and in April 2022 for tobacco products, including e-vapor and oral nicotine pouch products, that contain synthetic nicotine.

Rulemaking and Guidance: From time to time, the FDA issues proposed regulations and guidance, which may be issued in draft or final form, generally involve public comment, and may include scientific review. The FDA’s implementation of the FSPTCA and related regulations and guidance also may have an impact on enforcement efforts by states, territories and localities of their laws and regulations. Such enforcement efforts may adversely affect our operating companies’ ability to market and sell regulated tobacco products in those states, territories and localities.

FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation: In July 2017, the FDA announced a “Comprehensive Plan for Tobacco and Nicotine Regulation” (“Comprehensive Plan”) designed to strike a balance between regulation and encouraging the development of innovative tobacco products that may be less risky than cigarettes. Since then, the FDA has issued additional information about its Comprehensive Plan in response to concerns associated with the rise in the use of e-vapor products by youth and the potential youth appeal of flavored tobacco.

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Pre-Market Review Pathways for Tobacco Products and Market Authorization Enforcement: The FSPTCA permits the sale of tobacco products on the market as of February 15, 2007 and not subsequently modified (“Pre-existing Tobacco Products”) and new or modified products authorized through the pre-market tobacco application (“PMTA”), Substantial Equivalence (“SE”) or SE Exemption pathways. Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products. Through these processes, a manufacturer could receive (i) a “not substantially equivalent” determination, (ii) a denial of a PMTA or (iii) a marketing order withdrawal by the FDA on one or more products, which would require the removal of the product or products from the market.

Since there were virtually no e-liquid, e-cigarettes or other vaping products on the market as of February 15, 2007, there is no way to utilize the less onerous substantial equivalence or substantial equivalence exemption pathways that traditional tobacco corporations can utilize for conventional tobacco products. In order to obtain premarket approval, practically all e-liquid, e-cigarettes or other vaping products would have to follow the PMTA pathway which would cost hundreds of thousands of dollars per application. Upon submission of a PMTA, such products would be permitted to be sold pending the FDA’s review of the submitted PMTAs.

During the quarter ended September 30, 2020, the FDA’s Center for Tobacco Products informed us that our PMTA received a valid submission tracking number, passed the FDA’s filing review phase, and entered the substantive review phase.

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 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 (“RTA”) certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. On March 6, 2023, the Company filed a request for supervisory review with FDA's Center for Tobacco Products and resubmitted PMTAs for the affected synthetic nicotine products. On October 30, 2023, the Company received notification from the FDA that its supervisory review appeal had been granted. Accordingly, the FDA rescinded the RTAs, notified the Company that Acceptance Letters for the PMTAs would be issued, and placed our applications into filing review. The Company continues to sell the affected products while we wait for the FDA to grant marketing orders for our numerous PMTAs.

To date, the FDA has received PMTAs for nearly 27 million Electronic Nicotine Delivery System (“ENDS”1) products and has made determinations on more than 99% of the applications. However, the FDA has authorized ~~fewer~~only ~~than~~39 ~~three dozen~~ tobacco- and menthol-flavored e-cigarette products and devices. At present, no company in the world has received an FDA marketing order for a flavored (non-tobacco or non-menthol) disposable vape product. In this environment, many unauthorized products continue to be sold. In fact, the FDA Center for Tobacco Products estimates that more than half of the U.S. e-cigarette market is illicit.

As of December 31, 2024, Charlie’s has received Acceptance Filings for more than 650 of its PMTA submissions. Since 2020 the Company has invested more than $6.5MM on a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create Charlie’s PMTA submissions. Charlie’s believes its applications are among the most robust and comprehensive in the entire industry. As recently as December 2024, Charlie’s invested more than $1MM to amend and further strengthen certain of the Company’s applications.

During the fourth quarter of 2024 the Company began to introduce to stores in select markets a new disposable vape line, 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 verified 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.

Because the product does not contain nicotine, SBX is also not subject to sales restrictions in some states that have implemented “flavor bans” on ENDS products. Notably, SBX is currently not subject to the New York State vapor product flavor ban because it is not a “flavored vapor product” as defined in Article 13-F of New York State’s Public Health Law. According to NYS Public Health Law § 1399-mm-1, a “flavored” vapor product is defined, in pertinent part, as “any vapor product intended or reasonably expected to be used with or for the consumption of nicotine ….” As such, because SBX is a closed, non-refillable zero-nicotine product and is not intended or reasonably expected to be used with or for the consumption of nicotine, it is not subject to the flavored vapor product ban in New York State.

¹ ENDS are defined as battery-powered devices, also known as an e-cigarettes or “vapes,” that deliver nicotine to users through aerosolized solutions. In order for ENDS to be sold legally in the United States, the products must receive marketing authorization through the FDA’s PMTA pathway; FDA marketing authorizations require that PMTAs provide sufficient evidence that new products offer greater benefits to population health than risks.

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On October 28, 2025, we received Marketing Denial Orders (“MDOs”) from the U.S. Food and Drug Administration (“FDA”) with respect to certain of our timely submitted Premarket Tobacco Product Applications (“PMTAs”). On November 5, 2025, we filed an emergency motion for a temporary administrative stay with the U.S. Court of Appeals for the Fifth Circuit, which the Court granted on November 10, 2025. On December 24, 2025, a Fifth Circuit panel granted our motion to stay the MDOs pending judicial review. As a result of the stay, the affected PMTAs revert to pending status and continue to be treated as timely filed (May 2022) while the case is litigated on the merits. Accordingly, the subject products remain eligible, where permitted by state law, for listing on state vapor product directories (e.g., Louisiana) that allow the sale of products associated with timely submitted synthetic-nicotine PMTAs that are pending FDA’s review, subject to satisfaction of all other applicable state requirements. We plan to continue to vigorously defend our PMTAs and on the merits while also continuing to amend our applications with the latest science.

During the fourth quarter of 2024 the Company began to introduce to stores in select markets a new disposable vape line, under the “SBX™” brand. The Company and its attorneys believe SBX products are not subject to FDA PMTA 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 Charlie’s 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 verified 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.

FDA Regulatory Actions

○

Graphic Warnings: In March 2020, the FDA issued a final rule requiring 11 textual warnings accompanied by color graphics depicting certain negative health consequences of smoking on cigarette packaging and advertising. The final rule was set to become effective on October 6, 2023. In December 2022, the U.S. District Court for the Eastern District of Texas found in favor of cigarette manufacturers in one such suit and blocked the rule, finding it unconstitutional on the basis that it compelled speech in violation of the First Amendment. The FDA has appealed the decision.

○

Underage Access and Use of Certain Tobacco Products: The FDA announced regulatory actions in September 2018 to address underage access and use of e-vapor products. Additionally, the FDA issued final guidance in April 2020, stating that it intends to prioritize enforcement action against certain product categories, including cartridge-based, flavored e-vapor products and products targeted to minors.

○

Potential Product Standards

○

Nicotine in Cigarettes and Other Combustible Tobacco Products: In March 2018, the FDA issued an ANPRM seeking comments on the potential public health benefits and any possible adverse effects of lowering nicotine in combustible cigarettes to non-addictive or minimally addictive levels. In January 2023, the Biden Administration published its Fall 2022 Unified Regulatory Agenda, which includes the FDA’s plans to propose, by October 2023, a product standard that would establish a maximum nicotine level in cigarettes and other combustible tobacco products.

○

Flavors in Tobacco Products: In April 2022, the FDA issued two proposed product standards: (i) banning menthol in cigarettes and (ii) banning all characterizing flavors (including menthol) in cigars.

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Excise Taxes

Tobacco products are subject to substantial excise taxes in the United States. Significant increases in tobacco-related taxes or fees have been proposed or enacted (including with respect to e-vapor products) and are likely to continue to be proposed or enacted at the federal, state and local levels within the United States. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies.

International Treaty on Tobacco Control

The World Health Organization’s Framework Convention on Tobacco Control (the “FCTC”) entered into force in February 2005. The FCTC is the first international public health treaty and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. The treaty recommends (and in certain instances, requires) signatory nations to enact legislation that would address various tobacco-related issues. There are a number of proposals currently under consideration by the governing body of the FCTC, some of which call for substantial restrictions on the manufacture, marketing, distribution and sale of tobacco products.

Other International, Federal, State and Local Regulation

Various states and localities have enacted or proposed legislation that imposes restrictions on tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor products and oral nicotine pouches), such as legislation that (i) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (ii) prohibits the sale of tobacco products with characterizing flavors, such as menthol cigarettes and flavored e-vapor products, (iii) requires the disclosure of health information separate from or in addition to federally mandated health warnings and (iv) restricts commercial speech or imposes additional restrictions on the marketing or sale of tobacco products. The legislation varies in terms of the type of tobacco products, the conditions under which such products are or would be restricted or prohibited, and exceptions to the restrictions or prohibitions. For example, a number of proposals involving characterizing flavors would prohibit smokeless tobacco products with characterizing flavors. The legislation in California, which became effective in December 2022, bans the sale of most tobacco products with characterizing flavors. Massachusetts passed legislation capping the amount of nicotine in e-vapor products. Similar legislation is pending in other states.

It is not possible to predict what, if any, additional legislation, regulation, or other governmental action will be enacted or implemented (and, if challenged, upheld) relating to the manufacturing, design, packaging, marketing, advertising, sale or use of tobacco products, or the tobacco industry generally. Any such legislation, regulation or other governmental action could have a material adverse impact on our business, results of operations, cash flows or financial position.

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Company’s efforts to mitigate risks associated with new and evolving regulation

The Company is consistent in its efforts to remain in compliance with all existing and reasonably expected future regulations. The Company, through its internal compliance team, market consultants, technicians, and testing labs plans to stay in accordance with all standards whether set forth in the New Tobacco Products Directive or the Deeming Regulations. Making sure that all vapor products meet and exceed the standards set forth by each market’s regulatory body is of the highest concern for the Company. Staying in compliance with all marketing and packaging directives is imperative to maintaining access to the markets. Although these processes are costly and time consuming, it is imperative for the Company’s success that these steps are taken and kept up to date. These regulations may limit our ability to enter certain markets outside the U.S. Similar to the costs of regulatory compliance in the U.S., foreign regulations require significant financial and operational resources to ensure compliance, and we cannot assure that we will always be in compliance despite our best efforts to do so. Failure to comply in a timely fashion to any particular directive or regulation could have material adverse effects on the results of business operations.

Research and Development

~~Our~~The Company’s research and development activities ~~consist~~include ofthe development and testing of new flavors, formulations, product formats, and delivery methods for ~~our~~ existing products, as well as the development of new products ~~for~~within the Charlie’s ~~Product~~product ~~Line~~line. ~~Costs~~Research ~~related to the completion~~ and ~~submission of PMTAs to the FDA also constitute research and~~ development activities. ~~For~~also ~~the~~include ~~years~~costs ~~ended~~associated ~~December~~with ~~31,~~preparing ~~2024,~~ and ~~2023,~~submitting ~~respectively,~~Premarket ~~research~~Tobacco ~~and~~Product ~~development~~Applications ~~costs~~(PMTAs) ~~primarily~~to ~~consisted~~the ofU.S. ~~product~~Food ~~development~~ and ~~testing~~Drug ~~fees~~Administration.

For the years ended December 31, ~~2024~~2025 and ~~2023~~2024, Charlie’s recorded research and development ~~income~~expense of $68119,000 and ~~expense~~income of $~~169~~68,000, respectively.

Employees

We had 2635 full-time employees ~~across Charlie’s Holdings Inc., Charlie’s Chalk Dust LLC and Don Polly LLC~~ as of March 31, ~~2025~~2026. We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employees are represented by labor unions.

Cost of Compliance with Environmental Laws

We have not incurred any costs associated with compliance with environmental regulations, nor do we anticipate any future costs associated with environmental compliance; however, no assurances can be given that we will not incur such costs in the future.

Available Information

As a public company, we are required to file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and other information (including any amendments) with the SEC. You can also find the Company’s SEC filings at the SEC’s website at www.sec.gov.

We are a Nevada corporation originally incorporated in 2001. Our principal executive offices are located at 1007 Brioso Drive, Costa Mesa, CA 92627 and our phone number is (949) 531-6855. Our Internet address is www.charliesholdings.com. Information contained on our website is not part of this Annual Report on Form 10-K. Our SEC filings (including any amendments) will be made available free of charge on www.charliesholdings.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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ITEM 1A. RISK FACTORS

WeYou ~~are~~should ~~subject~~carefully toconsider ~~various~~the ~~risks~~risk factors set forth below and in other reports that ~~could~~we ~~have~~file afrom ~~negative~~time ~~effect~~to ontime with the ~~Company~~Securities and ~~its~~Exchange ~~financial~~Commission ~~condition~~and the other information in this Annual Report on Form 10-K. ~~These~~The matters discussed in the risk factors, and additional risks ~~could~~and ~~cause~~uncertainties ~~actual~~not ~~operating~~currently ~~results~~known to ~~differ~~us ~~from~~or ~~those~~that ~~expressed~~we incurrently ~~certain~~deem ~~“forward~~immaterial, ~~looking~~could ~~statements”~~have ~~contained~~a inmaterial ~~this~~adverse ~~Annual~~effect ~~Report~~ on ~~Form~~our ~~10-K~~business, asfinancial ~~well~~condition, asresults inof ~~other~~operation ~~communications~~and future growth prospects and could cause the trading price of our common stock to decline.

Risks Related to the Company

Our ability to achieve and maintain positive cash flow is uncertain.

Although Charlie’s generated net revenue of approximately $820.59 million during the year ended December 31, ~~2024~~2025 and $167.38 million for the year ended December 31, ~~2023~~2024, there can be no guarantee that the Company will grow revenue or achieve positive cash flow in the future. Cash used in operating activities from continuing operations was approximately $1.6.3 million and $02.80 million during the years ended December 31, ~~2024~~2025 and ~~2023~~2024, respectively. Generating positive cash flows in the future will depend on our ability to successfully create, sell, market, and finance nicotine, nicotine alternative, and other alternative products. There is no guarantee that we will be able to achieve or sustain positive cash flows and profitability in the future. Our inability to successfully achieve positive cash flows and profitability will decrease our long-term viability and prospects.

We have limited cash resources and may require additional financing.

As of December 31, 2024, we had working capital deficit of approximately $1.8 million, which consisted of current assets of approximately $3.5 million and current liabilities of approximately $5.3 million. If needed, our ability to obtain additional financing will be subject to many factors, including market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price, and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. These conditions lead the Company to conclude there is substantial doubt about our ability to continue as a going concern. 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.

As of December 31, 2024, the Company has substantial doubt about its 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. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States. There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application. The issuance of one or several Marketing Denial Orders (“MDOs”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables. These regulatory risks, as well as other industry-specific challenges and our low working capital and cash position, remain factors that lead the Company to conclude that there is substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations.

If we are unable to generate 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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Our products could fail to attract or retain users or generate revenue and profits.

Our ability to develop, increase, and engage our customer base and to increase our revenue depends heavily on our ability to continue to evolve our existing products and to create successful new products, both independently and in conjunction with developers or other third parties. We may introduce significant changes to our existing products or acquire or introduce new and unproven products, including using technologies with which we have little or no prior development or operating experience. If new or enhanced products fail to engage our customers, or if we are unsuccessful in our monetization efforts, we may fail to attract or retain customers or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely affected.

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

We currently depend on the continued services and performance of key members of our management team, particularly Ryan Stump, one of Charlie’s founders and our Chief Operating Officer, and Henry Sicignano III, our President. If we cannot call upon them or other key management personnel for any reason, our operations and development could be harmed. We have not yet developed a succession plan. Furthermore, as we grow, we will be required to hire and attract additional qualified professionals such as accounting, legal, finance, production, marketing and sales experts. We may not be able to locate or attract qualified individuals for such positions, which will affect our ability to grow and expand our business.

We rely on contractual arrangements with Don Polly, our consolidated variable interest entity for some of ourbusiness operations, which may not be as effective as direct ownership in providing operational control.-9-

We have relied and expect to continue to rely on contractual arrangements with Don Polly and its shareholder, an entity controlled by Ryan Stump, for the operation of some of our operations. These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated variable interest entity. For example, Don Polly and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of Don Polly, we would be able to exercise our rights as a shareholder to effect changes in the board of directors of Don Polly, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by Don Polly, and its shareholders of their obligations under the contracts. The shareholders of Don Polly may not act in the best interests of our Company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to operate our business through the contractual arrangements with Don Polly. Therefore, our contractual arrangements with Don Polly, our consolidated variable interest entity (“VIE”), may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

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

The equity interests of Don Polly, our consolidated VIE, are held by an entity controlled by Ryan Stump, the Company’s Chief Operating Officer and a member of our Board of Directors. Their interests in Don Polly may differ from the interests of our company as a whole. These shareholders may breach, or cause Don Polly to breach, the existing contractual arrangements we have with them and Don Polly, which would have a material adverse effect on our ability to effectively control Don Polly and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with Don Polly to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor.

-14-

Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and the Company. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Don Polly, we would have to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

We have no commercial manufacturing capacity and rely on third-party contract manufacturers to produce commercial quantities of our products.

We do not have the facilities, equipment or personnel to manufacture commercial quantities of our products and therefore must rely on qualified third-party contract manufactures with appropriate facilities and equipment to contract manufacture commercial quantities of products. Any performance failure on the part of our contract manufacturers could delay commercialization of any of our products, depriving us of potential product revenue.

Failure by our contract manufacturers to achieve and maintain high manufacturing standards could result in product recalls or withdrawals, delays or failures in testing or delivery, cost overruns or other problems that could materially adversely affect our business. Contract manufacturers may encounter difficulties involving production yields, quality control and quality assurance. If for some reason our contract manufacturers cannot perform as agreed, we may be required to replace them. Although we believe there are a number of potential replacements, we may incur added costs and delays in identifying and obtaining any such replacements.

The inability of a manufacturer to ship orders of our products in a timely manner or to meet quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect as our revenue would decrease and we would incur net losses as a result of sales of the product, if any sales could be made.

We are subject to cyber-security risks, including those related to customer, employee, vendor or other company data and including in connection with integration of acquired businesses and operations.

We use information technologies to securely manage operations and various business functions. We rely on various technologies, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including reporting on our business and interacting with customers, vendors and employees. In addition, we collect and store certain data, including proprietary business information, and may have access to confidential or personal information that is subject to privacy and security laws, regulations and customer-imposed controls. Our systems are subject to repeated attempts by third parties to access information or to disrupt our systems. Despite our security design and controls, and those of our third-party providers, we may become subject to system damage, disruptions or shutdowns due to any number of causes, including cyber-attacks, breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, service providers, natural disasters or other catastrophic events. It is possible for such vulnerabilities to remain undetected for an extended period. We may face other challenges and risks as we upgrade and standardize our information technology systems as part of our integration of acquired businesses and operations. We have contingency plans in place to prevent or mitigate the impact of these events, however, these events could result in operational disruptions or the misappropriation of sensitive data, and depending on their nature and scope, could lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions and exposure to liability. Such disruptions or misappropriations and the resulting repercussions, including reputational damage and legal claims or proceedings, may adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock.

-15-

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

Although our operations are based in the United States, we conduct business outside of the United States and expect to continue to do so in the future. Any business that we conduct outside of the United States is subject to additional risks that may have a material adverse effect on our ability to continue conducting business in certain international markets, including, without limitation:

●

Potentially reduced protection for intellectual property rights;

●

Unexpected changes in tariffs, trade barriers and regulatory requirements;

●

Economic weakness, including inflation or political instability, in particular foreign economies and markets;

●

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

●

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

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

A future outbreak of COVID-19 or another pandemic could adversely affect our business.

In the event of a pandemic, epidemic or outbreak of an infectious disease, such as the recent COVID-19 pandemic, our business may be adversely affected. Such events may result in a period of business and travel disruption, and in reduced sales and operations, any of which could materially affect our business, financial condition and results of operations. For example, the spread of COVID-19 in the United States resulted in travel restrictions that impacted our sales professionals and caused disruptions to our manufacturing supply chain. These conditions previously negatively affected our sales and revenue. However, if another outbreak of COVID-19 or another pandemic occurs, it could have an adverse impact on our business.

The extent to which COVID-19 or another pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted.

Regulatory and Market Risks

Our business is primarily involved in the sales of products that contain nicotine, or alternative alkaloids, ~~and/or hemp-derived ingredients,~~ all of which face significant regulation and actions that may have a material adverse effect on our business.

Our current business is primarily the sale of products that contain nicotine or alternative alkaloids. The general market in which our products are sold faces significant governmental and private sector actions, including efforts aimed at reducing the incidence of use in minors and efforts seeking to hold the makers and sellers of these products responsible for the adverse health effects associated with them. More broadly, new regulatory actions by the FDA and other federal, state or local governments or agencies, may impact the consumer acceptability of or access to our products, including regulations promulgated by the FDA which will require us to file PMTA(s) for any of our products that are identified as “Deemed Tobacco Products” by the FDA. Additionally, on January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA. Any ban on flavored e-cigarettes, or similar enforcement action by the FDA, or any order by the FDA requiring us to cease selling any of our products, would have a significant adverse impact on Charlie’s products, which would, in turn, have a material adverse impact on our overall business material.

-1610-

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

We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar other constraints, which can make compliance costly and subject us to enforcement actions by governmental agencies.

The formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising and sale of our products are affected by extensive laws, governmental regulations and policies, administrative determinations, court decisions and similar constraints at the federal, state and local levels, both within the United States and in any country where we conduct business. Moreover, the current trend is toward increasing regulation of the tobacco industry and vapor products alike, which is likely to differ between the various U.S. states in which we currently conduct the majority of our business. Extensive and inconsistent regulation by multiple states and at different governmental levels could prove to be particularly disruptive to our business as we may be unable to accommodate such regulations in a cost-effective manner that allows us to continue to compete in an economically viable way. Regulations are often introduced without the tobacco industry’s input and have been a significant reason behind reduced industry sales volumes and increased illicit trade.

There can be no assurance that we, or our independent distributors, will be in compliance with all of these regulations. A failure by us or our distributors to comply with these laws and regulations could lead to governmental investigations, civil and criminal prosecutions, administrative hearings and court proceedings, civil and criminal penalties, injunctions against product sales or advertising, civil and criminal liability for us and/or our principals, bad publicity, and tort claims arising out of governmental or judicial findings of fact or conclusions of law adverse to us or our principals. In addition, the adoption of new regulations and policies or changes in the interpretations of existing regulations and policies may result in significant new compliance costs or discontinuation of product sales, and may adversely affect the marketing of our products, resulting in decreases in revenue.

In 1986, federal legislation was enacted regulating smokeless tobacco products (including dry and moist snuff and chewing tobacco) by, among other things, requiring health warnings on smokeless tobacco packages and prohibiting the advertising of smokeless tobacco products on media subject to the jurisdiction of the Federal Communications Commission (“FCC”). Since 1986, other proposals have been made at the federal, state, and local levels for additional regulation of tobacco products. It is likely that additional proposals will be made in the coming years. For example, the Prevent All Cigarette Trafficking Act (“PACT Act”) initially prohibited the use of the U.S. Postal Service to mail cigarette and smokeless tobacco products and also amended the Jenkins Act, which established cigarette sales reporting requirements for state excise tax collection, to require individuals and businesses that make interstate sales of certain cigarette or smokeless tobacco comply with state tax laws. The PACT Act was recently amended expanding the definition of “cigarette” to include “electronic nicotine delivery systems,”(“ENDS”), and requires that the United States Postal Service (“USPS”) promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS. This amendment to the PACT Act applies to certain products manufactured and sold by the Company, which has impacts at the federal and state levels. Failure to comply with the PACT Act could result in significant financial or criminal penalties. To the extent we are unable to respond to, or comply with, these new requirements, there could be a material adverse effect on our business, results of operations and financial condition.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “Tobacco Control Act”) granted the FDA regulatory authority over tobacco products. The Act also amended the Federal Cigarette Labeling and Advertising Act, which governs how cigarettes can be advertised and marketed, as well as the Comprehensive Smokeless Tobacco Health Education Act (“CSTHEA”), which governs how smokeless tobacco can be advertised and marketed. In addition to the FDA and FCC, we are subject to regulation by numerous other federal agencies, including the Federal Trade Commission (“FTC”), the Department of Justice (“DOJ”), the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), the U.S. Environmental Protection Agency (“EPA”), the U.S. Department of Agriculture (“USDA”), the Consumer Product Safety Commission (“CPSC”), the U.S. Customs and Border Protection (“CBP”) and the U.S. Center for Disease Control and Prevention’s (“CDC”) Office on Smoking and Health. There have also been adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry, which we believe have received widespread public attention. The FDA has, and other governmental entities have, expressed concerns about the use of flavors in tobacco products and an interest in significant regulation of such use, up to and including de facto bans in certain products. There can be no assurance as to the ultimate content, timing or effect of any regulation of tobacco products by governmental bodies, nor can there be any assurance that potential corresponding declines in demand resulting from negative media attention would not have a material adverse effect on our business, results of operations and financial condition.

~~Recently~~The ~~enacted legislative changes to the~~ Federal Food, Drug and Cosmetic Act could materially affect sales of our Pacha branded products, and if we do not receive acceptance filings from the FDA for these products, we will not be able to market them which could materially affect our revenue and financial results.

During, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company filed a PMTA for its existing synthetic nicotine products marketed under the Pacha brand before May 14, 2022. If the PMTA is ultimately unsuccessful, or if the FDA issues a warning letter, or takes other action against the Company resulting in us not being able to distribute our Pacha branded products in the United States, our revenues and, thereby our financial results and condition, could be materially adversely affected.

-1711-

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

The “Deeming Regulations” issued by the FDA in May 2016 require any e-liquid, e-cigarettes, and other vaping products considered to be Deemed Tobacco Products that were not commercially marketed as of the grandfathering date of February 15, 2007, to obtain premarket approval by the FDA before any new e-liquid or other vaping products can be marketed in the United States. However, any Deemed Tobacco Products such as certain products from our Charlie’s Chalk Dust product lines that were on the market in the United States prior to August 8, 2016 had a grace period to continue to market such products, that ended on September 9, 2020, whereby a premarket application, likely though the PMTA pathway, must have been filed with the FDA. Upon submission of a PMTA, products are able to be marketed pending the FDA’s review of the submission. Without obtaining marketing authorization by the FDA prior to the September 9, 2020 deadline, or having submitted a PMTA by such date, non-authorized products would be required to be removed from the market in the United States until such authorization could be obtained, although such products could continue to be sold if a PMTA was pending as of the September 9, 2020 deadline.

As at the date of this Report, we have submitted PMTAs for certain of our nicotine vapor products, including, but not limited to menthol and/or tobacco products. The costs to date associated with ~~the~~these ~~assistance~~PMTAs ofare ~~Avail,~~approximately ~~pursuant~~$6.5 tomillion ~~the~~in ~~terms~~total. ofOn ~~the~~October ~~Avail~~28, ~~Agreement~~2025, aswe ~~well~~received ~~other~~Marketing ~~vendors~~Denial toOrders ~~assist~~(“MDOs”) from the FDA with respect to certain of our ~~May~~timely 13submitted PMTAs. On November 5, ~~2022~~2025, ~~submissions.~~we ~~The~~filed ~~costs~~an toemergency ~~date~~motion ~~associated~~for ~~with~~a ~~these~~temporary ~~PMTAs~~administrative ~~are~~stay ~~approximately~~with $6the U.5S. ~~million~~Court inof ~~total.~~Appeals Iffor ~~any~~the ~~PMTA~~Fifth ~~submitted~~Circuit, bywhich the ~~Company~~Court isgranted ~~denied~~on November 10, we2025. ~~will~~On beDecember ~~required~~24, 2025, a Fifth Circuit panel granted our motion to ~~cease~~stay the ~~marketing~~MDOs ~~and~~pending ~~distribution~~judicial ofreview. ~~such~~As ~~Charlie’s~~a ~~products,~~result ~~which,~~of inthe ~~turn~~stay, ~~would~~the ~~have~~affected aPMTAs ~~material~~revert ~~adverse~~to ~~effect~~pending status and continue to be treated as timely filed (May 2022) while the case is litigated on the ~~Company’s~~merits. ~~business~~Accordingly, ~~results~~the ofsubject ~~operations~~products ~~and~~remain ~~financial~~eligible, ~~condition.~~where ~~Furthermore~~permitted by state law, ~~there~~for ~~can~~listing beon nostate ~~assurance~~vapor product directories (e.g., Louisiana) that ifallow the ~~Company~~sale ~~were~~of toproducts ~~complete~~associated awith ~~PMTA~~timely ~~for~~submitted ~~any~~synthetic-nicotine ofPMTAs ~~the~~that ~~affected~~are ~~Charlie~~pending FDA’s ~~products~~review, ~~that~~subject ~~any~~to ~~application~~satisfaction ~~would~~of beall ~~approved~~other byapplicable ~~the~~state ~~FDA~~requirements. ~~and~~We ~~any~~plan ~~non-approval~~to ~~would~~continue ~~require~~to usvigorously todefend ~~remove~~our ~~products~~PMTAs ~~from~~and on the ~~marketplace,~~merits ~~which~~while ~~would~~also ~~have~~continuing anto ~~adverse~~amend ~~impact~~our onapplications ~~our~~with ~~business~~the latest science.

If any PMTA submitted by the Company is denied, we will be required to cease the marketing and distribution of such Charlie’s products, which, in turn, would have a material adverse effect on the Company’s business, results of operations and financial condition. Furthermore, there can be no assurance that if the Company were to complete a PMTA for any of the affected Charlie’s products, that any application would be approved by the FDA and any non-approval would require us to remove products from the marketplace, which would have an adverse impact on our business.

The regulation of SBX by the FDA or others could materially adversely affect us.

We recently launched new disposable vape products, under the “SBX™” brand, that we expect will (i) replace most of our legacy products and (ii) become the single largest, most important commercial opportunity our history. As SBX is not made from or derived from tobacco, we believe that SBX products are not subject to regulation as “tobacco products” under 21 U.S.C. § 321(rr). In the event that our SBX products were to be deemed by the FDA to be “tobacco products” or if the FDA or another regulatory authority were to otherwise assume regulatory control of such products, we could be required to cease selling such products (including recalling existing products), subject to an enforcement action or otherwise be required to comply with various regulations that could be expensive. 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 require us to remove our products from the market and to cease selling them. As a result, any regulation over SBX could material adversely affect us.

Certain of our products contain nicotine or Metatine which are considered to be highly addictive substances.

Certain of our products contain nicotine or Metatine, chemicals found in cigarettes, e-cigarettes, certain other vapor products and other tobacco products, which are considered to be highly addictive. Though the FDA does not currently have regulatory jurisdiction over Metatine, the Family Smoking Prevention and Tobacco Control Act empowers the FDA to regulate the amount of nicotine found in vapor products. Any new FDA regulation over nicotine may require us to reformulate, recall, and/or discontinue certain of the products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, financial condition, results of operations, cash flows and or future prospects.

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

On January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA. There has been increasing activity on the state and local levels with respect to scrutiny of Charlie’s products, and many states, provinces, and some cities have passed laws restricting or banning the sale of e-cigarettes and certain other nicotine vaporizer products, including flavored e-liquids. State and local governmental bodies across the U.S. have indicated Charlie’s products may become subject to new laws and regulations at the state and local levels. Further, some states and cities have enacted regulations that require obtaining a tobacco retail license in order to sell electronic cigarettes and vaporizer products. If one or more states from which we generate or anticipate generating significant sales of Charlie’s products bring actions to prevent us from selling Charlie’s products unless we obtain certain licenses, approvals or permits, and if we are not able to obtain the necessary licenses, approvals or permits for financial reasons or otherwise, and/or any such license, approval or permit is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect on our business, results of operations and financial condition.

Certain states and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke-free venues, imposed excise taxes, or limited sales of flavored Charlie’s products. Additional city, state or federal regulators, municipalities, local governments and private industry may enact additional rules and regulations restricting electronic cigarettes and vaporizer products. Because of these restrictions, our customers may reduce or otherwise cease using Charlie’s products, which could have a material adverse effect on our business, results of operations and financial condition. Changes to the application of existing laws and regulations, and/or the implementation of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating or banning flavored e-cigarette liquid and products used for the vaporization of nicotine would materially limit our ability to sell such products, result in additional compliance expenses, and require us to change our labeling and methods of distribution, any of which would have a material adverse effect on our business, results of operations and financial condition.

-1812-

There is substantial concern regarding the effect of long-term use of vaping products. Despite the recent outbreak of vaping-related lung injuries, the medical profession does not yet definitively know the cause of such injuries. Should vapor products, such as Charlie’s products, be determined conclusively to pose long-term health risks, including a risk of vaping-related lung injury, our business will be negatively impacted.

Because vapor products have been developed and commercialized recently, the medical profession has not yet had a sufficient period of time to fully realize the long-term health effects attributable to vapor product use. On November 8, 2019 officials at the CDC reported a breakthrough in the investigation into the outbreak of vaping-related lung injuries. The CDC's principal deputy director, Dr. Anne Schuchat, stated that vitamin E acetate is a known additive used to dilute liquid in e-cigarettes or vaping products that contain THC, suggesting the possible culprit for the series of lung injuries across the U.S. As a result, there is currently no way of knowing whether or not vapor products are safe for their intended use. If the medical profession were to determine conclusively that vapor product usage poses long-term health risks, the use of such products, including Charlie’s products, could decline, which could have a material adverse effect on our business, results of operations and financial condition.

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

Vapor products, having recently been introduced to market, are still at an early stage of development, represent a niche market, are evolving rapidly and are characterized by an increasing number of market entrants. Our future sales and any future profits are substantially dependent upon the widespread acceptance and use of vapor products. Rapid growth in the use of, and interest in, vapor products is recent, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty. Therefore, we are subject to all of the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure of widespread market acceptance of vapor products, in general or, specifically our products, failure to establish business relationships and competitive disadvantages as against larger and more established competitors.

-19-

Due to our operations in several highly regulated industries, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability.

Insurance that is otherwise readily available, such as general liability, and directors and officer’s insurance, may become more difficult for us to find, and more expensive, due to our operations in highly regulated industries. There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.

-20-

We face significant competition from existing suppliers of products similar to ours. If we are not able to compete with these companies effectively, we may not be able to achieve profitability.

We face intense competition from numerous resellers, manufacturers and wholesalers of vapor products similar to those developed and sold by us, from both retail and online providers. We face competition from direct and indirect competitors, which arguably includes “big tobacco,” “big pharma,” and other known and established or yet to be formed vapor product manufacturing companies, each of whom pose a competitive threat to our current business and future prospects. We compete against “big tobacco”, who offers not only conventional tobacco cigarettes and electronic cigarettes, but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. “Big tobacco” has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands. Furthermore, we believe that “big tobacco” is likely to devote more attention and resources to developing and offering electronic cigarettes or other vapor products as the market for electronic cigarettes grows. Because of their well-established sales and distribution channels, marketing depth, financial resources, and proven expertise navigating complex regulatory landscapes, “big tobacco” is better positioned than small competitors like us to capture a larger share of the vapor markets. We also face competition from companies in the vapor market that are much larger, better funded, and more established than we are.

Companies with greater capital and research capabilities could re-formulate existing products or formulate new products that could gain wide marketplace acceptance, which could have a depressive effect on our future sales. In addition, aggressive advertising and promotion by our competitors may require us to compete by lowering prices because we do not have the resources to engage in marketing campaigns against these competitors, and the economic viability of our operations likely would be diminished.

Adverse publicity associated with our products or ingredients, or those of similar companies, could adversely affect our sales and revenue.

Adverse publicity concerning any actual or purported failure by us to comply with applicable laws and regulations regarding any aspect of our business could have an adverse effect on the public perception of the Company. This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors or retailers for our products, which would have a material adverse effect on our ability to generate sales and revenue.

Our distributors’ and customers’ perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others. Adverse publicity, whether or not accurate, that associates consumption of our products or any similar products with illness or other adverse effects, will likely diminish the public’s perception of our products. Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and revenue.

Our products may not meet health and safety standards or could become contaminated.

We have adopted various quality, environmental, health and safety standards. We do not have control over all of the third parties involved in the manufacturing of our products and their compliance with government health and safety standards. Even if our products meet these standards, they could otherwise become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our manufacturers, distributors or suppliers. This could result in expensive production interruptions, recalls, and liability claims. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.

-13-

Any Age-Gating Technology we develop or acquire is subject to becoming obsolete.

As part of our regulatory strategy, we are investing in the development of advanced age-gating and access-control technologies designed to prevent youth access while maintaining availability for adult smokers who seek alternatives to combustible cigarettes. We also entered into an agreement with IKE to integrate IKE’s age-verification technology into certain of the Company’s nicotine analogue and electronic nicotine delivery system (“ENDS”) products. An investment into age-gating technology is expensive and time consuming and does not guarantee that such technology will be successful or rendered obsolete by superior technology. Any failure to develop successful age-gating technology could have a negative impact on our business and strategy.

There is limited availability of clinical studies related to many of our products.

There is little long-term experience with human consumption of certain of the innovative product ingredients or combinations that we utilize in our products. Although we perform research and/or tests the formulation and production of our products, there is limited clinical data regarding the safety and benefits of ingesting certain of our products. Any instance of illness or negative side effects of using or ingesting our products would have a material adverse effect on our business and operations.

The sale of our products involves product liability and related risks that could expose us to significant insurance and loss expense.

We face an inherent risk of exposure to product liability claims if the use of our products results in, or is believed to have resulted in, illness or injury. Our products contain combinations of ingredients, and there is little long-term experience with the effect of these combinations. In addition, interactions of these products with other products, prescription medicines and over-the-counter drugs have not been fully explored or understood and may have unintended consequences. While our third-party manufacturers perform tests in connection with the formulations of our products, these tests are not designed to evaluate the inherent safety of our products.

Any product liability claim may increase our costs and adversely affect our revenue and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, which, if adversely determined, could subject us to substantial monetary damages.

-21-

The success of our business will depend upon our ability to create and expand our brand awareness.

The market we compete in is highly competitive, with many well-known brands leading the industry. Our ability to compete effectively and generate revenue will be based upon our ability to create and expand awareness of our products distinct from those of our competitors. It is imperative that we are able to convey to consumers the benefits of our products. However, advertising and packaging and labeling of such products will be limited by various regulations. Our success will be dependent upon our ability to convey to consumers that our products are superior to those of our competitors.

We must develop and introduce new products to succeed.

Our industry is subject to rapid change. New products are constantly introduced to the market. Our ability to remain competitive depends in part on our ability to enhance existing products, to develop and manufacture new products in a timely and cost-effective manner, to accurately predict market transitions, and to effectively market our products. Our future financial results will depend to a great extent on the successful introduction of several new products. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products.

The success of new product introductions depends on various factors, including, without limitation, the following:

●

proper new product selection;

●

successful sales and marketing efforts;

●

timely delivery of new products;

●

availability of raw materials;

●

pricing of raw materials;

●

regulatory allowance of the products; and

●

customer acceptance of new products.

If we are not able to adequately protect our intellectual property, then we may not be able to compete effectively, and we may not be profitable.

Our existing proprietary rights may not afford remedies and protections necessary to prevent infringement, reformulation, theft, misappropriation and other improper use of our products by competitors. We own the formulations for our products and we consider these product formulations our critical proprietary property, which must be protected from competitors. We do not currently have any patents for our product formulations. Although trade secret, trademark, copyright and patent laws generally provide a certain level of protection, and we attempt to protect ourselves through contracts with manufacturers of our products, we may not be successful in enforcing our rights. In addition, enforcement of our proprietary rights may require lengthy and expensive litigation. We have attempted to protect some of the trade names and trademarks used for our products by registering them with the United States Patent and Trademark Office, but we must rely on common law trademark rights to protect our unregistered trademarks. Common law trademark rights do not provide the same remedies as are granted to federally registered trademarks, and the rights of a common law trademark are limited to the geographic area in which the trademark is actually used. Our inability to protect our intellectual property could have a material adverse impact on our ability to compete and could make it difficult for us to achieve a profit.

-2214-

Risks Related to Our Common Stock

A limited trading market currently exists for our securities, and we cannot assure you that an active market will ever develop, or if developed, will be sustained.

There is currently a limited trading market for our Common Stock on the OTCQB Venture Market and an active trading market for our Common Stock may not develop. Consequently, we cannot assure you when and if an active-trading market in our shares will be established, or whether any such market will be sustained or sufficiently liquid to enable holders of shares of our Common Stock to liquidate their investment in our Company. If an active public market should develop in the future, the sale of unregistered and restricted securities by current stockholders may have a substantial impact on any such market.

Sales of a substantial number of shares of our Common Stock, or the perception that such sales may occur, may adversely impact the price of our Common Stock.

Sales of a substantial number of shares of our Common Stock in the public market could occur at any time. These sales, or the perception that such sales may occur, may adversely impact the price of our Common Stock, even if there is no relationship between such sales and the performance of our business. As of December 31, ~~2024~~2025, we had ~~257~~270,~~286~~653,~~631~~242 shares of Common Stock outstanding, as well as outstanding options to purchase an aggregate of 4,647,814 shares of our Common Stock at a weighted average exercise price of $0.46 per share, up to 2721,~~741~~190,~~333~~885 shares of Common Stock issuable upon conversion of outstanding shares of Series A Preferred. The exercise and/or conversion of such outstanding derivative securities may result in further dilution to our stockholders.

If we issue additional shares of Common Stock in the future, it will result in the dilution of our existing stockholders.

Our Charter currently authorizes the issuance of up to 500.0 million shares of Common Stock, of which approximately ~~257~~270.36 million shares are issued and outstanding as of March 31, ~~2025~~2026. In addition, we have reserved approximately 32.0 million shares for issuance upon conversion and/or exercise of our outstanding shares of Series A Preferred, ~~warrants~~ and stock options, as well as for issuance as awards under our 2019 Omnibus Incentive Plan. The issuance of any additional shares of our Common Stock, including those shares issuable upon conversion and/or exercise of our outstanding derivative securities, will result in significant dilution to our stockholders and a reduction in value of our outstanding Common Stock. Further, any such issuance may result in a change of control of our corporation.

Holders of Series A Convertible Preferred have substantial rights and it ranks senior to our Common Stock.

Our Common Stock ranks junior as to dividend rights, redemption rights, conversion rights and rights in any liquidation, dissolution or winding-up of the Company to the Series A Preferred. Upon liquidation, dissolution or winding-up of the Company, the holders of the Series A Preferred are entitled to a liquidation preference equal to the original purchase price of Series A Preferred prior to and in preference to any distribution to the holders of our Common Stock. Such rights could cause dilution of our Common Stock or limit our cash.

Our outstanding Series A Preferred contains anti-dilution provisions that, if triggered, could cause substantial dilution to our then-existing holders of Common Stock which could adversely affect our stock price.

Our outstanding Series A Preferred contains certain anti-dilution provisions that benefit the holders thereof. As a result, if we, in the future, issue Common Stock or grant any rights to purchase our Common Stock or other securities convertible into our Common Stock for a per share price less than the then existing conversion price of the Series A Preferred, an adjustment to the then current conversion price would occur. This reduction in the conversion price could result in substantial dilution to our then-existing holders of Common Stock as well as give rise to a beneficial conversion feature reported on our statement of operations. Either or both of which could adversely affect the price of our Common Stock.

-2315-

The price of our securities could be subject to wide fluctuations and your investment could decline in value.

The market price of the securities of a company such as ours with little name recognition in the financial community can be subject to wide price swings. The market price of our Common Stock may be subject to wide changes in response to quarterly variations in operating results, our working capital and cash position, our ability to continue as a going concern, FDA regulatory actions, announcements of new products by us or our competitors, reports by securities analysts, volume trading, or other events or factors. In addition, the financial markets have experienced significant price and volume fluctuations for a number of reasons, including the failure of certain companies to meet market expectations. These broad market price swings, or any industry-specific market fluctuations, may adversely affect the market price of our securities.

Companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were to become the subject of securities class action litigation, it could result in substantial costs and a significant diversion of our management’s attention and resources.

Because our Common Stock may be classified as “penny stock,” trading may be limited, and the share price could decline. Moreover, trading of our Common Stock, if any, may be limited because broker-dealers would be required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving our Common Stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our Common Stock.

We have issued Preferred Stock with rights senior to our Common Stock, and may issue additional Preferred Stock in the future.

Our Charter authorizes the issuance of up to 5.0 million shares of Preferred Stock without stockholder approval and on terms established by our Board of Directors, of which 300,000 shares have been designated as Series A Preferred and 1.5 million shares have been designated as Series B Preferred. We may issue additional shares of Preferred Stock in the future in order to consummate a financing or other transaction, in lieu of the issuance of shares of our Common Stock. The rights and preferences of any such class or series of Preferred Stock would be established by our Board of Directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of the Common Stock.

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

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

●

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

●

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

●

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

●

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

Because the applicability of the exclusive forum provision is limited to the extent permitted by law, we believe that the exclusive forum provision would not apply to suits brought to enforce any duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction, and that federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act of 1933, as amended (“Securities Act”). We note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although we believe this provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

-2416-

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

In the case of publicly traded companies, it is common for a broker to hold securities on your behalf, in “street name” (meaning the broker is shown as the holder on the issuer’s records and then you show up on the broker’s records as the person the broker is holding for). Due to regulatory uncertainties, certain brokers may not agree to hold securities of our Company, meaning that you may not be able to take advantage of the convenience of having all your holdings reflected in one place.

You should not rely on an investment in our Common Stock for the payment of cash dividends.

Because of our previous significant operating losses and because we intend to retain future profits, if any, to expand our business, we have never paid cash dividends on our Common Stock and do not anticipate paying any cash dividends in the foreseeable future. You should not make an investment in our Common Stock if you require dividend income. Any return on investment in our Common Stock would only come from an increase in the market price of our stock, which is uncertain and unpredictable.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

The Company’s Board of Directors (the “Board”) recognizes the importance of maintaining the trust and confidence of our customers, clients, business partners and employees. The Board is responsible for overseeing the Company’s risk management process, and cybersecurity represents a component of the Company’s overall approach to enterprise risk management (“ERM”). In general, the Company seeks to address cybersecurity risks through an approach that is focused on preserving the confidentiality, security and availability of the information that the Company collects and stores by identifying, preventing and mitigating cybersecurity threats and effectively responding to cybersecurity incidents when they occur.

The Company’s cybersecurity program is focused on the following key areas:

Collaborative Approach: The Company has implemented a cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.

Technical Safeguards: The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence.

Incident Response and Recovery Planning: The Company has established and maintains incident response and recovery plans that address the Company’s response to a cybersecurity incident.

The Company engages in the occasional assessment and testing of the Company’s policies, standards, processes and practices that are designed to address cybersecurity threats and incidents. The results of such assessments, audits and reviews are reported to management and the Board when necessary, and the Company adjusts its cybersecurity policies, standards, processes and practices as necessary based on the information provided by these assessments, audits and reviews.

The Board, in coordination with management, oversees the Company’s ERM process, including the management of risks arising from cybersecurity threats. Key members of the management team monitor and assess a wide range of topics including recent developments, evolving standards, vulnerability assessments, third-party and independent reviews, the threat environment, technological trends and information security considerations arising with respect to the Company’s peers and third parties. The Board and key executives discuss the Company’s approach to cybersecurity risk management.

The Company’s Chief Operating Officer (“COO”), Chief Financial Officer (“CFO”) and retained third party cybersecurity providers work collaboratively across the Company to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s incident response and recovery plans. Through ongoing communications, this group monitors the prevention, detection, mitigation and remediation of cybersecurity threats and incidents in real time and report such threats and incidents to the Board when appropriate.

Cybersecurity threats, including any previous cybersecurity incidents, have not materially affected or are reasonably likely to affect the Company, including its business strategy, results of operations or financial condition. See the Risk Factor titled “We are subject to cyber-security risks, including those related to customer, employee, vendor or other company data and including in connection with integration of acquired businesses and operations” for a discussion of risk associated with cybersecurity.

-2517-

ITEM 2. PROPERTIES

Facilities

The Company leases office and warehouse space ~~that~~in ~~expires~~Southern onCalifornia ~~various~~and ~~dates~~Western ~~through~~New ~~2025~~York. All of the Company’s lease liabilities result from the lease of (i) its warehouse space in Huntington Beach, California, which expires in ~~2025~~2028, (ii) its corporate headquarters in Costa Mesa, California, which is currently leased on a month-to-month basis, ~~and~~ (iii) its satellite sales office in Williamsville, New York, which ~~expires~~is currently leased month-to-month, and (iv) its ENDS filling operation in ~~2025~~Hunting Beach, California. Management believes that the Company’s sites are adequate to support the business and suitable for present purposes and the properties and equipment have been well maintained.

ITEM 3. LEGAL PROCEEDINGS

From time to time, claims are made against the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties, and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Company’s financial position or results of operations. There are no pending or legal proceedings at this time.

ITEM 4. MINE SAFETY DISCLOSURES

None.

-2618-

PART II

Our common stock is traded on the OTCQB Venture Marketplace under the symbol “CHUC”. The prices of our common stock on the OTCQB Venture Marketplace represent quotations between dealers without adjustment for retail markup, markdown, or commission and may not represent actual transactions.

Holders

As of ~~May~~March 2331, ~~2025~~2026, there were ~~257~~274,~~413~~203,~~570~~242 shares of our common stock outstanding and ~~199~~220 stockholders of record and ~~122~~93,~~368~~906 shares of our Series A Preferred outstanding held by 9276 stockholders of record.

Transfer Agent

Our Transfer Agent and Registrar for our common stock is Continental Stock Transfer and Trust located in New York, New York.

Dividend Policy

We have not previously and do not plan to declare or pay any dividends on our common stock. Our current policy is to retain all funds and any earnings for use in the operation and expansion of our business. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.

Recent Sales of Unregistered Securities

~~On November 22, 2024, the Company entered into subscription agreements with investors for the sale of an aggregate of 6,875,000 shares of its common stock, par value $0~~None.001 per share, at a purchase price per share of $0.08 (the “November Offering”). The November Offering generated gross proceeds to the Company of approximately $550,000, which will be used for working capital purposes. The November Offering was undertaken in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering.

Issuer Purchases of Equity Securities

None.

Shares authorized for issuance under equity compensation plans

The stockholders previously approved the Charlie’s Holdings Inc. 2019 Omnibus Incentive Plan, as amended (the “Plan”). The Plan allows for the granting of equity awards to eligible individuals over the life of the Plan, including the issuance of up to 26,072,542 shares of the Company’s common stock. As of December 31, ~~2024~~2025, we had available 4,803,394 shares remaining for future awards under the Plan.

The following table summarizes the number of shares of common stock to be issued upon exercise of outstanding options and vesting of restricted stock units under the Plan, the weighted-average exercise price of such stock options, and the number of securities available to be issued under the Plan as of December 31, ~~2024~~2025:

Number of securities

Number of securities to

remaining available for

be issued upon exercise

issuance under equity

of outstanding options,

Weighted average

compensation plans

and restricted stock

exercise price of

(excluding securities

units,

outstanding options

reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

2124,~~269~~385,~~148~~814

(1)

0.46

41,~~803~~686,~~394~~728

Equity compensation plans not approved by security holders

—

N/A

—

Total

2124,~~269~~385,~~148~~814

—

41,~~803~~686,~~394~~728

(2)

(1) The number of outstanding options is 4,647,814 and the number of outstanding restricted stock units is 1619,~~621~~738,~~334~~000.

(2)	Consists of shares available for award under the Plan.

ITEM 6. [RESERVED]

-2719-

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto contained in this Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of certain factors, including those set forth under “Risk Factors ~~Associated with Our Business~~” and elsewhere in this Annual Report.

Overview

~~The Company’~~Charlie's ~~objective~~ is ~~to become~~ a leader in ~~two~~the ~~broad~~premium ~~product~~vapor ~~categories:~~products ~~(i)~~industry. ~~non-combustible~~Long ~~nicotine~~known for its pioneering history and award-~~related~~winning products, ~~and~~the ~~(ii)~~Company’s ~~alternative~~mission ~~alkaloid~~is ~~vapor~~to ~~products~~provide adult smokers with better alternatives to combustible cigarettes. ~~Through~~To ~~our~~this end, Charlie’s ~~subsidiary,~~has wedeveloped ~~formulate,~~a ~~market,~~family ~~and~~of ~~distribute~~proprietary ~~premium, nicotine~~e-~~based~~liquids ~~and~~as ~~alternative~~well ~~alkaloid~~as ~~vapor~~an ~~products~~array of compact, easy-to-use disposable vaping devices. ~~Charlie~~The Company’s products are ~~produced~~sold ~~through~~around ~~contract~~the ~~manufacturers~~world ~~for~~to ~~sale through~~ select distributors, specialty retailers, and third-party online resellers ~~throughout the United States and select international markets~~.

~~Operational~~The ~~Plan~~Company’s objective is to become a sales leader in two broad product categories: (i) non-combustible nicotine-related products and (ii) alternative alkaloid (non-nicotine) vapor products. In pursuit of these targets, Charlie’s primary strategic focus is on the development of intellectual property related to product access and compliance. The Company is investing in the development of advanced age-gating and access-control technologies designed to prevent youth access while maintaining availability for adult smokers who seek alternatives to combustible cigarettes. The Company believes that effective age-verification mechanisms are a critical component in supporting the Charlie’s Premarket Tobacco Applications (“PMTAs”) for both flavored and “plain” tobacco nicotine vapor products.

In ~~today’s economic landscape~~December, ~~particularly within~~ the ~~vapor~~Company ~~products~~signed ~~industry,~~a ~~seeking~~definitive ~~and~~licensing ~~securing~~agreement ~~competitive~~with ~~advantage~~IKE isTech ~~paramount.~~LLC ~~Unlike~~(“IKE”) ~~many~~to ~~competitors~~commercialize inthe ~~our~~first-ever ~~industry,~~AI-powered ~~Charlie’s~~blockchain-based ~~has~~age-gating ~~focused~~system onfor ~~achieving~~vapor ~~full~~products ~~compliance~~in ~~with~~the ~~FDA~~United ~~regulations~~States. –Under ~~while~~this ~~also~~license, ~~establishing~~Charlie’s acould ~~regulatory~~become ~~“hedge” through~~ the ~~development~~first ofCompany ~~alternative~~to ~~“zero-nicotine”~~demonstrate ~~product lines that are not currently subject~~ to the FDA ~~review.~~that ~~Simultaneous~~flavored toENDS ~~undertaking~~products ~~these~~are ~~initiatives,~~“appropriate infor ~~2024~~the ~~management~~protection ~~took~~of ~~aggressive~~public ~~steps~~health.” toSuch ~~“right~~a ~~size”~~regulatory ~~the~~achievement ~~business,~~could ~~preserve~~prove ~~working~~transformational ~~capital,~~for Charlie’s and ~~achieve~~for ~~profitability~~the inentire ~~2025.~~vapor ~~Our~~products ~~key initiatives include:~~industry.

1.Strategic ~~Product~~Priorities 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. The Company believes Charlie’s 650+ PMTAs, as a stand-alone asset, have a monetary value that far exceeds Charlie’s current market cap. (See Note 16 - Subsequent Events) 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.

~~Management~~In ~~believes~~today’s ~~that~~economic ~~these~~landscape, ~~initiatives~~particularly ~~will~~within ~~enhance~~the vapor products industry, seeking and securing competitive advantage is paramount. Unlike many competitors in our industry, Charlie’s ~~competitive~~has ~~position~~focused inon achieving full compliance with FDA regulations – while also establishing a regulatory “hedge” through the ~~marketplace,~~development ~~significantly~~of ~~reduce~~alternative ~~costs~~“zero-nicotine” product lines that are not currently subject to FDA review. Simultaneous to undertaking these initiatives, ~~help~~in ~~accelerate~~2025 management took aggressive steps to (i) monetize sixteen of the Company’s ~~path~~PMTA toproducts, ~~profitability~~(ii) launch the SBX product line, ~~support~~(iii) ~~business~~establish ~~growth~~a U.S. manufacturing facility, and (iv) achieve profitability. Charlie’s success, ~~ultimately~~in all these endeavors, ~~allow~~set the ~~Company~~stage tofor ~~achieve~~continued ~~greater~~growth, ~~liquidity~~potential ~~and~~FDA ~~visibility~~marketing ~~through~~orders, anand a potential uplist to a national securities exchange.

~~Considering industry-specific hurdles~~Accordingly, ashere ~~well~~are as the ~~potential~~primary ~~for~~strategic ~~future~~initiatives ~~regulatory~~on ~~changes,~~which ~~management~~we ~~has~~intend ~~prioritized~~to ~~several~~focus ~~principal~~in ~~initiatives as opportunities for growth~~2026:

~~Priority~~● 1:Grow ~~Over~~sales ~~the last two years, we initiated a plan~~ and ~~began~~retail todistribution ~~invest~~through ~~substantial~~chain ~~time~~convenience ~~and~~stores ~~resources to develop various proprietary products and new technologies~~ in ~~order~~select tomarkets ~~achieve~~across ~~competitive advantages in~~ the ~~vapor and alternative products marketplace~~US. 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.

● Utilize the IKE age-28gating technology/license; amass market data with age-gated SBX disposables – while simultaneously amending the Company’s PACHA PMTA’s with age-gating technology to become the first Company to demonstrate to the FDA that flavored vape products are “appropriate for the protection of public health.”

In● ~~2024,~~Introduce tocutting ~~test~~edge ~~consumer~~75K-Puff ~~acceptance of nicotine substitute vapor products in the marketplace, we launched the SPREE BAR~~ disposable ~~flavor~~devices ~~pod~~for ~~system~~both ~~(with Metatine inside) in select markets across~~ the ~~US.~~SBX 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~~Pachamama ~~savings~~product ~~that SPREE BAR flavor pods (with reusable batteries) represent vs. conventional disposable vapes (with single use batteries).~~lines

~~Applying~~● ~~these~~Form ~~findings~~new tostrategic ~~our~~partnership(s) ~~ongoing~~to ~~product~~monetize ~~development initiatives, by~~ the ~~end of 2024 Charlie’s unveiled the~~ Company’'s ~~second~~PMTA-~~generation~~submitted ~~Metatine~~PACHA ~~product~~synthetic 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)~~products.

In● aGrow ~~Company-sponsored~~international ~~focus~~sales 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~~mitigate ~~vapes~~US ~~offered~~regulatory ~~by Big Tobacco ̶ namely Juul ̶ SBX provides many MORE FLAVOR options, UNBEATABLE TAX ADVANTAGES, and THOUSANDS MORE PUFFS!”~~risks.

~~Following~~● upUplist onto ~~these~~a ~~encouraging~~National ~~early~~Securities 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.Exchange

~~Further~~Collectively, weall ~~have~~these ~~recently~~initiatives ~~begun~~represent ~~test-marketing~~Charlie's ~~Metatine-based~~commitment ~~e-liquids~~to ~~under~~adult ~~the PACHAMAMA PLUS+ trademark~~smokers. InThrough ~~response~~innovation toand ~~the~~a ~~rapidly~~hyper-focus ~~emerging~~on ~~new “pouch products” category in the nicotine products industry~~quality, weour ~~are~~Company ~~also~~strives ~~developing~~to aprovide ~~Metatine-based~~our ~~pouch~~customers ~~line~~with ~~that~~an ~~could~~exceptionally besatisfying ~~ready~~vaping ~~for market in late 2025~~experience. WeIn ~~do,~~order ~~however,~~to ~~recognize~~put the ~~challenges~~value inof ~~marketing~~some ~~non-nicotine-based~~of ~~alternative~~these ~~alkaloid~~initiatives ~~products~~into incontext, ahere ~~market that~~ is ~~saturated~~a ~~with~~more ~~traditional~~detailed ~~nicotine~~overview ~~products; accordingly, we are committed to continuous improvement~~ of our ~~Metatine-based~~business ~~products~~plans inand ~~order to satisfy the ever-evolving demands of US adult consumers.~~ strategy:

~~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~~I. ~~Not~~ ~~coincidentally,~~Grow 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~~retail ~~our customer base. These innovative product formats continue to represent an extremely important product category for Charlie’s and we intend to develop new~~ distribution ~~partnerships in order to grow our nicotine disposable business in 2025.~~

~~-29-~~Grow SBX sales and distribution through chain convenience stores in select markets across the United States

WeOur ~~believe~~market ~~that~~research ~~our~~indicates ~~substantial~~that ~~investments~~adult inconsumers ~~FDA~~overwhelmingly ~~regulatory~~prefer ~~compliance~~"flavored" ~~make~~vapor ~~Charlie’s~~products anover ~~attractive~~plain ~~partner~~tobacco inproducts ~~this~~and ~~space.~~are ~~Charlie's~~highly ~~has~~receptive ~~received FDA Acceptance Filings for more than 650 PMTAs. By investing an additional $1.2 million in Q4 2024~~ to ~~amend~~nicotine ~~and~~substitute ~~enhance~~products ~~certain~~that ofoffer ~~our~~the ~~2022~~same ~~PMTA~~vaping ~~submissions,~~experience weas ~~maintained~~that ~~our~~provided ~~commitment~~by toconventional ~~full~~nicotine ~~regulatory~~vapor ~~compliance and we enhanced the strategic value of our PMTA portfolio~~products. ~~The~~SBX ~~Company~~Disposables ~~believes~~feature Charlie’'s ~~650+ PMTAs, as a stand~~award-~~alone~~winning ~~asset,~~flavors ~~have~~(preferred aover ~~monetary~~plain ~~value~~tobacco ~~that~~vapor ~~far~~by ~~exceeds~~more ~~Charlie’s~~than ~~current~~80% ~~market~~of ~~cap.~~adult ~~(See Note 16 - Subsequent Events~~consumers).

In total, Charlie’s has invested more than $6.5 million on the submission of Premarket Tobacco Applications (“PMTAs”) and subsequent amendments to these applications to the FDA. We engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create Charlie’s comprehensive PMTA submissions. Notwithstanding Charlie’s meaningful and costly regulatory initiatives – and even though hundreds of other companies across the United States invested hundreds of millions of dollars to submit more than 26 million PMTAs – to date, the FDA has authorized only 34 tobacco-~~flavored (and a handful of menthol) e~~20-cigarette products and devices. Accordingly, even though former FDA Commissioner Dr. Scott Gottlieb described e-cigarettes as far lower on the “continuum of risk” than combustible cigarettes, fewer than 1% of the PMTA’s for e-cigarette products and devices have survived FDA’s regulatory gauntlet.

~~Nonetheless,~~SBX ~~we are continuing to seek FDA marketing authorization for certain of both our~~ nicotine ~~vapor~~analogue-based ~~products~~vape ~~and~~liquids ~~our~~are not made ~~synthetic~~from ~~nicotine vapor products. Obtaining one~~ or ~~more~~derived ~~marketing orders~~ from ~~the FDA could~~tobacco, wenor ~~believe,~~do ~~help~~they tocontain ~~remediate~~nicotine ~~perceived~~from ~~health~~any ~~issues~~source. ~~related to vaping~~Accordingly, ~~and further position~~ the Company's asproprietary anicotine ~~trusted~~substitute ~~industry~~alkaloid ~~leader.~~(patented ~~While we continue~~ in the ~~FDA~~United ~~review~~States ~~process,~~and wein ~~are~~China ~~also~~by ~~beginning~~the ~~to seek out strategic partners to monetize our PMTAs; given that Charlie’~~Company's ~~650+~~chemical ~~PMTAs (primarily for flavored vapor products~~supplier) ~~remain~~does ~~among~~not meet the ~~fraction~~definition of 1%"nicotine" ~~that are still under active review with the FDA,~~ and ~~given~~therefore ~~that~~SBX ~~more than 80% of adults in the United States prefer flavored vapor~~ products ~~over~~are ~~plain~~not ~~tobacco~~subject ~~vapor~~to ~~products,~~FDA ~~we believe that Charlie’s~~ PMTA ~~portfolio~~requirements ~~represents~~and anare ~~important~~LEGAL ~~competitive~~across ~~advantage~~most – of ~~significant~~the ~~monetary~~United ~~value~~States.

~~Priority~~SBX 3:Beats ~~The~~Juul… 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.15:1

~~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~~Company-~~cigarette~~sponsored ~~device~~focus ~~that~~group ~~also~~survey ~~included~~of 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~~consumers ~~from~~who ~~combustible cigarettes and restricting underage access to vapor products...” In the second quarter of 2024~~vape, 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~~SBX ~~Big~~Disposables ~~Tobacco~~were ~~company~~overwhelmingly ~~devices~~preferred ~~include~~over ~~mobile~~Juul ~~and web~~tobacco-~~based~~flavored ~~apps~~vapes. ~~that~~Of ~~enable~~306 ~~age-verification~~survey ~~technology~~participants, ~~including~~287 ~~device-locking,~~preferred ~~and~~SBX ~~real-time~~over ~~product information and usage insights for age-verified consumers with industry-leading data-privacy protections~~Juul.

~~Priority~~Because 4:no Inflavored ~~order~~ENDS product is legal to ~~mitigate~~be sold under the current FDA ~~regulatory~~PMTA ~~risk~~framework and because there is little enforcement in the ~~domestic~~marketplace, ~~market~~there ~~and~~is towidespread ~~capture~~availability ~~what~~of ~~management~~illicit ~~continues~~flavored toENDS ~~believe~~products isacross athe ~~significant~~United ~~commercial~~States. ~~opportunity,~~The weFDA ~~have~~Center ~~dedicated~~for ~~additional~~Tobacco ~~resources~~Products toestimates ~~efforts~~that ~~focused~~more onthan ~~growing~~half ~~our~~of the U.S. e-cigarette market ~~share~~is ~~internationally~~illicit. ~~Presently~~In this environment, ~~approximately~~some ~~10%~~states ofhave ~~our~~begun ~~vapor~~passing ~~product~~legislation ~~sales~~to ~~come~~ban ~~from~~certain ~~the~~flavored ~~international~~products. ~~market~~In ~~and~~these weselect states, where flavored nicotine products are ~~well~~now ~~positioned~~beginning to ~~increase~~face ~~sales~~significant inregulatory ~~countries~~restrictions, ~~where~~ we ~~already~~are ~~have~~focusing ~~presence~~our ~~and,~~SBX insales ~~additional~~initiatives. ~~overseas~~We ~~markets,~~believe asthat wethe ~~have~~list ~~already~~of ~~built~~states anthat ~~international~~give ~~distribution~~SBX ~~platform~~a “regulatory advantage” will grow.

~~-30-~~Grow Pachamama/PACHA sales and distribution in select markets across the United States

~~Risks~~Distinguished by award-winning flavors and ~~Uncertainties~~by Charlie’s commitment to regulatory compliance, PACHA and ~~Ability~~Pachamama are well-known brands that are positioned to ~~Continue~~grow assignificantly ain ~~Going~~2026. ~~Concern~~The Company plans to leverage the brands’ emerging and distinct competitive advantages:

~~The~~● ~~Company~~Pachamama ~~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~~ONLY ~~ability~~vapor ~~to sell its~~ products. ~~Beginning~~brand 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~~has ~~e-cigarette~~been 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 June 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~~market ~~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~~more ~~products~~than 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~~decade ~~impact on our sales. On March 15, 2022, a new rider to the Federal Food, Drug~~ and ~~Cosmetic~~is ~~Act~~now ~~was~~fully ~~passed~~compliant 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~~Texas ~~regarding~~domestic ~~its~~manufacturing 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. The Company continues to sell the affected synthetic nicotine products while the PMTA review process continues. The FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our 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, we would be required to remove products and cease selling them.requirements;

~~The~~● ~~Company~~Pachamama ~~recently launched new alternative alkaloid Metatine-based disposable vape products, under the “SBX™” brand, that the Company expects~~ will ~~(i)~~be ~~replace~~one ~~a significant portion~~ of ~~its legacy products and (ii) become~~ the ~~single~~select ~~largest,~~brands ~~most~~that ~~important~~is ~~commercial~~fully ~~opportunity~~compliant inwith ~~Charlie~~Indiana’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~~foreign ~~products~~adversary prohibited” ~~under~~manufacturing 21legislation ~~U.S.C. § 321~~(~~rr). Further,~~going ~~according~~into toeffective ~~information~~July ~~provided by the Company’s chemists~~1, 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 (COA2026) for the Metatine used in the Company’s alternative alkaloid products, corroborates these conclusions. However, should any of these understandings be incorrect, the Company’s position on Metatine not qualifying as a “tobacco product” would need to be revisited. Further, 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 require us to remove our products from the market and to cease selling them.;

● PACHA Virginia Tobacco 12mL, 8mL, and 4mL Disposables were all approved in March 2026 for inclusion on the State of California’s Unflavored Tobacco List (“UTL”). This designation means that PACHA Virginia Tobacco Disposables are legal to sell in all smoke shops, gas stations, and c-~~31-~~stores throughout the State of California.

As● ~~discussed~~PACHA ~~below~~flavored 12mL, ~~our~~8mL, ~~financial statements~~ and ~~working~~4mL ~~capital~~Disposables, ~~raise~~as ~~substantial~~well ~~doubt~~as ~~about~~ the Company’s ~~ability~~PACHA toe-liquids, ~~continue as a going concern. Our financial statements~~ have all been ~~prepared~~approved ~~assuming~~for ~~that~~inclusion ~~the~~on ~~Company will continue as a going concern, which contemplates~~ the ~~realization~~Nebraska ofState ~~assets and satisfaction of liabilities in the normal course of business~~Directory. ~~See Liquidity and Capital Resources below for additional information.~~

●

PACHA flavored 4mL and 8mL Disposables are among the select few flavored disposables that have been approved by the state of Louisiana

With growing number of states instituting state registries each year, we believe that Pachamama, and PACHA (and non-nicotine SBX) will expect to see continued (and growing) success in the marketplace and that Charlie’s competitive advantages will expand significantly.

II.

Utilize the IKE Age-Gating technology to secure unprecedented Regulatory Competitive Advantages

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. We believe age-gating is both a responsible business practice as well as a potential future competitive advantage for Charlie's.

Utilizing the Company’s licensing agreement with IKE for the first-ever AI-powered blockchain-based age-gating system for vapor products in the United States, in Q2 2026 Charlie’s plans to test-market the patented IKE age-gating system with a special line of the Company’s popular SBX nicotine analogue product; simultaneously, Charlie’s intends to amend certain of its existing Premarket Tobacco Applications (PMTAs) with the FDA for PACHA brand ENDS with the IKE system.

SBX Nicotine Analogue Products – not subject to FDA PMTA Review

New tobacco products (those containing either plant-derived nicotine or synthetic nicotine) are required to submit a PMTA to the FDA to obtain a marketing order prior to their sale in the United States. The SBX product line does contain nicotine from any source, and instead utilizes Charlie’s proprietary nicotine substitute, Metatine™. Accordingly, SBX is not subject to FDA PMTA requirements and Charlie’s will be able to introduce age-gated, flavored SBX devices almost immediately. It is the Company’s intention to test market age-gated SBX Disposables in 200-300 compliance-minded retail stores in Q2 2026.

-21-

PACHA brand Electronic Nicotine Delivery Systems (ENDS) with FDA PMTA’s

In order to legally sell flavored nicotine products in the United States, Charlie’s intends to collect market data from sales of its non-nicotine SBX age-gated disposables which it will use to amend the Company’s existing PMTAs with the FDA to include age-gating provisions for certain of the Charlie’s PACHA brand nicotine disposables.

There is a large un-met need for technologies that can satisfy or accommodate concerns the FDA has related to youth access, which means there is an enormous market opportunity for flavored vapes that are inoperable for underage individuals. By amassing market data with age-gated SBX disposables – while simultaneously amending the Company’s PACHA PMTA’s with age-gating technology – we believe Charlie’s could become the first Company to demonstrate to the FDA that flavored vape products are “appropriate for the protection of public health.” The Company believes that such a success would not only be game-changing for Charlie’s, but would also transformational for the entire industry.

III.

Introduce cutting edge 75K Puff disposable devices for both the SBX and the Pachamama product lines

Specifically designed with consumer needs and preferences in mind, Charlie’s new generation of 75K Disposables feature an impressive Dual Mesh Coil and provide significantly more vape… and surprisingly better taste… than market-leading disposables. With a large tank capacity, SBX and Pachamama 75K Disposables offer 75,000 uniquely satisfying puffs and feature a transparent shell for accurate liquid measurement, easy-to-use button control, and low-key LED indicators. Both brands feature three power modes, allowing users to select "ECO MODE," "BOOST MODE," or "X MODE"… while simultaneously providing adjustable airflow settings that range from "tight and very enjoyable," to "the standard experience," to "no restrictions." SBX and Pachamama 75K Disposables each offer fourteen of Charlie's most popular award-winning flavors. Initial orders will ship in Q2 2026.

IV.

Form new strategic partnership(s) to monetize the Company's PMTA-submitted PACHA synthetic nicotine products.

In 2025, in three separate transactions, Charlie's sold sixteen of the Company's PACHA synthetic nicotine PMTA products and related assets for $7.5MM cash plus a contingent one-time payment of up to $4.2 million. In the last of the three transactions, the buyer purchased a single Charlie’s PMTA product for $1MM. Based on these sales, taking into account the fact that Charlie’s continues to own 674 PMTA products, and considering the interest other companies have expressed in Charlie's portfolio, the Company believes Charlie's remaining PMTA products, as a stand-alone asset, could have a significant monetary value . To maximize the value of this portfolio, the Company intends to (i) continue to amend and strengthen Charlie’s PMTAs with new scientific data, (ii) add age-gating functionality to certain of our PMTAs, and (iii) explore new strategic partnerships with industry competitors, big and small, that value regulatory compliance in the vapor products marketplace.

V.	Grow International Sales to mitigate US regulatory risks

In order to further 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 8% of our vapor product sales come from the international market. We are well-positioned to increase sales in countries where we already have presence and to capture new business in several additional overseas markets.

VI.

Uplist to a National Securities Exchange

We believe that upon a successful uplisting to a national securities exchange, we believe we will significantly improve our capital markets appeal to a broader range of investors, increase our liquidity, and ultimately, achieve a higher market cap for the Company.

-22-

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 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.

-23-

Recent Developments

~~Expiration~~Entry into a Material Definitive Agreement for the Disposition of ~~Warrants~~Assets

On April 2616, ~~2024~~2025, the ~~Investor~~Company ~~Warrants~~entered into and ~~Placement~~closed ~~Agent~~an ~~Warrants~~Asset ~~expired~~Purchase ~~without~~Agreement ~~being~~(the ~~exercised~~“Agreement”) with a buyer (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.

~~January~~On ~~2024~~May ~~Note~~29, ~~Financing~~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 ~~January~~August 248, ~~2024~~2025, the Company ~~issued~~entered aninto ~~unsecured~~and ~~promissory~~closed ~~note~~on (another Amendment to the ~~“Red~~Agreement ~~Beard~~with ~~Note”)~~the Buyer pursuant to ~~one~~which ofthe ~~its~~Buyer ~~largest~~purchased ~~stockholders~~one ~~Red~~additional ~~Beard~~PACHA ~~Holdings~~synthetic ~~LLC~~product and related asset (the “~~Red~~August ~~Beard~~Additional ~~Lender"~~Assets”), inthat ~~the~~are ~~principal~~covered ~~amount~~by ofa ~~$500~~PMTA first submitted by the Company in 2022,~~000.~~ ~~Red~~bringing ~~Beard~~the ~~Note~~total ~~shall~~purchased ~~bear~~by ~~interest~~the atBuyer ~~twenty-one~~to ~~percent~~sixteen. ~~(21%)~~The ~~per~~purchase ~~annum~~price ~~and~~for ~~have~~the ~~maturity~~August ~~through~~Additional ~~July~~Assets ~~24,~~was ~~2024~~$1.0 million paid at closing.

~~On May 31, 2024, as part of the May 2024 capital raise (see Note 11), the holder of the Red Beard Note (the “Holder”) converted the principal amount of~~ $~~500,000 in lieu of cash payment for the subscription agreement~~2.0 ~~Separately,~~Million ~~the~~Credit ~~Holder~~Facility ~~was~~with ~~paid~~Independent ~~$52,500~~Board ~~in interest on the maturity date of July 24, 2024.~~Member

~~May~~In ~~2024~~order ~~Capital~~to ~~Raise~~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 $2 million credit facility with Michael D. King, one of the independent members of Charlie's Board of Directors.

OnMr. ~~May~~King ~~31,~~agreed ~~2024,~~to loan the Company ~~entered~~up ~~into~~to ~~subscription~~$2,000,000 ~~agreements~~(in ~~with~~three ~~investors~~separate ~~for~~tranches) ~~the~~at ~~sale of~~ an ~~aggregate~~interest ofrate ~~20,375,000 shares~~ of ~~its~~13% ~~common~~for ~~stock,~~a ~~par~~period ~~value~~of ~~$0.001~~12 months per ~~share~~tranche, atwith a ~~purchase~~balloon ~~price~~payment ~~per~~for ~~share~~interest ofand ~~$0.08~~principal ~~(the~~to ~~“May~~be ~~Offering”).~~paid ~~The~~at ~~May~~the ~~Offering~~one-year ~~generated~~anniversary ~~gross~~of ~~proceeds~~each oftranche. ~~approximately~~Accordingly, with an initial $1.6 million loan, ~~which~~and ~~will~~two besubsequent ~~used~~$500,000 ~~for~~tranches, ~~working~~this ~~capital~~debt/credit ~~purposes.~~facility ~~The~~gave ~~May~~the ~~Offering~~Company ~~was~~the ~~undertaken~~discretion into ~~reliance~~borrow onfunds, ~~Section~~as ~~4(a)(2)~~needed, ~~under~~as demand continues to grow for the ~~Securities~~SBX ~~Act~~product ofline. ~~1933,~~This ascredit ~~amended,~~facility asis anot ~~transaction~~convertible to equity, does not ~~involving~~include awarrants, ~~public~~and ~~offering~~is exceptionally "company friendly.”

~~September~~On ~~2024~~March ~~Pinnacle~~24, ~~Receivables~~2026, ~~Financing~~we entered into an amendment to the loan to extend the maturity date of the loan to June 1, 2027 with a ballon principal payment due on maturity with interest only paid monthly until maturity.

~~On September 6, 2024, the~~ Company ~~entered~~Secures ~~into~~More aThan ~~future~~$6MM ~~receivables~~in ~~sale~~Sales ~~agreement~~During ~~(“Pinnacle~~NACS ~~Receivables~~Show; ~~Financing~~$4.4 ~~Agreement”)~~million ~~with~~SBX ~~Pinnacle~~purchase ~~Business~~is ~~Funding (“Pinnacle”) by which Pinnacle purchases from~~ the ~~Company~~single ~~its~~largest ~~future accounts receivable and contract rights arising from the~~ sale ofin ~~goods or services to the Company’~~Charlie'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 requires 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.history

~~November~~On ~~2024~~October ~~Capital~~23, ~~Raise~~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.

~~On November~~Marketing ~~22,~~Denial ~~2024,~~Orders ~~the~~and ~~Company~~Court-granted ~~entered~~Administrative ~~into~~Stay subscription agreements with investors for the sale of an aggregate of 6,875,000 shares of its common stock, par value $0.001 per share, at a purchase price per share of $0.08 (the “November Offering”). The November Offering generated gross proceeds to the Company of approximately $550,000, which will be used for working capital purposes. The November Offering was undertaken in reliance on ~~Section~~Certain ~~4(a)(2)~~Premarket ~~under~~Tobacco ~~the Securities Act of 1933, as amended, as a transaction not involving a public offering.~~Applications

On October 28, 2025, we received Marketing Denial Orders (“MDOs”) from the U.S. Food and Drug Administration (“FDA”) with respect to certain of our timely-~~32-~~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, which the Court granted on November 10, 2025. On December 24, 2025, a Fifth Circuit panel granted our motion to stay the MDOs pending judicial review. As a result of the stay, the affected PMTAs revert to pending status and continue to be treated as timely filed (May 2022) while the case is litigated on the merits. Accordingly, the subject products remain eligible, where permitted by state law, for listing on state vapor products directories (e.g. Louisiana) that allow the sale of products associated with timely submitted synthetic nicotine PMTAs that are pending FDA’s review, subject to satisfaction of all other applicable state requirements. Though only a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs on the merits while also continuing to amend our applications with the latest science.

-24-

Company opens US Manufacturing Facility

On December 1, 2025 we reported that the Company opened its first US-manufacturing facility in Huntington Beach, California. Effective September 1, 2025, Texas implemented a new law 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 that are fully compliant in these markets, Charlie's became one of the first companies to launch a US-filled vapor product line. The Company's popular Pachamama 25K line now meets the domestic manufacturing requirements of the state of Texas and enables Charlie's premium products to appeal, broadly, to adult consumers who prefer "Made in America" products.

Age Gating Partnership with IKE Tech, LLC

On December 18, 2025, Charlie’s Holdings, Inc. entered into a Master Hardware, Software, and Cloud Subscription Agreement with IKE Tech LLC to integrate IKE’s age-verification technology into certain of the Company’s nicotine analogue and electronic nicotine delivery system (“ENDS”) products. Under the agreement, IKE Tech will supply proprietary Bluetooth Low Energy (“BLE”) chips designed to be embedded in the Company’s devices and enable wireless communication with a cloud-based software platform that supports device authentication, age-gating, and age-verification functionality prior to device activation. The agreement also provides for access to a subscription-based software platform and related development services, including the potential creation of a customized, white-labeled application. The Company believes the technologies contemplated by the agreement may support its efforts to enhance product-level age verification and compliance capabilities as regulatory requirements for nicotine products continue to evolve.

Discontinued Operations

During the year ended December 31, 2025, in preparation for an uplist to a national securities exchange, Charlie's Board of Directors unanimously approved a resolution to discontinue sales of all hemp/CBD-related products and to wind down and close permanently its Don Polly division. Accordingly, in 2025, the Company discontinued the operations of Don Polly LLC and no longer sells any of Don Polly’s CBD/hemp branded products. The disposal represented a strategic shift that had a material effect on the Company’s operations and financial results and therefore met the criteria for discontinued operations under ASC 205-20. Accordingly, the operating results of Don Polly LLC have been classified as income (loss) from discontinued operations and more than $3MM in top-top line revenue is not reported, as such, in the accompanying consolidated financial statements.

Private Placement – February 13, 2026

On February 13, 2026, the Company completed a private placement of 3,550,000 shares of its common stock at a purchase price of $0.20 per share, resulting in aggregate consideration of $710,000. Of the total consideration, $510,000 was received in cash and $200,000 was satisfied through the forgiveness of certain outstanding indebtedness owed by the Company. The issuance of shares increased the Company’s liquidity and reduced a portion of its outstanding debt obligations. Charlie’s management and directors purchased 1,350,000 shares of the 3,550,000 total shares that were sold, as follows:

●

Michael King, Independent Director: 500,000 shares

●

Dr. Ed Carmines, Independent Director: 250,000 shares

●

Ryan Stump, Director and Chief Operating Officer: 250,000 shares

●

Henry Sicignano III, President: 250,000 shares

●

Matthew Montesano, Chief Financial Officer: 100,000 shares

-25-

Basis of Presentation

The consolidated financial statements contained within this Annual Report and the disclosure in this Management’s Discussion and Analysis of Financial Condition and Results of Operations with respect to the years ended December 31, ~~2024~~2025 and ~~2023~~2024 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company, all adjustments, including normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the interim period have been included.

~~Results~~On October 7, 2025, the Company’s Board of ~~Operations~~Directors ~~for~~unanimously approved a resolution to wind down and close permanently the ~~Year~~Don ~~Ended~~Polly division, the Company’s variable interest entity. On December 31, ~~2024~~2025, ~~Compared~~Don Polly entered into a Bill of Sale And Assignment Agreement (the “Assignment Agreement”) with Charlie’s. Pursuant to the ~~Year~~Assignment ~~Ended~~Agreement, Don Polly transferred ownership of all of its right, title, and interest in, as well as custody and control of, its assets to Charlie’s. The results of operations of Don Polly are reported as discontinued operations for the years ended December 31, ~~2023~~2025 and 2024.

	For the years ended
	December 31,						Change
	2024			2023			Amount			Percentage
($ in thousands)
Revenues:
Product revenue, net	$	8,494		$	16,250		$	(7,756	)		-47.7	%
Total revenues		8,494			16,250			(7,756	)		-47.7	%
Operating costs and expenses:
Cost of goods sold - product revenue		5,603			10,206			(4,603	)		-45.1	%
General and administrative		5,718			6,970			(1,252	)		-18.0	%
Sales and marketing		693			1,107			(414	)		-37.4	%
Research and development		(68	)		169			(237	)		-140.5	%
Total operating costs and expenses		11,946			18,452			(6,506	)		-35.3	%
Loss from operations		(3,452	)		(2,202	)		(1,250	)		56.7	%
Other income (expense):
Interest expense		(711	)		(477	)		(234	)		49.0	%
Debt extinguishment (loss) gain		(75	)		36			(111	)		-308.3	%
Change in fair value of derivative liabilities		79			550			(471	)		-85.7	%
Total other (loss) income		(707	)		109			(816	)		-748.6	%
Net loss	$	(4,159	)	$	(2,093	)	$	(2,066	)		98.7	%

Certain reclassifications have been made to the prior period financial information to reflect discontinued operations presentation. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations.

~~-33-~~Results of Operations for the Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

	For the years ended
	December 31,						Change
	2025			2024			Amount			Percentage
*($ in thousands)*
Product revenue, net	$	20,916		$	7,765		$	13,151			169.4	%
Cost of goods sold - product revenue		15,261			4,888			10,373			212.2	%
Gross profit		5,655			2,877			2,778			96.6	%
Operating costs and expenses:
General and administrative		6,374			5,611			763			13.6	%
Sales and marketing		1,327			638			689			108.0	%
Research and development		119			(68	)		187			-275.0	%
Total operating costs and expenses		7,820			6,181			1,639			26.5	%
Loss from operations		(2,165	)		(3,304	)		1,139			-34.5	%
Other income (expense):
Interest expense		(692	)		(703	)		11			-1.6	%
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		7,500			-			7,500			100	%
Total other income (loss)		6,758			(699	)		7,457			-1066.8	%
Income (loss) before provision for income taxes		4,593			(4,003	)		8,596			-214.7	%
Income tax provision		(275	)		-			(275	)		100	%
Income (loss) from continuing operations after income taxes		4,318			(4,003	)		8,321			-207.9	%
Discontinued operations:
Income (loss) from discontinued operations, net of tax		181			(156	)		337			-216.0	%
Net income (loss)	$	4,499		$	(4,159	)	$	8,658			-208.2	%

-26-

Revenue

Revenue for the year ended December 31, ~~2024~~2025, ~~decreased~~increased approximately $713,~~756~~151,000, or 47169.74%, to approximately $820,~~494~~916,000, as compared to approximately $167,~~250~~765,000 for the year ended December 31, ~~2023~~2024, which is all due to athe ~~$6,481,000~~increase ~~decrease~~ in our nicotine-based product ~~sales,~~ and anicotine ~~$1,275,000~~alternative ~~decrease~~products in sales ~~of our hemp-derived products~~. ~~The~~Sales ~~decrease~~of inSBX, ~~our~~a ~~nicotine~~non-~~based~~nicotine, disposable vapor product ~~sales~~which ~~was~~is ~~primarily~~not ~~driven~~subject byto ~~decreased~~FDA ~~sales~~review, ofexperienced ~~our~~a ~~Pacha~~significant ~~Disposable~~increase ~~line~~during asthe ~~well~~year asended ~~reduced~~December ~~demand~~31, ~~for~~2025. ~~our~~Revenue ~~e-liquid~~does ~~products.~~not ~~The~~include ~~launch~~$3MM ofin ~~the~~Don ~~Company’s~~Polly ~~SPREE~~sales ~~BAR~~as ~~nicotine~~the ~~substitute~~Don ~~vapor~~Polly ~~products~~LLC ~~did~~division ~~not~~was ~~meet~~closed ~~performance~~permanently ~~expectations,~~in ~~resulting~~2026. inThe ~~further~~operating ~~development~~results ~~efforts~~of ~~and~~Don ~~ultimately~~Polly ~~the~~LLC ~~release~~have ~~our~~been ~~Metatine-based,~~classified ~~SBX~~as ~~line~~income of(loss) ~~disposable~~from ~~vapor~~discontinued ~~products~~operations.

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs ~~decreased~~increased by approximately $410,~~603~~373,000 or 45212.12%, to approximately $515,~~603~~261,000, or ~~66.0~~73% of revenue, for the year ended December 31, ~~2024~~2025, as compared to approximately $104,~~206~~888,000, or 62.89% of revenue, for the ~~year~~same ~~ended~~period ~~December~~in ~~31, 2023~~2024. This cost, ~~as a percent of revenue,~~ increased compared to last year due aprimarily ~~combination~~to ofan ~~lower~~increase ~~fixed~~in ~~cost~~the ~~absorption~~volume ~~resulting~~of ~~from~~products ~~reduced~~sold ~~sales~~during ~~performance~~the ~~as well as overall margin compression across most product categories~~period.

General and Administrative Expense

For the year ended December 31, ~~2024~~2025, total general and administrative ~~expense~~expenses ~~decreased~~increased by approximately $1763,~~252,~~000 to ~~approximately~~ $56,~~718~~374,000, ~~or 67.3% of revenue,~~ as compared to approximately $65,~~970~~611,000, ~~or 42.9% of revenue,~~ for the ~~year~~same ~~ended~~period ~~December~~in ~~31, 2023~~2024. This ~~decrease~~change was primarily ~~comprised~~due ofto ~~reductions~~decreases of approximately $~~762~~88,000 ofin ~~non-commission~~certain ~~wages~~professional fees and ~~benefits,~~ $6059,000 of ~~professional~~bad ~~fees,~~debt ~~$139~~expense,~~000~~ ofand ~~information~~offset ~~systems~~by ~~costs,~~an asincrease ~~well~~of as $~~291~~748,000 in ~~other~~non-commission ~~general~~wages and ~~administrative~~benefits ~~expenses. The decrease in payroll~~ and ~~benefits~~$162,000 ~~costs~~of ~~was~~other ~~primarily~~general ~~driven by elective salary reductions for executives~~ and ~~reduced~~administrative ~~headcount~~costs. The decrease in professional fees iswas ~~largely~~primarily ~~due~~the toresult ~~reduced~~of reductions in legal and ~~consulting~~audit costs. ~~Decreased~~as ~~information~~well ~~systems~~as ~~costs~~fees ~~were~~paid ~~the~~to ~~result~~members of aour ~~company-wide~~Board ~~cost-cutting~~of ~~effort during the period~~Directors. The ~~reduction~~increase in ~~other~~payroll ~~general~~ and ~~administrative~~benefits ~~expenses~~costs ~~largely~~was ~~consisted~~primarily ofdriven ~~decreases~~by inbonuses ~~bad~~awarded ~~debt,~~to ~~insurance~~certain ~~costs~~key ~~and~~employees ~~merchant~~during ~~processing~~the ~~costs~~period.

Sales and Marketing Expense

For the year ended December 31, ~~2024~~2025, total sales and marketing expense ~~decreased~~increased by approximately $689,000 to approximately $~~693~~1,327,000 as compared to approximately $1638,~~107,~~000 for the ~~year~~same ~~ended~~period ~~December~~in ~~31,~~2024. ~~2023,~~The ~~which~~increase was primarily due to ~~lower~~increased sales commissions paid asand ~~well~~display costs for “first-order” sales of the Company’s SBX product as aroll-out ~~significant~~continued ~~reduction~~during inthe ~~tradeshow~~year ~~and~~ended ~~customer~~December ~~event~~31, 2025. The Company continues to evaluate its spending on advertising, promotional and tradeshow related ~~costs.~~expenses ~~Commissions~~as ~~decreased~~it ~~due~~aims to ~~reduced~~increase sales ~~activity~~of ~~during~~its ~~the~~new ~~year~~SBX Disposable vapor products.

-3427-

Research and Development Expense

For the year ended December 31, ~~2024~~2025, ~~we had income from~~ research and development ofexpense was approximately $68119,000 as compared to approximately $~~169~~68,000 ~~expense~~of income for the year ended December 31, ~~2023~~2024. The ~~decrease~~increase of approximately $~~237~~187,000 was primarily due to ~~reduced~~ costs associated with the ~~development~~Company’s ofongoing ~~new~~development ~~technologies~~ and ~~product~~testing ~~formats~~related asto ~~well~~active asPMTA afilings ~~vendor~~with ~~refund~~the ~~of approximately $136,000~~FDA.

Loss from Operations

We incurred a loss from operations of approximately $32,~~452~~165,000 for the year ended December 31, ~~2024~~2025, as compared to loss from operations of approximately $23,~~202~~304,000 for the year ended December 31, ~~2023,~~2024. The decreased in loss from operations is due primarily to ~~lower~~increased sales and gross profit. Net loss from continuing operations is determined by adjusting loss from operations by the following items:

● ~~Change~~Gain inon ~~fair~~sale ~~value~~ of ~~derivative~~PMTA ~~liabilities~~assets. For the ~~years~~year ended December 31, ~~2024 and 2023~~2025, ~~the~~we ~~gain~~recorded ina ~~fair value of derivative liabilities was approximately~~ $797,~~000 and $550~~500,000, ~~respectively. The derivative liability is associated with the Investor Warrants and the Placement Agent Warrants (as defined in Note 3 of this Report) in connection with the Share Exchange. The~~ gain ~~for~~related ~~the year ended December 31, 2024 was due~~ to the ~~expiration~~sales ofagreement ~~the~~entered ~~warrants~~with ina ~~April~~global ~~2024,~~tobacco ~~which resulted in the warrant liability being written off~~company.

● Interest Expense. For the years ended December 31, ~~2024~~2025 and ~~2023~~2024, we recorded interest expense related to notes payable of $~~711~~692,000 and $~~477~~703,000, respectively. The ~~increase~~decrease was primarily due to an increase of outstanding notes payable.

● Debt Extinguishment (Loss) Gain. For the years ended December 31, ~~2024~~2025 and ~~2023~~2024, we recorded approximately $7550,000 ofand ~~loss~~$75,000 ~~from~~ debt extinguishment, ~~which was~~ related to ~~our~~various ~~May~~debt ~~2024 Capital Raise (see Note 11). The gain of approximately $36~~amendments,~~000~~ in 2023 resulted from a modification to the promissory note issued to Michael King, a significant shareholder and member of the Company’s Board of Directors, which extended the maturity date to March 2025respectively.

~~Income~~● ~~Taxes~~Change ~~(Benefit)~~in fair value of derivative liabilities. For the years ended December 31, 2024, the gain in fair value of derivative liabilities was approximately $79,000 The gain for the year ended December 31, 2024 was due to the expiration of the warrants in April 2024 which resulted the warrant liability being written off.

~~The~~Income ~~Company~~Taxes ~~did not record income tax for the years ended December 31, 2024 and 2023.~~Provision

~~Net~~For ~~Loss~~the year ended December 31, 2025, the Company recorded an income tax provision of approximately $275,000. The Company did not record income tax for the year ended December 31, 2024.

~~For~~Net ~~the~~Income ~~years~~(Loss) ~~ended~~from ~~December~~Continuing ~~31, 2024, and 2023, we had a net loss of $4,159,000 and $2,093,000, respectively.~~Operations

For the years ended December 31, 2025, and 2024, we had a net income from continuing operations of $4,318,000 and net loss of $4,003,000, respectively.

Effects of Inflation

Inflation has not had a material impact on our business.

Liquidity and Capital Resources

As of December 31, ~~2024~~2025, we had working capital ~~deficit~~ of approximately $13,~~855~~137,000, which consisted of current assets of approximately $310,~~720~~767,000 and current liabilities of approximately $57,~~575~~630,000, as compared to working capital deficit of approximately $~~332~~1,855,000 at December 31, ~~2023~~2024. The current liabilities include approximately $35,~~396~~037,000 of accounts payable and accrued expenses, notes payable ~~of $520,000, note payable~~ from related parties of $12,~~488~~280,000, $275,000 of lease liabilities and approximately $9838,000 of deferred revenue associated with product shipped but not yet received by customers~~, approximately $73,000 of current lease liabilities~~.

Our cash and cash equivalents balance at December 31, ~~2024~~2025 was approximately $~~211~~1,320,000. AsThe Company believes its balances of cash and cash equivalents as of December 31, ~~2024~~2025, wealong ~~had~~with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements over the ~~following~~next ~~notes~~12 ~~outstanding:~~months and beyond.

● 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 bear interest at twenty-one percent (21%) per annum and have maturity dates ranging from November 17, 2023 to December 10, 2023. As of December 31, ~~2024~~2025, ~~$400,000,~~we ~~plus~~had ~~accrued interest, remained outstanding and~~ the ~~maturity~~following ~~dates of the outstanding~~ notes had been extended to December 31, 2024. On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $75,000 of accrued interest and have 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 has been extended to April 28, 2026.outstanding:

~~-35-~~● August 2025 Notes. As of December 31, 2025, $2,000,000 notes payable plus accrued interest held by Michael King remained outstanding.

● ~~April~~July ~~2022~~2023 ~~Note Financing~~Notes. OnAs ~~April 6, 2022, the Company issued a secured promissory note (the “Note”) to one~~ of ~~its~~December ~~individual stockholders~~31, ~~and a member of the Company’s Board of Directors since June 13~~2025, ~~2023, Michael King (the ”Lender"), in the principal amount of~~ $1138,000~~,000,~~ ~~which~~notes ~~Note~~payable isplus ~~secured~~accrued byinterest ~~accounts~~held ~~receivable of the Company pursuant to the terms of a Security Agreement entered into~~ by ~~and~~Ryan ~~between~~Stump ~~the Company~~ and ~~the~~Henry ~~Lender~~Sicignano ~~(the~~III ~~"Note~~remained ~~Financing").~~outstanding ~~The Note initially required the payment of principal in full~~ and ~~guaranteed interest in an amount~~ the ~~greater~~maturity ofdates ~~18% per annum, or $90,000, on or before the earlier date~~ of ~~(i) a Liquidity Event, as defined under~~ the ~~terms~~outstanding ofnotes ~~the~~had ~~Note;~~been orextended ~~(ii) September 28, 2022. On September 28, 2022, the Company and the Lender entered into a modification~~ to ~~the~~April ~~Note to extend the maturity date to March~~ 28, ~~2023 and the Company paid all accrued interest under the Note through such date~~2026.

On● ~~March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to~~ April ~~28,~~2022 ~~2024, contingent upon the payment of all interest accrued under the~~ Note ~~through March 28, 2023 and certain other modifications to the Note~~. ~~Principal~~As ~~shall be payable on the 28th day~~ of ~~each~~December ~~month~~31, in2025, ~~installments~~approximately of $25143,000, ~~commencing~~of ~~April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining~~ principal ~~balance~~plus ~~will~~accrued beinterest ~~paid.~~held ~~Immediately~~by ~~following~~Michael ~~the~~King ~~second~~remained modification, the Company entered into a third modification agreement to further extend the maturity date to March 28, 2025. The third modification agreement was effective on March 28, 2023 and superseded the second modification. Interest shall accrue on the aggregate outstanding ~~principal amount at a rate equal to 20% simple interest per annum~~ and ~~shall be payable on~~ the ~~same~~maturity ~~day~~dates ~~as installments~~ of ~~principal are payable. The Company may 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~~notes ~~and~~had ~~interest~~been ~~are~~extended ~~due~~to ~~earlier~~April ~~of March~~ 28, ~~2025, or a liquidity event~~2026. The third modification was recognized as a debt extinguishment, resulting in a gain on debt extinguishment of approximately $35,000. The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing. As of December 31, 2024, approximately $793,000 of principal remained outstanding.

On May 31, 2024, as part of the May 2024 capital raise (see Note 11), 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.-28-

OnFor ~~April~~the 28year ended December 31, 2025, ~~the~~net ~~Lender~~cash ~~agreed~~used toin ~~accept~~continuing aoperating ~~payment~~activities ofwas approximately $~~420~~6,314,000, resulting from a net income from continuing operations of $4,499,000, offset by a change in operating assets and ~~entered~~liabilities ~~into~~of $4,034,000 and a ~~further~~net ~~modification~~non-cash ~~for~~activity of $6,598,000. For the ~~remaining~~year ~~balance~~ended ~~that~~December ~~includes~~31, ~~monthly~~2024, ~~payments~~net ofcash used in continuing operating activities was approximately $371,982,000, ~~and~~resulting from a ~~maturity~~net ~~date~~loss from continuing operations of ~~April~~$4,003,000 28and offset by a change in operating assets and liabilities of $913,000 ~~2026~~and net non-cash activity of $1,108,000.

●For ~~August~~the ~~2022~~year ~~Note~~ended ~~Financing.~~December ~~On August 17~~31, ~~2022~~2025, ~~the~~cash ~~Company~~provided ~~and~~by ~~its~~investing ~~Chief~~activities ~~Operating~~included ~~Officer and Director, Ryan Stump (the "Stump Lender") entered into a loan agreement (the “Loan”) in the principal amount of~~ $~~300~~7,500,000. ~~The Loan will be due~~ in ~~full~~proceeds in 120 days or sooner if, before the end of term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan bears an annual interest rate of 10%. The Company also incurred an additional $3,000 issuance cost resulting from the ~~payment~~sale of ~~the~~intellectual ~~Stump~~property ~~Lender’s~~related ~~legal fees. On April 15, 2024 the Company and Stump Lender entered into a fifth modification~~ to ~~the~~certain ~~Loan~~of toour ~~extend~~PMTA ~~the maturity date to August 21, 2024~~products. On August 21, 2024 the Company and Stump Lender entered into a sixth 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.

~~-36-~~For the year ended December 31, 2025, we used approximately $590,000 cash in financing activities related to the issuance of notes payable of $546,000, notes payable to related parties of $2,100,000 and the repayment of $3,237,000 in notes payable, including $1,312,000 to related parties. For the year ended December 31, 2024, we generated approximately $1,465,000 in cash from financing activities related to the issuance of common shares of $1,580,000, notes payable of $742,000, notes payable to a related party of $500,000 and the repayment of $1,357,000 in notes payable, including $85,000 to a related party.

●Going ~~September~~Concern ~~2024~~Regarding ~~Pinnacle~~the ~~Receivables~~Legal ~~Financing.~~and OnRegulatory ~~September 6~~Environment, ~~2024,~~Liquidity the Company entered into a future receivables sale agreement (“Pinnacle Receivables Financing Agreement”) with Pinnacle Business Funding (“Pinnacle”) by which Pinnacle purchases from the Company its future accounts receivable and ~~contract rights arising from the sale of goods or services to the Company~~Management’s ~~customers.~~Plan ~~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 requires 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. As of December 31, 2024, the outstanding balance was approximately $642,000. On April 16th, 2025 the Company issued a payment of approximately $1,250,000 to satisfy all outstanding principal and interest owed to Pinnacle.Operation

●Our ~~January~~consolidated ~~2024~~financial ~~Note~~statements ~~Financing.~~have Onbeen ~~January~~prepared ~~24,~~assuming ~~2024,~~that the Company ~~issued~~will ancontinue ~~unsecured~~as ~~promissory~~a ~~note~~going ~~(the~~concern, ~~“Red~~which ~~Beard~~contemplates ~~Note”)~~the torealization ~~one~~ of ~~its~~assets ~~largest~~and ~~stockholders~~satisfaction ~~Red~~of ~~Beard~~liabilities ~~Holdings LLC (the “Red Beard Lender"),~~ in the ~~principal~~normal ~~amount~~course of ~~$500,000~~business. ~~Red~~For ~~Beard~~the ~~Note~~year ~~shall~~ended ~~bear~~December ~~interest~~31, at2025, ~~twenty-one~~the ~~percent~~Company’s ~~(21%)~~revenue ~~per~~increased, ~~annum~~the ~~and~~Company ~~have~~incurred ~~maturity~~a ~~through~~loss ~~July~~from ~~24,~~operations ~~2024.~~of Onapproximately ~~May 31~~$2, ~~2024~~165,000, asand ~~part~~a ofnet ~~the~~income ~~May~~from ~~2024~~continuing ~~capital~~operations ~~raise~~of ~~(see~~approximately ~~Note 10)~~$4,318,000. ~~the~~Net ~~holder~~cash ofused ~~the~~in ~~Red~~continuing ~~Beard~~operating ~~Note~~activities ~~(the~~was ~~“Holder”)~~approximately ~~converted~~$6,314,000. ~~the~~The ~~principal~~Company ~~amount~~had a stockholders’ equity of $~~500~~3,423,000 inat ~~lieu~~December of31, ~~cash~~2025. ~~payment~~During ~~for~~ the ~~subscription~~year ~~agreement.~~ended ~~Separately~~December 31, 2025, the ~~Holder~~Company’s working capital was ~~paid~~increased to $523,~~500~~137,000 infrom ~~interest~~a ondeficit ~~the~~of ~~maturity~~$1,855,000 ~~date~~as of ~~July~~December 2431, 2024.

~~For~~Management evaluated whether these conditions could raise a substantial doubt about the Company’s ability to continue as a going concern. During the year ended December 31, ~~2024~~2025, ~~net~~the ~~cash~~Company ~~used~~entered ininto ~~operating~~and ~~activities~~closed ~~was~~an ~~approximately~~Asset ~~$1,621,000,~~Purchase ~~resulting~~Agreement ~~from~~(the a“Agreement”) ~~net~~and ~~loss~~subsequent amendment with one of ~~$4,159,000,~~the ~~offset~~world’s bylargest atobacco ~~change~~companies in(the ~~operating~~“Buyer”) ~~assets~~pursuant ~~and~~to ~~liabilities~~which the Buyer purchased 16 of ~~$1,427,000~~the Company’s PACHA synthetic products and arelated ~~net~~assets ~~non-cash~~(the ~~activity~~“Assets”) ofthat ~~$1,111,000.~~are ~~For~~covered ~~the~~by ~~year~~a ~~ended~~premarket ~~December~~tobacco ~~31,~~application ~~2023,~~(“PMTA”) ~~net~~first ~~cash~~submitted ~~used~~by the Company in ~~operating~~2022. ~~activities~~The ~~was~~combined ~~approximately~~purchase price for the Assets was $~~783,000,~~6.5 million ~~resulting~~paid ~~from~~at aclosings ~~net~~in ~~loss~~April ofand $2May 2025,~~093,000~~ and aan ~~change~~additional $1.0 million paid at closings in ~~operating~~August ~~assets~~2025, ~~and~~plus ~~liabilities~~a contingent one-time payment of up to $~~811,000,~~4.2 million ~~offset~~based on product sold by ~~net~~the ~~non-cash~~Buyer ~~activity~~during the one year following the first day of ~~$499,000~~commercialization of the Assets.

~~For~~The ~~the~~proceeds ~~year~~from ~~ended~~these ~~December~~transactions ~~31,~~have ~~2024~~significantly ~~and~~improved ~~2023,~~the weCompany’s ~~did~~liquidity ~~not~~position, ~~incur~~reduced ~~any~~outstanding ~~expenditures~~obligations, ~~for~~and ~~investment~~strengthened ~~activities~~working capital.

~~For~~In ~~the~~addition, ~~year~~management ~~ended~~has ~~December~~implemented ~~31,~~and ~~2024,~~continues weto ~~generated~~execute ~~approximately~~on ~~$1,465,000~~initiatives indesigned ~~cash~~to ~~from~~enhance ~~financing~~operating ~~activities~~performance ~~which~~and ~~was~~liquidity, ~~comprised~~including of(i) ~~the~~focusing ~~issuance~~on ofgrowth ~~common~~in ~~shares~~the ofCompany’s $1non-combustible,~~580,000,~~ ~~notes~~alternative ~~payable~~alkaloid of(non-nicotine) ~~$742~~products,~~000,~~ ~~and~~(ii) ~~notes~~advancing ~~payable~~regulatory toapproval aefforts ~~related~~for ~~party of $500,000 as well as~~ the ~~repayment~~Company’s ofnicotine ~~$1,357,000~~product ~~in notes payable~~portfolio, ~~including~~and ~~$85,000~~(iii) ~~to a related party. For~~ the ~~year~~continued ~~ended~~development ~~December~~of ~~31,~~intellectual ~~2023,~~property werelated ~~generated~~to ~~approximately~~product ~~$893,000~~access ~~cash~~and ~~from~~compliance. ~~financing~~The ~~activities,~~Company ~~resulting~~is ~~from~~also ~~the~~pursuing ~~issuance~~additional ofstrategic $2transactions,~~769,000~~ ~~notes~~including ~~payable~~potential ~~and~~PMTA-related ~~offset~~asset bysales, ~~repayment~~which ~~$1,876,000~~may ofprovide ~~certain~~incremental ~~notes~~liquidity.

~~Substantial~~Based ~~Doubt~~on tothese ~~Continue~~factors, asmanagement abelieves ~~Going~~the ~~Concern~~Company ~~Regarding~~is ~~the~~adequately ~~Legal~~capitalized ~~and~~to ~~Regulatory~~support ~~Environment,~~its ~~Liquidity~~operations and ~~Management’s~~meet ~~Plan~~its ofobligations ~~Operation~~as they come due for at least the next twelve months.

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. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States. Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA. There was a significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future applications. For the year ended December 31, 2024, the Company’s revenue declined, the Company generated a loss from operations of approximately $3,452,000, and a consolidated net loss of approximately $4,159,000 and used cash from operations of approximately $1,621,000. The Company had a stockholders’ deficit of $1,780,000 at December 31, 2024. During the year ended December 31, 2024, the Company’s working capital position decreased to a deficit of $1,855,000 from $332,000, as of December 31, 2023. Considering these facts, the issuance of one or several Marketing Denial Orders ("MDOs”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and the removal of certain products for sale. These regulatory risks, as well as other industry-specific challenges and our low working capital and cash position, remain factors that raise substantial doubt about the Company’s ability to continue as a going concern.

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts, including cumulative expenditures of approximately $6,500,000 as of December 31, 2024, to support our PMTA process for the Company’s submissions to the FDA. The Company has undergone cost-cutting measures including salary reductions of up to 50% for officers and certain managers and a reduction in headcount for certain departments. During the fourth quarter of 2024, the Company launched SBX, a non-nicotine, disposable vapor product which is not subject to FDA review. The Company may require additional financing in the future to support the development of new product categories as well as subsequent PMTA filings, and/or in the event the FDA requests additional testing for one, or several, of the Company’s prior PMTA submissions. 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.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

Included below is a discussion of critical accounting policies used in the preparation of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

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We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

The accounting policies identified as critical are as follows:

Revenue Recognition

The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) 606 – Contracts with Customers. Revenues are generated from contracts with customers that consist of sales to retailers and distributors. Contracts with customers are generally short term in nature with the delivery of product as a single performance obligation. Revenue from the sale of product is recognized at the point in time when the single performance obligation has been satisfied and control of the product has transferred to the customer. In evaluating the timing of the transfer of control of products to customers, The Company considers several indicators, including significant risks and rewards of products, the right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are received by customers. Shipping generally occurs prior to the transfer of control to the customer and is therefore accounted for as a fulfillment expense. In circumstances where shipping and handling activities occur after the customer has obtained control of the product, the Company has elected to account for shipping and handling activities as a fulfillment cost rather than an additional promised service. Contract durations are generally less than one year, and therefore costs paid to obtain contracts, which generally consist of sales commissions, are recognized as expense in the period incurred. Revenue is measured by the transaction price, which is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers, volume rebates, and promotional discounts on current orders. Our volume rebates are short-term in nature and reset on a quarterly basis. Sales returns are generally not material to the financial statements, and do not comprise a significant portion of variable consideration. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very short-term durations.

Amounts billed and due from customers are short term in nature and are classified as receivables since payments are unconditional and only the passage of time related to credit terms is required before payments are due. The Company does not grant payment financing terms greater than one year. Payments received in advance of revenue recognition are recorded as deferred revenue.

Accounts receivable is recorded at the invoiced amount and does not bear interest. We determine the ~~allowance~~credit ~~for doubtful accounts~~ losses by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and set up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, ~~2024,~~2025 and ~~2023~~2024, the allowance for bad debt totaled $88105,000 and $2488,000, respectively.

Inventories

Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, ~~2024,~~2025 and ~~2023~~2024, the reserve for excess and obsolete inventories totaled $~~999~~514,000 and $1531,~~100,~~000, respectively.

Stock-Based Compensation

We account for all stock-based compensation using a fair value-based method. The fair value of equity-classified awards granted to employees is estimated on the date of the grant using the Black-Scholes option-pricing model, or it is based on valuation observed from publicly traded companies in a similar industry, often with a discount for lack of marketability applied. The related stock-based compensation expense is recognized over the vesting period during which an employee is required to provide service in exchange for the award.

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Income Taxes

Income taxes are computed under the liability method. This method requires the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.

Financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that meets the more-likely-than-not threshold of being realized upon ultimate settlement with a taxing authority. We recognize potential accrued interest and penalties related to unrecognized tax benefits as income tax expense.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS

The audited consolidated financial statements of Charlie’s Holdings, Inc., including the notes thereto, together with the report thereon of Urish Popeck & Co., LLC, our independent registered public accounting firm, are included in this Annual Report on Form 10-K as a separate section beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our President, the principal executive officer, and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on our evaluation, our President, the principal executive officer, and Chief Financial Officer concluded that, as of December 31, ~~2024~~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, the principal executive officer, and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b)

Management’s Annual Report on Internal Control over Financial Reporting.

Section 404(a) of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company’s internal control over financial reporting and include in this Annual Report on Form 10-K a report on management’s assessment of the effectiveness of our internal control over financial reporting.

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of our principal executive and financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, our principal executive and financial officer concluded that our internal control over financial reporting was effective as of December 31, ~~2024~~2025.

This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financing reporting because we are not an “accelerated filer” or a “large accelerated filer”. Our management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.

(c)

Changes in internal control over financial reporting.

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the quarter ended December 31, ~~2024~~2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning our executive officers, directors and corporate governance is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission.

Set forth below is information regarding our directors, executive officers, and key personnel as of March 1, 2025:

Name	Age	Position
Henry Sicignano	5758	President (Principal Executive Officer)
Matthew P. Montesano	3940	Chief Financial Officer
Ryan Stump	3637	Chief Operating Officer and Director
Scot Cohen	5556	Director
Jeffrey Fox	6162	Director
Edward Carmines	7071	Director
Michael King	5556	Director

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

Henry Sicignano, III, President (Principal Executive Officer). Mr. Sicignano was appointed as President of the Company on April 1, 2021. Prior to joining the Company, Mr. Sicignano held multiple positions, including Chief Executive Officer of 22nd Century Group, Inc. (NASDAQ: XXII), a plant-based biotechnology company that is focused on tobacco harm reduction, very low nicotine content tobacco, and hemp/cannabis research from March 2015 through July 2019. He also served as President and as a member of the Board of Directors with 22nd Century from January 2011 through July 2019. In addition, from December 2014 to August 2018, Mr. Sicignano served on the Board of Directors of Anandia Laboratories, Inc., a cannabis-focused science company that was sold to Aurora Cannabis (NYSE: ACB). ~~He is currently a member of the Board of Directors of Kartoon Studios, Inc. (NYSE American: TOON).~~ Mr. Sicignano holds a B.A. Degree in Government from Harvard College and an M.B.A. Degree from Harvard University.

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Matthew P. Montesano, Interim Chief Financial Officer. Mr. Montesano was appointed as Chief Financial officer of the Company on May 10, 2021. Prior to his appointment, and since 2014, Mr. Montesano has served as Chief Financial Officer of Charlie’s Chalk Dust, LLC, the Company’s largest and most profitable operating division. Beginning in 2019, he also began serving as the Chief Financial Officer of Don Polly, LLC, the Company’s alternative products division. Mr. Montesano is the Founder and Managing Partner for ~~MPM~~Relay ~~Advisors~~BPO, LLC, an outsourced accounting, and business process firm. Prior to joining the Company, Mr. Montesano worked for L’Oreal USA in a variety of corporate finance positions for the company’s Professional Products and Salon Centric divisions. Prior to L’Oreal USA, Mr. Montesano worked for KeyBanc Capital Markets as an investment banker where he focused on debt, equity and merger and acquisitions transactions in the industrials space.

Ryan Stump, Director and Chief Operating Officer. Mr. Stump was appointed as a director and the Company’s Chief Marketing Officer on April 26, 2019 in connection with the Share Exchange. Mr. Stump has served as the Chief Operating Officer of Charlie’s since 2014, during which time he has been responsible for all global operations of Charlie’s. Prior to joining Charlie’s, Mr. Stump worked as an Associate Territory Manager and then as a Territory Manager for ConMed, a medical sales device company, from 2010 to 2013. Mr. Stump also co-founded and continues to be engaged with multiple companies, including The Ohio House since 2011, the Buckeye Recovery Network since 2017, and The Mend California since 2018. Mr. Stump earned a B.S. and B.A. in Sports Marketing and Marketing from Duquesne University

The Board of Directors believes that Mr. Stump’s experience operating high growth companies, as well as entrepreneurial experience, is valuable to the Board as it manages the Company’s anticipated continued growth.

Scot Cohen, Director. Mr. Cohen was appointed to the Board in March 2019 and is the Founder and Managing Partner of V3 Capital Partners, a private investment firm focused on early-stage companies primarily in the consumer products industry, and Co-Manager of Red Fortune Fund, a private equity fund based in Hong Kong. Mr. Cohen also is the Founder of Petro River Oil, LLC and Chairman of Petro River Oil Corp. (OTCBB: PTRC), a publicly traded oil and gas producer with assets in Kansas and Oklahoma, and Petro Spring, a global oil and gas technology solutions provider. Prior to creating V3 Capital Partners, Mr. Cohen was the Founder and Managing Partner at Iroquois Capital Opportunity Fund, a special situations private equity investment fund, and a Co-Founder of Iroquois Capital, a hedge fund with investments in small and micro-cap private and public companies. Mr. Cohen currently serves as the CEO and Executive Director of Wrap Technologies, Inc. (NASDAQ: WRTC), and is active in philanthropic activities with numerous charities including the Jewish Enrichment Council. Mr. Cohen received a Bachelor of Science degree from Ohio University in 1991.

The Board of Directors believes Mr. Cohen’s success with multiple private investment firms, his extensive contacts within the investment community, and his financial expertise are a valuable resource to the Company’s efforts to expand and implement its business plan.

Jeffrey Fox, Director. Mr. Fox was appointed to the Board effective July 16, 2019. He has been a leading business strategist, brand marketing authority and general management executive for some of the’ world's largest restaurant and consumer companies including roles as Chief Brand & Concept Officer for Pizza Hut, Co-founder of Collider LLC, a cultural marketing strategy firm, Managing Director of the California office of advertising agency Foote, Cone and Belding (FCB), various positions with the Yum! Brands and within Sony's interactive and PlayStation video game divisions, and Hill & Knowlton Public Relations. He is currently a member of the board of directors of Cici’s Pizza and Flix Brewhouse. Mr. Fox holds a bachelor’s degree in Journalism from San Diego State University and received a master's degree in Mass Communications from California State University, Northridge.

The Board of Directors believes that Mr. Fox’s strong experience in brand building across several diverse Fortune 100 consumer product companies will be significantly valuable to the Company as it continues to rapidly grow its product offerings and launch new brands and products around the world.

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Dr. Edward Carmines, Director. Dr. Carmines was appointed to the Board effective March 2, 2022. He is currently Chief Scientific Officer of Chemular, Inc., where he designs and directs scientific and regulatory programs for PMTAs for a host of contract clients across a wide range of tobacco product categories. He also currently serves as an Advisory Board Member of Sparq Life, Inc, focusing on the science of inhalation of non-tobacco products, and Principal for Carmines Consulting, LLC, where Dr. Carmines consults to the regulated tobacco industry in the field of toxicology and regulatory affairs. Previously, Dr. Carmines managed the safety of novel and oral tobacco products as a scientist with R.J. Reynolds Tobacco Co. From 1996-2009, Dr. Carmines served as a principal scientist for Philip Morris USA (Altria Client Services, Inc.), where he developed guidelines for safely testing cigarette ingredients and components based on the FDA Red Book. Dr. Carmines received a B.S. degree in Chemistry and a Ph.D. degree in Toxicology from the Medical College of Virginia (Virginia Commonwealth University).

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

Michael D. King, Director. Mr. King was appointed as a director in June 2023 pursuant to the terms of a nomination and standstill agreement dated April 26, 2023. Mr. King is the Founder and current Chief Executive Officer of Wessner, Inc., a private company that has developed a supply network in Asia with world-class manufacturing companies that offer a wide variety of custom-made medical products, scientific instruments, consumer products, and food service devices. Operating Wessner, Inc. (formerly OEM Solutions) has been Mr. King’s sole occupation and employment for the past 24 years. From 1998 until 2001, Mr. King worked as a Sales Representative at Allied Enterprises in Pittsburgh, Pennsylvania. From 1991 through 1998, Mr. King worked for the Ford Motor Company in the Finance Department as an analyst and eventually supervisor. Mr. King graduated with a Master of Business Administration degree from the State University of New York at Buffalo in 1991.

The Board of Directors believes that Mr. King’s experience (i) sourcing, purchasing, and shipping products in China and other Asian countries; (ii) reducing costs of goods and improving quality; and (iii) operating a high growth company is valuable to the Board as it manages the Company’s anticipated continued growth.

Other than as described above, there have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or nominee set forth above during the past ten years.

Code of Ethics

We have adopted a Code of Ethics that applies to all of our directors, officers and employees, a copy of which is attached as an exhibit to our Annual Report on Form 10-K, filed with the SEC on April 1, 2019.

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ITEM 11. EXECUTIVE COMPENSATION

Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission with respect to its ~~2025~~2026 Annual Meeting of Stockholders

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

Exhibit No.		Description
3.1		Amended and Restated Bylaws of Charlie's Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on September 11, 2019.
3.2		Amended and Restated Articles of Incorporation of Charlie’s Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed July 2, 2019
3.2.1		Certificate of Change for Charlie’s Holdings, Inc., effective as of June 14, 2021, incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on June 16, 2021.
4.1		Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, dated April 25, 2019, incorporated by reference to Exhibit 3.7 to the Current Report on Form 8-K, filed April 30, 2019.
4.2		Description of Securities Registered Pursuant to Section 12 (filed ~~herewith)~~with the Form 10-K on May 29, 2025 and incorporated herein by reference.
4.3		Certificate of Amendment dated April 4, 2023 to Series A preferred stock, incorporated by reference to Form 8-K filed on April 4, 2023.
10.1		Form of Exchange Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed April 30, 2019.
10.2		Form of Registration Rights Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed April 30, 2019.
10.3		Subscription Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K, filed April 30, 2019.
10.4		Employment Agreement by and between the Company and Ryan Stump, dated June 15, 2023, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 20, 2023.
10.5		License Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 11, 2019.
10.6		Commercial Lease Agreement, by and between Charlie’s Chalk Dust, LLC and Brandon Stump, Ryan Stump and Keith Stump, dated November 19, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 22, 2019.
10.6		Services Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed June 11, 2019.
10.7		Employment Agreement, dated April 1, 2021, by and between Charlie's Holdings, Inc. and Henry Sicignano III, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed April 6, 2021.
10.7		Commercial Lease Agreement, by and between Charlie’s Chalk Dust, LLC and Brandon Stump, Ryan Stump and Keith Stump, dated November 19, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 22, 2019.
10.8		2019 Omnibus Equity Incentive Plan, as amended, incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14C filed with the Securities and Exchange Commission on May 28, 2019
10.8		Employment Agreement, dated April 1, 2021, by and between Charlie's Holdings, Inc. and Henry Sicignano III, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed April 6, 2021.
10.9		Amendment to 2019 Omnibus Equity Incentive Plan, incorporated by reference to the Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on February 4, 2022
10.9		2019 Omnibus Equity Incentive Plan, as amended, incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on May 28, 2019
10.10		Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.10		Amendment to 2019 Omnibus Equity Incentive Plan, incorporated by reference to the Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on February 4, 2022
10.10.1		Modification Agreement dated September 29, 2022 related to Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.11		Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.10.2		Modification Agreement dated March 28, 2022 related to Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.11.1		Modification Agreement dated September 29, 2022 related to Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.11		Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.11.2		Modification Agreement dated March 28, 2022 related to Promissory Note with Michael King dated April 6, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.11.1		Amendment dated December 17, 2022 to Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.12		Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.11.2		Amendment dated April 13, 2023 to Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.12.1		Amendment dated December 17, 2022 to Loan Agreement with Ryan Stump dated August 17, 2022, incorporated by reference to Form 10-K filed on April 17, 2023
10.12		Form of July 2023 Promissory Note, incorporated by reference to Form 10-Q filed on November 14, 2023
10.12.2		Amendment dated April 13, 2023 to Loan Agreement with Ryan Stump dated August 17, 2022,
10.13		Amended and Restated Promissory Notes – with Henry Sicignano III and Ryan Stump dated April 28, 2025 filed with the Form 10-K on May 29, 2025 and incorporated herein by reference.
10.13		Form of July 2023 Promissory Note, incorporated by reference to Form 10-Q filed on November 14, 2023
10.14		Agreement for the Disposition of Assets, incorporated by reference to the Current Report on Form 8-K, filed April 17, 2025
10.14		Amended and Restated Promissory Notes – with Henry Sicignano III and Ryan Stump dated April 28, 2025
10.14.1		Amendment to Agreement for the Disposition of Assets, incorporated by reference to the Current Report on Form 8-K, filed June 3, 2025
10.15		Entry into a Material Definitive Agreement for the Disposition of Assets with R.J. Reynolds, incorporated by reference to the Current Report on Form 8-K, filed April 17, 2025
10.14.2		Amendment to Agreement for the Disposition of Assets, incorporated by reference to the Current Report on Form 8-K, filed August 11, 2025
10.16		Amended and Restated Promissory Note – with Michael King dated April 28, 2025
10.15		Amended and Restated Promissory Note – with Michael King dated April 28, 2025 filed with the Form 10-K on May 29, 2025 and incorporated herein by reference.
10.15.1		Amendment to Amended and Restated Promissory Note – with Michael King dated March 24, 2025 (filed herewith)
14.1		Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference.
19.1		Charlie's Holdings, Inc. Insider Trading Policy, filed ~~herewith~~with the Form 10-K on May 29, 2025 and incorporated herein by reference.
21.1		Subsidiaries of Charlie's Holdings, Inc., filed ~~herewith~~with the Form 10-K on May 29, 2025 and incorporated herein by reference..
23.1		Consent of Urish Popeck & Co., LLC filed herewith.
23.2		Consent of Mazars USA LLP filed herewith.

-4436-

31.1		Certification of Principal Executive Officer as Required by Rule 13a-14(a)/15d-14, filed herewith.
31.2		Certification of Principal Financial Officer as Required by Rule 13a-14(a)/15d-14, filed herewith.
32.1		Certification of Principal Executive Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.
32.2		Certification of Principal Financial Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

ITEM 16. FORM 10-K SUMMARY

None.

-4537-

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.

Date: May 29, 2025	CHARLIE’S HOLDINGS, INC.
Date: March 31, 2026	CHARLIE’S HOLDINGS, INC.
	By:	/s/ Henry Sicignano III
		Henry Sicignano III President (Principal Executive Officer)
		/s/ Matthew P. Montesano
		Matthew P. Montesano Chief Financial Officer (Principal Financial and Accounting Officer)

In accordance with the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Henry Sicignano III Henry Sicignano III	President (Principal Executive Officer)	~~May~~March 2931, ~~2025~~2026
/s/ Matthew P. Montesano Matthew P. Montesano	Chief Financial Officer (Principal Financial and Accounting Officer)	~~May~~March 2931, ~~2025~~2026
/s/ Ryan Stump Ryan Stump	Chief Operating Officer and Director	~~May~~March 2931, ~~2025~~2026
/s/ Scot Cohen Scot Cohen	Director	~~May~~March 2931, ~~2025~~2026
/s/ Jeffrey Fox Jeffrey Fox	Director	~~May~~March 2931, ~~2025~~2026
/s/ Edward Carmines Edward Carmines	Director	~~May~~March 2931, ~~2025~~2026
/s/ Michael King Michael King	Director	~~May~~March 2931, ~~2025~~2026

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Charlie’s Holdings, Inc.

Costa Mesa, California

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance ~~sheet~~sheets of Charlie’s Holdings, Inc. (the “Company”) as of December 31, 2025 and 2024, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the ~~year~~years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2025 and 2024, and the results of its operations and its cash flows for the ~~year~~years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited the segment and geographical information disclosed in Note 13 to the 2023 consolidated financial statements to retrospectively apply the change in accounting for ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2023 consolidated financial statements of the Company other than with respect to the adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2023 consolidated financial statements taken as a whole.

Substantial Doubt about the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant operating losses, negative cash flows from operations, and has an accumulated deficit. The Company is dependent on its ability to increase revenues and obtain financing to continue operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Going Concern

As described further in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has negative working capital and a low cash position, and does not have an established source of revenue sufficient to cover its operating costs. The ability of the Company to continue as a going concern is dependent on their ability to increase revenues, procure cost-effective financing, and continue its business development efforts to support the PMTA process for the Company’s submissions to the FDA. Accordingly, the Company has determined that these factors raise substantial doubt as to the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from related parties and private funding, in order satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. ~~However,~~Management ~~the~~believes ~~Company~~any substantial doubt has ~~not~~been ~~concluded~~alleviated ~~that~~as ~~these~~they expect increase revenues and profitability to continue. Management’s plans ~~alleviate~~include (i) streamlining profitable product lines (ii) focusing on the ~~substantial~~procurement ~~doubt~~of ~~related~~the toFDA ~~its~~approval ~~ability~~on tothe ~~continue~~nicotine asproduct aline ~~going~~(iii) ~~concern~~increasing marketing efforts.

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

WeThe ~~determined~~principal ~~the~~considerations ~~Company’s~~for ~~ability~~our todetermination ~~continue~~that asperforming aprocedures ~~going~~relating ~~concern~~to isthe aCompany’s ~~critical~~liquidity ~~audit~~and ~~matter~~plans ~~due~~ to ~~the~~meet ~~estimation~~future ~~and~~cash ~~uncertainty~~requirements ~~regarding~~is ~~the~~a ~~Company’s~~critical ~~available~~audit ~~capital~~matter ~~and~~are the ~~risk~~significant ofjudgments ~~bias~~by in management’s ~~judgments and assumptions~~ in ~~their~~determining ~~determination.~~future ~~Our~~cash ~~audit~~flows ~~procedures~~and ~~related~~ability to ~~the~~execute ~~Company’s assertion~~ on its ~~ability~~business tostrategy ~~continue~~which asled to a ~~going~~high ~~concern~~level ~~included~~of ~~the~~auditor ~~following~~judgment, ~~among~~subjectivity ~~others:~~and effort in performing procedures.

● WeUnderstood ~~inquired~~the ofprocess ~~Company~~used ~~management~~to ~~and~~develop ~~reviewed~~the ~~company~~Company’s ~~records~~expected tocash ~~assess~~inflows ~~whether~~and ~~there~~outflows ~~are~~based ~~additional~~upon ~~factors~~recent ~~that~~operating ~~contribute~~results toand evaluating the ~~uncertainties~~cash ~~disclosed~~flow projections;

~~F-2~~● Reviewed management plans for future events and conditions;

● WePerformed ~~assessed~~testing ~~whether~~procedures ~~the~~such ~~Company’s~~as ~~determination~~analytical ~~that~~procedures ~~there is substantial doubt about its ability~~ to ~~continue~~identify asconditions aand ~~going concern was adequately disclosed~~events;

● WeReviewed ~~performed testing procedures such as analytical procedures to identify conditions~~ and ~~events~~evaluated ~~that indicate there could be substantial doubt about the entity~~management's ~~ability~~plans tofor ~~continue~~dealing aswith aadverse ~~going~~effect ~~concern~~of ~~for~~these aconditions ~~reasonable~~and ~~period of time;~~events.

● We reviewed and evaluated management's plans for dealing with adverse effect of these conditions and events.

Reserve for Excess and Slow-Moving Inventory

The Company provides valuation allowances for excess and slow-moving inventory on hand that are not expected to be sold to reduce the carrying amount of slow-moving inventory to its estimated net realizable value. The valuation allowances are based on upon estimates about future demand from its customers and distributors and market conditions.

We determined the reserve for excess and slow-moving inventory to be a critical audit matter because it requires especially subjective auditor judgment. These reserves are sensitive to changes in the Company’s operations and assumptions used to estimate the reserve including management’s assumptions with regards to projections of future product demand and market conditions, which includes historical usage and on-hand quantities.

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

● Inquiring with management to obtain an understanding of management’s process of determining the reserve for excess and slow-moving inventories, including obtaining an understanding of the key assumptions used in the estimate;

● Evaluating and recalculating the methodology used in connection with the Company’s reserve analysis;

● Reviewing the significant assumptions used related to the reserve assigned to each item in inventory, and evaluating whether management’s reserve assumptions are appropriate based on historical results;

● Testing selected inventory items to evaluate whether the applied reserve percentages were appropriate based on the movement of the item within the past year, as well as the most recent sales price of the inventory item to evaluate its net realizable value.

/s/ Urish Popeck & Co., LLC

PCAOB ID: 1013

We have served as the Company's auditor since 2024

Pittsburgh, Pennsylvania

~~May~~March 2931, ~~2025~~2026

F-32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Board of Directors and Stockholders of Charlie’s Holdings, Inc.

Opinion on the Consolidated Financial Statements

We have audited, before the effects of the adjustments to retrospectively apply the change in accounting described in Note 13, the accompanying consolidated balance sheet of Charlie’s Holdings, Inc. (the “Company”) as of December 31, 2023, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements, before the effects of the adjustments to retrospectively apply the change in accounting (as described in Note 13), present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the change in accounting (as described in Note 13) and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Urish Popeck & Company, LLC.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant operating losses, has negative cash flows from operations, and has an accumulated deficit. The Company is dependent on its ability to increase revenues and obtain financing to execute its development plans and continue operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

We have served as the Company's auditor from 2023 to 2024.

/s/ Mazars USA LLP

PCAOB ID: 339

Fort Washington, PA

April 15, 2024

F-4

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	December 31,			December 31,
	2024			2023
	2025			2024
ASSETS
Current assets:
Cash	$	~~211~~1,320		$	~~367~~211
Accounts receivable, net		~~365~~440			~~289~~331
Inventories, net		26,~~667~~719			32,~~826~~131
Prepaid expenses and other current assets		~~477~~2,288			~~604~~465
Total current assets		3,720			5,086
Current assets in discontinued operations		-			582
Total current assets		10,767			3,720
Non-current assets:
Property, plant and equipment, net		5337			~~157~~53
Right-of-use asset, net		71632			~~424~~71
Other assets		~~101~~128			101
Total non-current assets		~~225~~797			~~682~~225
TOTAL ASSETS	$	311,~~945~~564		$	53,~~768~~945
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	35,~~396~~037		$	23,~~846~~242
Notes payable, net		~~520~~-			~~716~~520
Notes payable - related parties		12,~~488~~280			~~700~~1,488
Derivative liability		-			79
Lease liabilities		275			73
Lease liabilities		73			355
Deferred revenue		38			25
Deferred revenue		98			58
Current liabilities in discontinued operations		-			227
Total current liabilities		57,~~575~~630			45,~~754~~575
Non-current liabilities:
Note payable, net of current portion		150			~~150~~-
Note payable, net - related party, net of current portion		-			898
Lease liabilities, net of current portion		361			-
Lease liabilities, net of current portion		-			73
Non-current liabilities in discontinued operations		-			150
Total non-current liabilities		~~150~~511			~~1,121~~150
Total liabilities		58,~~725~~141			5,~~875~~725
COMMITMENTS AND CONTINGENCIES (see Note 12)
Stockholders' deficit:
Stockholders' equity (deficit):
Convertible preferred stock ($0.001 par value); 1,800,000 shares authorized
Series A, 300,000 shares designated; 122,930 and 128,181 shares issued and outstanding as of December 31, 2024 and 2023, respectively		-			-
Series A, 300,000 shares designated; 93,903 and 122,930 shares issued and outstanding as of December 31, 2025 and 2024, respectively		-			-
Series B, 1,500,000 shares designated; 0 shares issued and outstanding as of December 31, 2024 and 2023, respectively		-			-
Series B, 1,500,000 shares designated; 0 shares issued and outstanding as of December 31, 2025 and 2024, respectively		-			-
Common stock ($0.001 par value); 500,000,000 shares authorized; 257,286,631 and 228,535,886 shares issued and outstanding as of December 31, 2024 and 2023, respectively		257			229
Common stock ($0.001 par value); 500,000,000 shares authorized; 270,653,242 and 257,286,631 shares issued and outstanding as of December 31, 2025 and 2024, respectively		271			257
Additional paid-in capital		1011,~~662~~352			810,~~204~~662
Accumulated deficit		(128,~~699~~200	)		(812,~~540~~699	)
Total stockholders' deficit		(1,780	)		(107	)
Total stockholders' equity (deficit)		3,423			(1,780	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	3,945		$	5,768
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	11,564		$	3,945

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

F-53

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

	For the years ended
	December 31,
	2024			2023
	2025			2024
Revenues:
Product revenue, net	$	20,916		$	7,765
Product revenue, net	$	8,494		$	16,250
Cost of goods sold - product revenue		15,261			4,888
Total revenues		8,494			16,250
Gross profit		5,655			2,877
Operating costs and expenses:
Cost of goods sold - product revenue		5,603			10,206
General and administrative		6,374			5,611
General and administrative		5,718			6,970
Sales and marketing		1,327			638
Sales and marketing		693			1,107
Research and development		119			(68	)
Research and development		(68	)		169
Total operating costs and expenses		7,820			6,181
Total operating costs and expenses		11,946			18,452
Loss from operations		(2,165	)		(3,304	)
Loss from operations		(3,452	)		(2,202	)
Other income (expense):
Interest expense		(~~711~~692	)		(~~477~~703	)
Debt extinguishment (loss) gain		(75	)		36
Debt extinguishment gain (loss)		(50	)		(75	)
Change in fair value of derivative liabilities		79-			~~550~~79
Total other (loss) income		(707	)		109
Gain on sale of intellectual property		7,500			-
Net loss	$	(4,159	)	$	(2,093	)
Total other income (loss)		6,758			(699	)
Net loss per share
Income (loss) before provision for income taxes		4,593			(4,003	)
Basic	$	(0.02	)	$	(0.01	)
Income tax provision		(275	)		-
Diluted	$	(0.02	)	$	(0.01	)
Income (loss) from continuing operations after income taxes		4,318			(4,003	)
Discontinued operations:
Income (loss) from discontinued operations, net of tax		181			(156	)
Net income (loss)	$	4,499		$	(4,159	)
Net earnings (loss) per share:
Income (loss) from continuing operations, basic	$	0.02		$	(0.02	)
Income (loss) from discontinued operations, basic	$	0.00		$	0.00
Net earnings (loss) per share, basic	$	0.02		$	(0.02	)
Net earnings (loss) per share:
Income (loss) from continuing operations, diluted	$	0.02		$	(0.02	)
Income (loss) from discontinued operations, diluted	$	0.00		$	0.00
Net earnings (loss) per share, diluted	$	0.02		$	(0.02	)
Weighted average number of common shares outstanding
Basic		~~234~~257,~~798~~353,~~277~~423			~~216~~234,~~053~~798,~~743~~277
Diluted		~~234~~278,~~798~~544,~~277~~310			~~216~~234,~~053~~798,~~743~~277

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

F-64

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

	Series A																	~~Total~~
	Convertible Preferred Stock					Common Stock						Additional			Accumulated			Total Stockholders'
	Shares			Par value		Shares			Par value			Paid-in Capital			Deficit			Equity (Deficit)
Balance at January 1, 2023		133		$	-		219,163		$	219		$	7,928		$	(6,447	)	$	1,700
Balance at January 1, 2024		128		$	-		228,535		$	229		$	8,204		$	(8,540	)	$	(107	)
Conversion of Series A convertible preferred stock		(5	)		-		1,183			2			(2	)		-			-
Forfeiture of restricted stock awards		-			-		(911	)		(1	)		(14	)		-			(15	)
Stock compensation		-			-		9,100			9			292			-			301
Net loss		-			-		-			-			-			(2,093	)		(2,093	)
Balance at December 31, 2023		128			-		228,535			229			8,204			(8,540	)		(107	)
Issuance of common shares for cash		-			-		19,750			19			1,561			-			1,580
Issuance of common shares from debt redemption		-			-		7,500			8			668			-			676
Conversion of Series A convertible preferred stock		(5	)		-		1,185			1			(1	)		-			-
Forfeiture of restricted stock awards		-			-		(209	)		-			(2	)		-			(2	)
Stock compensation		-			-		525			-			232			-			232
Net loss		-			-		-			-			-			(4,159	)		(4,159	)
Balance at December 31, 2024		123		$	-		257,286		$	257		$	10,662		$	(12,699	)	$	(1,780	)
Conversion of Series A convertible preferred stock		(29	)		-		6,551			7			(7	)		-			-
Warrants exercised for vendor credit		-			-		3,700			4			366			-			370
Stock compensation		-			-		3,200			3			187			-			190
Forfeiture of restricted stock awards		-			-		(84	)		-			(4	)		-			(4	)
Issuance of warrant in connection with a settlement of accounts payable		-			-		-			-			148			-			148
Net income		-			-		-			-			-			4,499			4,499
Balance at December 31, 2025		94		$	-		270,653		$	271		$	11,352		$	(8,200	)	$	3,423

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

F-75

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the years ended
	December 31,
	2024			2023
	2025			2024
Cash Flows from Operating Activities:
Net loss	$	(4,159	)	$	(2,093	)
Net income (loss)	$	4,499		$	(4,159	)
Less: income (loss) from discontinued operations, net of tax		181			(156	)
Net income (loss) from continuing operations		4,318			(4,003	)
Reconciliation of net loss to net cash used in operating activities:
Allowance for doubtful accounts		7617			~~113~~75
Depreciation and amortization		~~104~~39			~~154~~102
Accretion of debt discount		~~352~~465			~~157~~352
Change in fair value of derivative liabilities		~~(79~~-	)		(~~550~~79	)
Debt extinguishment loss (gain)		75			(36	)
Debt extinguishment loss		50			75
Amortization of operating lease right-of-use asset		~~353~~145			~~375~~353
Stock based compensation		~~230~~186			~~286~~230
Subtotal of non-cash charges		1,111			499
Gain on sale of intellectual property		(7,500	)		-
Subtotal of non-cash charges		(6,598	)		1,108
Changes in operating assets and liabilities:
Accounts receivable		(~~152~~126	)		~~759~~(88	)
Inventories		1(4,~~159~~588	)		~~(174~~760	)
Prepaid expenses and other current assets		~~185~~(1,453	)		~~176~~192
Accounts payable and accrued expenses		550			513
Other assets		(27	)		-
Deferred revenue		40			(90	)
Accounts payable and accrued expenses		2,290			436
Lease liabilities		(355	)		(373	)
Deferred revenue		13			(32	)
Net cash used in operating activities		(1,621	)		(783	)
Lease liabilities		(143	)		(355	)
Net cash used in operating activities - continuing operations		(6,314	)		(1,982	)
Net cash provided by operating activities - discontinued operations		536			361
Net cash used in operating activities		(5,778	)		(1,621	)
Cash Flows from Investing Activities:
Proceeds from sale of intellectual property		7,500			-
Purchase of property, plant and equipment		(23	)		-
Net cash provided by investing activities		7,477			-
Cash Flows from Financing Activities:
Proceeds from issuance of common shares		~~1,580~~-			-1,580
Proceeds from issuance of notes payable		~~742~~546			~~1,569~~742
Proceeds from issuance of notes payable to related party		~~500~~2,100			~~1,200~~500
Repayment of notes payable		(1,~~272~~924	)		(~~996~~1,272	)
Repayment of notes payable to related party		(851,312	)		(~~880~~85	)
Net cash provided by financing activities		1,465			893
Net cash (used in) provided by financing activities		(590	)		1,465
Net (decrease) increase in cash		(156	)		110
Net increase (decrease) in cash		1,109			(156	)
Cash, beginning of the year		~~367~~211			~~257~~367
Cash, end of the year	$	~~211~~1,320		$	~~367~~211
Supplemental disclosure of cash flow information
Cash paid for interest	$	619		$	~~114~~61
Cash paid for interest to related party	$	~~146~~277		$	~~279~~146
Cash paid for income taxes	$	-		$	4-
Supplemental disclosure of cash flow information
Conversion of Series A convertible preferred stock	$	17		$	21
Issuance of common shares from debt redemption	$	676		$	-
Exchange accounts payable with a note payable	$	495		$	-
Issuance of common shares from debt redemption	$	-		$	676
Warrants exercised for vendor credit	$	370		$	-
Right-of-use asset recognized in exchange for lease liability	$	706		$	-

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

F-86

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries ~~and consolidated variable interest entity~~ (collectively, the “Company”, “we”), 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 through select distributors, specialty retailers, and third-party online resellers throughout the United States, and in select international markets.

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.

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

Basis of Presentation

The consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

~~Substantial~~On ~~Doubt~~October ~~about~~7, 2025, the Company’s ~~Ability~~Board of Directors unanimously approved a resolution to ~~Continue~~wind asdown and close permanently the Don Polly division, the Company’s variable interest entity. On December 31, 2025, Don Polly entered into a ~~Going~~Bill ~~Concern~~of Sale And Assignment Agreement (the “Assignment Agreement”) with Charlie’s. Pursuant to the Assignment Agreement, ~~Liquidity~~Don Polly transferred ownership of all of its right, title, and ~~Management~~interest in, as well as custody and control of, its assets to Charlie’s. ~~Plan~~The results of ~~Operation~~operations of Don Polly are reported as discontinued operations for the years ended December 31, 2025 and 2024. See Note 7 for additional information.

~~The~~Certain ~~accompanying~~reclassifications ~~consolidated financial statements~~ have been ~~prepared~~made assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to ~~existing laws and regulations could significantly limit~~ the ~~Company’s~~prior ~~ability~~period tofinancial ~~sell~~information ~~its products, and/or result in additional costs. Additionally, the Company was required~~ to ~~obtain~~reflect ~~approval~~discontinued ~~from~~operations ~~the United States Food and Drug Administration ("FDA") to continue selling and marketing certain of products used for the vaporization of nicotine in the United States~~presentation. ~~Currently,~~Unless aotherwise substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA. There was a significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future applications. For the year ended December 31noted, ~~2024,~~amounts ~~the Company’s revenue declined, the Company generated a loss from operations of approximately $3,452,000,~~ and adisclosures ~~consolidated~~throughout ~~net~~these ~~loss~~Notes of approximately $4,159,000. Cash used in operations was approximately $1,621,000. The Company had a stockholders’ deficit of $1,780,000 at December 31, 2024. During the year ended December 31, 2024, the Company’s working capital position decreased to aConsolidated ~~deficit~~Financial ofStatements ~~$1,855,000~~relate ~~from~~solely $332,000, as of December 31, 2023. Considering these facts, the issuance of one or several Marketing Denial Orders ("MDOs”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and potentially require us to ~~remove~~continuing ~~products~~operations ~~from circulation. These regulatory risks, as well as other industry-specific challenges, our low working capital~~ and ~~cash~~exclude ~~position~~all ~~remain~~discontinued ~~factors that raise substantial doubt about the Company’s ability to continue as a going concern~~operations.

~~F-9~~Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management’s Plan of Operation

Our ~~plans~~consolidated ~~and~~financial ~~growth~~statements ~~depend~~have onbeen ~~our~~prepared ~~ability~~assuming tothat ~~increase~~the ~~revenues,~~Company ~~procure~~will ~~cost-effective financing, and~~ continue ~~our business development efforts, including the expenditure of approximately $6,500,000~~ as ofa ~~December~~going 31concern, ~~2024,~~which tocontemplates ~~support our PMTA process for~~ the ~~Company’s~~realization ~~submissions to the FDA. The Company has undergone cost-cutting measures including salary reductions~~ of upassets ~~to 50% for officers~~ and ~~certain~~satisfaction ~~managers~~of ~~and~~liabilities ~~a reduction~~ in ~~headcount~~the ~~for~~normal ~~certain~~course ~~departments~~of business. ~~During~~For the ~~fourth~~year ~~quarter~~ended ofDecember ~~2024~~31, 2025, the Company’s ~~launched~~revenue ~~SBX~~increased, athe ~~non-nicotine, disposable vapor product which is not subject to FDA review. The~~ Company ~~may~~incurred ~~require~~a ~~additional~~loss ~~financing~~from inoperations ~~the future to support the development~~ of ~~new~~approximately ~~product categories as well as subsequent PMTA filings~~$2,165,000, and~~/or~~ ina ~~the~~net ~~event~~income ~~the~~from ~~FDA~~continuing ~~requests~~operations ~~additional~~of ~~testing~~approximately ~~for one~~$4, ~~or several~~318, ~~of the Company’s prior PMTA submissions~~000. ~~There~~Net ~~can~~cash beused noin ~~assurance~~continuing ~~that~~operating ~~additional~~activities ~~financing~~was ~~will~~approximately ~~be available on acceptable terms~~$6, ~~or at all~~314,000. ~~and~~The ~~there~~Company ~~can~~had bea nostockholders’ ~~assurance~~equity ~~that~~of ~~any such arrangement~~$3,423,000 ifat ~~required~~December ~~or otherwise sought~~31, ~~would~~2025. beDuring ~~available~~the onyear ~~terms~~ended ~~deemed~~December to31, ~~be commercially acceptable and~~2025, in the Company’s ~~best~~working ~~interests.~~capital ~~The~~was ~~financial~~increased ~~statements do not include any adjustments~~ to ~~the~~$3,137,000 ~~carrying~~from ~~amount~~a ~~and~~deficit ~~classification~~ of ~~recorded~~$1,855,000 ~~assets~~as ~~and~~of ~~liabilities~~December ~~should the Company be unable to continue operations. If we do not have sufficient funds to continue operations~~31, ~~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~~2024.

Management evaluated whether these conditions could raise a substantial doubt about the Company’s ability to continue as a going concern. During the year ended December 31, 2025, the Company entered into and closed an Asset Purchase Agreement (the “Agreement”) and subsequent amendment with one of the world’s largest tobacco companies (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.

The proceeds from these transactions have significantly improved the Company’s liquidity position, reduced outstanding obligations, and strengthened working capital.

In addition, management has implemented and continues to execute on initiatives designed to enhance operating performance and liquidity, including (i) focusing on growth in the Company’s non-combustible, alternative alkaloid (non-nicotine) products, (ii) advancing regulatory approval efforts for the Company’s nicotine product portfolio, and (iii) the continued development of intellectual property related to product access and compliance. The Company is also pursuing additional strategic transactions, including potential PMTA-related asset sales, which may provide incremental liquidity.

Based on these factors, management believes the Company is adequately capitalized to support its operations and meet its obligations as they come due for at least the next twelve months.

F-7

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 ~~June~~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 ~~intends~~submitted ~~to pursue~~ an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs. ~~Charlie’s~~The ~~submitted~~administrative ~~for~~appeal ~~our~~was ~~synthetic~~granted ~~nicotine~~on ~~products~~October 30, 2023 and the products were accepted to move forward in ~~parallel~~the PMTA review process. On October 28, 2025, the Company ~~intends~~received an MDO from the FDA with respect to ~~resubmit~~certain of our timely-submitted PMTAs. ~~for~~On November 5, ~~and~~2025, tothe ~~continue~~Company tofiled ~~sell,~~a motion for a temporary administrative stay with the ~~affected~~United ~~products~~States ~~while~~Court of Appeals for the ~~administrative~~Fifth ~~appeal~~Circuit. ~~process~~On isNovember 10, 2025, the Court granted the Company’s opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. ~~There~~Though ~~can~~a bevery nosmall ~~guarantee~~percentage ~~that~~of ~~FDA~~our ~~will~~current ~~grant~~sales are related to our ~~administrative~~affected ~~appeal~~PMTA Products, ~~and~~we intend to promptly seek a preliminary injunction to remain in effect during the ~~FDA~~pendency ~~may~~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 ~~the~~we ~~Company~~ 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.

~~F-10~~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.

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 any of these understandings be incorrect, the Company’s position on Metatine not qualifying as a “tobacco product” would need to be revisited. Further, 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 require us to remove our products from the market and to cease selling them.F-8

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 100% wholly owned subsidiary, Charlie’s Chalk Dust, LLC ~~and Don Polly, LLC, a consolidated variable interest for which the Company is the primary beneficiary~~. All inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

F-11

Fair Value of Financial Instruments

U.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.

In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. The fair value of derivative liabilities was estimated using a Monte Carlo simulation method, based on both observable and unobservable inputs. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. The Company determined that the carrying amounts of the current portion of outstanding notes payable approximate fair value due to the short-term nature of borrowings and current market interest rates. The Company determined the carrying amounts of the non-current portion of outstanding notes payable approximate fair value due to the current interest rates payable in relation to current market conditions.

Revenue Recognition

In circumstances where shipping and handling activities occur after the customer has obtained control of the product, the Company has elected to account for shipping and handling activities as a fulfillment cost rather than an additional promised service. Contract durations are generally less than one year and, therefore, costs paid to obtain contracts, which generally consist of sales commissions, are recognized as expenses in the period incurred. Revenue is measured by the transaction price, which is defined as the amount of consideration expected to be received in exchange for providing goods to customers. The transaction price is adjusted for estimates of known or expected variable consideration, which includes refunds and returns as well as incentive offers, volume rebates and promotional discounts on current orders. Our volume rebates are short-term in nature and reset on a quarterly basis. Estimates for sales returns are based on, among other things, an assessment of historical trends, information from customers, and anticipated returns related to current sales activity. These estimates are established in the period of sale and reduce revenue in the period of the sale. Variable consideration related to incentive offers and promotional programs are recorded as a reduction to revenue based on amounts the Company expects to collect. Estimates are regularly updated and the impact of any adjustments are recognized in the period the adjustments are identified. In many cases, key sales terms such as pricing and quantities ordered are established at the time an order is placed and incentives have very short-term durations.

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. We determine the ~~allowance~~credit ~~for~~losses ~~doubtful accounts~~ by regularly evaluating historical customer information and individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and establish an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, ~~2024~~2025 and ~~2023~~2024, the allowance for bad debt totaled $88105,000 and $2488,000, respectively.

F-129

Inventories

Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, ~~2024~~2025 and ~~2023~~2024, the reserve for excess and obsolete inventories totaled $~~999~~514,000 and $1531,~~100,~~000, respectively.

Plant, Property and Equipment

Property and equipment are stated at cost. Depreciation and amortization are provided for using the straight-line method, in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives. Repairs and maintenance costs are charged to operations as incurred.

Costs for capital assets not yet placed into service are capitalized as construction in progress on the consolidated balance sheets and will be depreciated once placed into service.

The Company assesses its long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected undiscounted net future cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets.

Leases

The Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement contains a lease at contract inception. Operating leases with a duration greater than one year are included in right-of-use assets, lease liabilities, and lease liabilities, net of current portion in the Company’s consolidated balance sheets. Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset.

The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred.

Stock-Based Compensation

The Company accounts for all stock-based compensation using a fair value-based method. The fair value of equity-classified awards granted to employees is estimated on the date of the grant using the Black-Scholes option-pricing model and the related stock-based compensation expense is recognized over the vesting period during which an employee is required to provide service in exchange for the award.

Income Taxes

Income taxes are computed under the asset and liability method. This method requires the recognition of deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities. The impact on deferred taxes of changes in tax rates and laws, if any, are applied to the years during which temporary differences are expected to be settled and are reflected in the consolidated financial statements in the period of enactment. A valuation allowance is recorded when it is more likely than not that some, or all of the deferred tax assets will not be realized.

F-1310

Financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. A tax position that meets the more-likely-than-not recognition threshold is initially and subsequently measured as the largest amount of tax benefit that meets the more-likely-than-not threshold of being realized upon ultimate settlement with a taxing authority. The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as income tax expense.

Research and Development

We expense the cost of research and development as incurred. Research and development expenses include costs incurred in funding research and development activities, license fees, and other external costs. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received, rather than when payment is made.

Segments

The Company’s chief operating decision maker ("CODM") is the President. The CODM is the highest level of management responsible for assessing the Company’s overall performance, and making operational decisions such as resource allocations related to operations, product prioritization and delegations of authority. The CODM has determined that the Company operates in a single operating and reportable segment and manages segment profit (loss) based upon consolidated net income (loss). The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets.

Discontinued Operations

The Company evaluates all disposal transactions to determine whether such disposal qualifies for reporting as discontinued operations in accordance with ASC Topic 205-20, “Discontinued Operations.” A disposal of a component or a group of components is reported in discontinued operations if the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results when the following occurs: (1) a component (or group of components) meets the criteria to be classified as held for sale; (2) the component or group of components is disposed of by sale; or (3) the component or group of components is disposed of other than by sale (for example, by abandonment or in a distribution to owners in a spin-off). For any component classified as held for sale or disposed of by sale or other than by sale, qualifying for presentation as a discontinued operation, the Company reports the results of operations of the discontinued operations (including any gain or loss recognized on the disposal or loss recognized on classification as held for sale of a discontinued operation), less applicable income taxes (benefit), as a separate component in the consolidated statement of operations for all prior periods presented. The Company also reports assets and liabilities associated with discontinued operations as separate line items on the consolidated balance sheet for prior periods.

Recently Adopted Accounting Standards

Improvements to Income Tax Disclosures

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 consolidated financial statements.

Scope Applications of Profits Interests and Similar Awards

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 consolidated financial statements.

F-11

Recently Issued Accounting Standards Not Yet Adopted

Interim Reporting

In December 2025, the FASB issued ASU No. 2025-11, Interim Reporting (Topic 270). The ASU improves the navigability of the required interim disclosures and clarifies when the guidance is applicable, as well as provides additional guidance on what disclosures should be provided in interim reporting periods. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods beginning after December 15, 2028. The Company is currently evaluating the impact of the new standard on its consolidated financial statements which is not expected to have a material impact.

Accounting for Government Grants Received by Business Entities

In December 2025, the FASB issued ASU 2025-10, Accounting for Government Grants Received by Business Entities. This ASU establishes the accounting and presentation for government grants received by a business entity under Government Grants (Topic 832). This ASU is effective for fiscal years beginning after December 15, 2028 and interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements and disclosures.

Intangibles - Goodwill and Other - Internal-Use Software

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 consolidated financial statements and disclosures.

Induced Conversions of Convertible Debt Instruments

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.

~~Disaggregation~~Income Statement of- Reporting Comprehensive Income ~~Statement~~- ~~Expenses~~Expense Disaggregation Disclosures

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation ofDisclosures (Subtopic 220-40). In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting ~~Expenses,~~Comprehensive ~~which~~Income-Expense isDisaggregation ~~intended~~Disclosures (Subtopic 220-40): Clarifying the Effective Date to ~~improve~~clarify ~~disclosures~~the byeffective ~~requiring~~date of ASU 2024-03. The amendments require disclosure of additional information about specific expense categories in the notes to the financial statements ~~on an annual and interim basis~~. ~~The~~This standard ~~will~~is be effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027,. ~~with~~Early ~~early~~ adoption is permitted. The ~~standard~~amendments ~~updates~~are ~~may~~to be applied on either aprospectively ~~prospective~~to financial statements issued for reporting periods after the effective date of this Update or ~~retrospective~~retrospectively ~~basis~~to any or all prior periods presented in the financial statements. The Company is currently evaluating the ~~disclosure~~impact ~~requirements~~that ~~related~~the toadoption of this ~~new~~ standard will have on the consolidated financial statements.

F-1412

Scope Applications of Profits Interests and Similar Awards

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. Upon adoption, ASU 2024-01 is not expected to have an impact on the Company’s consolidated financial statements.

Improvements to Income Tax Disclosures

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 does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

NOTE 3 – FAIR VALUE MEASUREMENTS

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

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

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

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

~~F-15~~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.

~~The~~In ~~following~~determining ~~table~~the ~~classifies~~appropriate levels, the Company’s performs a detailed analysis of the assets and liabilities ~~measured~~that atare ~~fair~~measured ~~value~~and reported on a ~~recurring~~fair value basis. ~~into~~At each reporting period, all assets and liabilities for which the fair value ~~hierarchy~~measurement is based on significant unobservable inputs are classified as ofLevel ~~December~~3. ~~31,~~The ~~2024~~valuation of assets and ~~2023~~liabilities ~~(amounts~~recognized in ~~thousands):~~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.

Fair Value at December 31, 2024

Total

Level 1

Level 2

Level 3

Liabilities:

Derivative liability - Warrants

Total liabilities

As of December 31, 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.

	Fair Value at December 31, 2023
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability - Warrants	$	79	$	-	$	-	$	79
Total liabilities	$	79	$	-	$	-	$	79

F-13

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2024 and 2023.

The following table presents changes in Level 3 liabilities measured at fair value for the years ended December 31, 2024 and 2023. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (amounts in thousands).

	Derivative liability - Warrants
Balance at January 1, 2023	$	629
Change in fair value		(550	)
Balance at December 31, 2023		79
Change in fair value		(79	)
Balance at December 31, 2024	$	0

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in the Monte Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of April 26, 2024 and December 31, 2023, is as follows:

	April 26,			December 31,
	2024			2023
Exercise price	$	0.4431		$	0.4431
Contractual term (years)		0.07			0.32
Volatility (annual)		110.0	%		90.0	%
Risk-free rate		4.5	%		5.4	%
Dividend yield (per share)		0	%		0	%

On April 26, 2019 (the “Closing Date”), the Company entered into a Securities Exchange Agreement (“Share Exchange”) with each of the former members (“Members”) of Charlie’s, and certain direct investors in the Company (“Direct Investors”), pursuant to which the Company acquired all outstanding membership interests of Charlie’s beneficially owned by the Members in exchange for the issuance by the Company of units. Immediately prior to, and in connection with, the Share Exchange, Charlie’s consummated a private offering of membership interests that resulted in net proceeds to Charlie’s of approximately $27.5 million (the “Charlie’s Financing”). In conjunction with the Share Exchange, the Company issued to holders of its Series A Convertible Preferred Stock (“Series A Preferred”) warrants to purchase an aggregate of 31,028,996 shares of Common Stock (the “Investor Warrants”) and to its placement agent Katalyst Securities LLC warrants to purchase an aggregate of 9,308,699 shares of Common Stock (the “Placement Agent Warrants”). Both the Investor Warrants and Placement Agent Warrants have a five-year term and a strike price of $0.44313 per share. Due to the exercise features of these warrants, they are not considered to be indexed to the Company’s own stock and are therefore not afforded equity treatment in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”). In accordance with ASC 815, the Company has recorded the Investor Warrants and Placement Agent Warrants as derivative instruments on its consolidated balance sheet. ASC 815 requires derivatives to be recorded on the balance sheet as an asset or liability and to be measured at fair value. Changes in fair value are reflected in the Company’s earnings for each reporting period.

On April 26, 2024, the Investor Warrants and Placement Agent Warrants expired without being exercised.

F-16

NOTE 4 – INVENTORY

The components of inventory as of December 31, ~~2024~~2025 and ~~2023~~2024 are summarized as follows:

	December 31,			December 31,
	2024			2023
	2025			2024
Finished goods		24,~~737~~073			2,~~712~~192
Raw materials		~~775~~494			~~1,367~~402
Overhead allocation		2219			1622
Inventory in transit		~~132~~2,016			~~831~~46
Less: inventory reserves		(~~999~~514	)		(~~1,100~~531	)
Total	$	26,~~667~~719		$	32,~~826~~131

NOTE 5 – PROPERTY AND EQUIPMENT

Property and Equipment detail as of December 31, ~~2024~~2025 and ~~2023~~2024 are as follows (amounts in thousands):

	December 31,			December 31,				~~Estimated Useful Life~~
	2024			2023				(in years)
	2025			2024			Estimated Useful Life
Machinery and equipment	$	41		$	41		5 years		5
Trade show booth		202			202		5 years		5
Office equipment		~~539~~550			539		5 years		5
Leasehold improvements		~~254~~266			254		Lesser of lease term or estimated useful life	~~Lesser of lease term or estimated useful life~~
		1,036			1,036
		1,059			1,036
Accumulated depreciation		(~~983~~1,022	)		(~~879~~983	)
	$	5337		$	~~157~~53

Depreciation and amortization expense totaled $~~104~~39,000 and $~~154~~104,000, respectively, during the years ended December 31, ~~2024~~2025 and ~~2023~~2024.

NOTE 6 – CONCENTRATIONS

Vendors

The Company’s concentration of purchases are as follows:

	For the years ended
	December 31,
	2024			2023
	2025			2024
Vendor A		359	%		-35	%
Vendor B		133	%		-13	%
Vendor C		1064	%		2910	%
Vendor D		-			32	%

During the year ended December 31, ~~2024~~2025, purchases from three vendors represented 5876% of total inventory purchases. During the year ended December 31, ~~2023~~2024, purchases from two vendors represented 6158% of total inventory purchases. ~~Vendor~~As Cof isDecember an31, ~~international~~2025 ~~vendor~~and 2024, amounts owed to these vendors totaled $2,229,000 and $266,000 respectively, which are included in accounts payable in the accompanying condensed consolidated balance sheets.

As of December 31, 2024 and 2023, amounts owed to these vendors totaled $263,000 and $266,000 respectively, which are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.F-14

F-17

Accounts Receivable

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

	For the years ended December 31,
	2024				2023
	2025				2024
Customer A	$	~~125,000~~-	31	%	$	-125,000	-31	%
Customer B	$	52100,000	1317	%	$	7152,000	2013	%
Customer C	$	~~85,000~~-	21-	%		4785,000	1321	%
Customer D		-89,000	-14	%		~~39,000~~-	11-	%
Customer E	$	~~66,000~~-	16-	%		3366,000	1016	%
Customer F	$	-100,000	-16	%		~~93,000~~-	27-	%
Customer G	$	65,000	10	%		-	-	%

Four customers made up more than 10% of net accounts receivable at December 31, ~~2024~~2025, and ~~five~~four customers made up more than 10% of net accounts receivable as of December 31, ~~2023. No customer exceeded 10% of total net sales for the years ended December 31,~~ 2024 ~~and 2023, respectively~~.

~~NOTE~~For 7the –year ~~DON~~ended ~~POLLY~~December 31, ~~LLC~~2025, one customer accounted for approximately 17%, of the Company’s total net sales. For the year ended December 31, 2024, no customers exceeded 10% of total net sales

~~Don~~NOTE ~~Polly,~~7 ~~LLC~~– isDISCONTINUED aOPERATIONS ~~Nevada~~- ~~limited~~DON ~~liability company that is owned by an entity controlled by Ryan Stump~~POLLY, ~~a current executive officer of the Company, and a consolidated variable interest for which the Company is the primary beneficiary~~LLC. ~~Under Don Polly, the Company had previously focused on the research and development and sale of alternative products.~~

Don Polly is ~~classified as~~ a ~~variable~~Nevada ~~interest~~limited ~~entity~~liability ~~(“VIE”)~~company ~~for~~that ~~which the Company~~ is ~~the~~owned ~~primary~~by ~~beneficiary.~~entities ~~Under~~controlled ~~ASC~~by ~~810-10-15,~~Ryan ~~Variable Interest Entities~~Stump, a ~~VIE~~current isexecutive anofficer ~~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~~respectively, ~~the~~and ~~enterprise has both (1) the power to direct the activities of~~ a ~~VIE~~consolidated ~~that~~variable ~~most~~interest ~~significantly~~for ~~impact~~which 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 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 markets and itdistributes isthird-party ~~still~~product ~~considered a VIE of the Company~~lines.

On December 31, 2025, Don Polly ~~operates~~entered ~~under~~into ~~exclusive~~the ~~licensing~~Assignment ~~and~~Agreement, ~~service~~pursuant ~~contracts~~to ~~with~~which ~~the~~Don ~~Company~~Polly ~~whereby~~transferred ~~the~~ownership ~~Company~~of ~~receives~~all ~~100%~~ of ~~net~~its ~~income~~right, ortitle, ~~incurs~~and ~~100%~~interest ofin, ~~the~~as ~~net~~well ~~loss~~as custody and control of, ~~the~~its ~~VIE~~assets to Charlie’s. ~~There~~The ~~are~~Company received no ~~non-controlling~~cash ~~interests~~consideration ~~recorded~~related to the assignment.

The following information presents the major classes of line item of assets and liabilities included as part of discontinued operations of Don Polly in the consolidated balance sheet as of December 31, 2024 (amount in thousands):

	December 31, 2024
Accounts receivable, net	$	33
Inventory, net		536
Prepaid expenses and other current assets		12
Total current assets in discontinued operations		582
Total assets in discontinued operations	$	582

Accounts payable	$	154
Deferred revenue		73
Total current liabilities in discontinued operations		227
Note payable		150
Total non-current liabilities in discontinued operations		150
Total liabilities in discontinued operations	$	377

F-15

The following information presents the major classes of line items constituting the loss from discontinued operations of Don Polly in the consolidated statements of operations for the years ended December 31, 2025 and 2024 (amount in thousands):

	For the Years Ended
	December 31,
	2025			2024
Product revenue, net	$	3,120		$	729
Cost of goods sold - product revenue		2,557			715
Gross profit		563			14
Operating expenses:
General and administrative		199			107
Sales and marketing		166			55
Research and development		3			-
Total operating expenses		368			162
Loss from operations		195			(148	)
Interest expense		(5	)		(8	)
Loss from discontinued operations, before income tax		190			(156	)
Income tax provision		(9	)		-
Income (loss) from discontinued operations, net of tax	$	181		$	(156	)

NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of December 31, ~~2024~~2025 and ~~2023~~2024 are as follows (amounts in thousands):

	December 31,		December 31,
	2024		2023
	2025		2024
Accounts payable	$	23,~~131~~285	$	12,~~472~~104
Accrued compensation		~~555~~800		~~573~~555
Accrued income taxes		~~128~~413		128
Customer deposits		~~106~~182		~~386~~86
Other accrued expenses		~~476~~357		~~287~~369
	$	35,~~396~~037	$	23,~~846~~242

F-1816

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 ~~will~~bears ~~bear~~ 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 ~~June~~September 15, 2025, (the “Maturity Date”), the Company shall pay ~~Ten Thousand Dollars (~~$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 December 31, 2025.

AsThe ~~part~~fair value of the ~~closing~~Chemular Warrants was $148,000 as of the ~~Asset~~issuance ~~Purchase~~date ~~Agreement~~ (see Note ~~16 – Subsequent Events~~11). onAs ~~April~~a 16result, ~~R.J.~~the ~~Reynolds Vapor~~ Company ~~wired~~recognized ~~directly~~a todebt ~~Chemular~~extinguishment ~~approximately~~loss of $~~319~~23,000 toduring ~~satisfy~~ the ~~Chemular~~year ~~Note~~ended inDecember ~~full~~31, 2025.

~~September~~As ~~2024~~part ~~Pinnacle~~of ~~Receivables~~the ~~Financing~~closing of the Asset Purchase Agreement on April 16, 2025, the Buyer wired directly to Chemular approximately $319,000 to satisfy the Chemular Note in full.

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 purchases from the Company its future accounts receivable and ~~contract~~January ~~rights~~2025 ~~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 requires 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. As of December 31, 2024, the outstanding balance was approximately $642,000.

On ~~April~~September ~~16th~~6, ~~2025~~2024, the Company ~~issued~~entered into a ~~payment~~future ofreceivables ~~approximately~~sale ~~$1,250,000~~agreement to(“Pinnacle ~~satisfy~~Receivables ~~all~~Financing ~~outstanding~~Agreement”) ~~principal~~with ~~and~~Pinnacle ~~interest~~Business ~~owed~~Funding to(“Pinnacle”) by which Pinnacle. Bypurchased from ~~satisfying~~the Company its future accounts receivable and contracted rights arising from the ~~balance~~sale inof ~~full~~goods ~~prior~~or services to ~~April~~the ~~16,~~Company’s ~~2025~~customers. The purchase price, as defined by the ~~Company~~Pinnacle Receivables Financing Agreement, was ~~able~~$750,000 which was paid to ~~secure~~the Company on September 12, 2024, net of a 1% ~~discount~~origination fee. The Pinnacle Receivables Financing Agreement required forty equal payments of ~~approximately~~$25,687.50 to be paid weekly for a total repayment of $991,~~000~~027,500 over the term of the agreement.

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 year ended December 31, 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.

January 2024 Note Financing

On January 24, 2024, the Company issued an unsecured promissory note (the “Red Beard Note”) to one of its largest stockholders Red Beard Holdings LLC (the “Red Beard Lender"), in the principal amount of $500,000. Red Beard Note shall bear interest at twenty-one percent (21%) per annum and have maturity through July 24, 2024.

On May 31, 2024, as part of the May 2024 capital raise (see Note 11), the holder of the Red Beard Note (the “Holder”) converted the principal amount of $500,000 in lieu of cash payment for the subscription agreement. Separately, the Holder was paid $52,500 in interest on the maturity date of July 24, 2024.

F-17

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 shall bear interest at twenty-one percent (21%) per annum and have 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. As of December 31, 2024, $400,000 of Notes remained outstanding with Ryan Stump and Henry Sicignano III, and the maturity dates of the outstanding notes had been extended to December 31, 2024. On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $75,000 of accrued interest and have 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 has been extended to April 28, 2026. As of December 31, 2025, approximately $138,000 of the Notes remained outstanding.

~~2023~~Secured ~~Receivables~~Promissory ~~Financing~~Notes

On ~~January~~April 196, ~~2023~~2022, the Company ~~entered~~issued ~~into~~ a ~~future~~secured ~~receivables~~promissory ~~sale~~note ~~agreement~~ (~~“Receivables~~the ~~Financing” or~~ “~~Receivables Financing Agreement~~Note”) ~~with~~to ~~Austin~~one ~~Business~~of ~~Finance~~its ~~(“Austin~~large ~~Purchaser”)~~individual bystockholders, ~~which~~Michael ~~Austin~~King ~~Purchaser purchases from~~ (the ~~Company~~“Lender"), ~~its~~in ~~future~~the ~~accounts~~principal ~~and~~amount ~~contract~~of ~~rights~~$1,000,000, ~~arising~~which ~~from~~Note ~~the~~was ~~sale~~secured ofby ~~goods~~accounts orreceivable ~~rendition~~ of ~~services to~~ the Company’s ~~customers.~~pursuant ~~The~~to ~~purchase~~the ~~price,~~terms asof ~~defined~~a bySecurity ~~the Receivables Financing~~ Agreement, ~~was~~entered ~~$650,000~~into ~~which~~by ~~was~~and ~~paid~~between to the Company onand ~~January~~the ~~19,~~Lender ~~2023,~~(the ~~net~~"Note ~~of a 3% origination fee~~Financing"). ~~The~~On ~~Receivables~~September ~~Financing~~28, ~~Agreement~~2022, ~~required~~the ~~twenty-six~~Company ~~equal~~and ~~payments~~the ofLender ~~$29,500~~entered tointo ~~be paid weekly for~~ a ~~total~~modification ~~repayment~~to ~~of $760,500 over~~ the ~~term~~Note ofto extend the ~~agreement.~~maturity Asdate ofto ~~December~~March 3128, 2023, and the Company ~~had~~paid ~~fully~~all ~~repaid the outstanding principal balance and~~ accrued interest ~~totaling~~under ~~$760,250~~the onNote ~~its~~through ~~Receivables~~such ~~Financing Agreement~~date.

~~F-19~~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 ~~December~~May 1331, 2023 the Company entered into a second future receivables sale agreement (“Second Receivables Financing” or “Receivables Financing Agreement”) with Austin Business Finance (“Austin Purchaser”) by which Austin Purchaser purchases from the Company2024, ~~its~~as ~~future~~part ~~accounts and contract rights arising from the sale~~ of ~~goods or rendition of services to~~ the ~~Company’s~~May ~~customers.~~2024 ~~The~~capital ~~purchase price~~raise, ~~as defined by~~ the ~~Second~~Lender ~~Receivables~~converted ~~Financing~~his ~~Agreement,~~next ~~was~~four ~~$750,000~~debt ~~which~~repayments ~~was~~for ~~paid to~~ the ~~Company~~period onfrom ~~December~~June ~~13,~~to ~~2023,~~September ~~net of a 3% origination fee. The Second Receivables Financing Agreement required fifty-two equal payments of $17~~2024,~~740~~ ~~to be paid weekly~~ for a total ~~repayment~~amount of $~~922~~100,~~500~~000, ~~over~~in ~~the~~lieu ~~term~~ of ~~the~~cash ~~agreement.~~payment Asfor ~~of December 31, 2024,~~ the ~~Company~~subscription ~~had fully repaid the outstanding principal balance and accrued interest totaling $922,500 on its Second Receivables Financing Agreement~~agreement.

On April ~~2022~~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 $243,000of the Note ~~Financing~~remained outstanding.

On ~~April~~August 6, ~~2022~~2025, the Company issued aan additional secured promissory note (the “August Note”) to ~~one of its large individual stockholders, Michael King (~~the “Lender~~"),~~ in the principal amount of $12,000,000, which ~~Note~~ is secured by accounts receivable of the Company pursuant to the terms ofin ~~a Security Agreement entered into by and between~~ the ~~Company~~same ~~and the Lender (the "~~Note Financing"). OnThe ~~September~~August ~~28, 2022, the Company and the Lender entered into a modification to the~~ Note tobears ~~extend~~an ~~the~~annual ~~maturity~~interest ~~date~~rate toof ~~March~~13% ~~28, 2023~~ and ~~the~~has ~~Company~~a ~~paid~~term ~~all~~of ~~accrued~~one ~~interest under the Note through such date~~year.

On March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to April 28, 2024, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note. Principal shall be payable on the 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining principal balance will be paid. Interest shall accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and shall be payable on the same day as installments of principal are payable. The Company may 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 are due earlier of April 28, 2024, or 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 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.

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 ~~will~~was be due in full in 120 days or sooner if, before the end of term, the Company ~~secures~~ secured (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan ~~bears~~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 ~~has~~ 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 ~~sixth~~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.

Economic Injury Disaster Loan

On June 24, 2020, SBA authorized (under Section 7(b) of the Small Business Act, as amended) an Economic Injury Disaster Loan (“EID Loan”) to Don Polly in the amount of $150,000. The balance of principal and interest will be payable thirty years from the date of the EID Loan and interest will accrue at the rate of 3.75% per annum.

F-2018

The following summarizes the Company’s notes payable maturities as of December 31, ~~2024~~2025 (amounts in thousands):

Year Ending December 31, 2025	$	2,135
Year Ending December 31, 2026		2,280
Year Ending December 31, 2026		-
Year Ending December 31, 2027		-
Year Ending December 31, 2028		-
Year Ending December 31, 2029		-
Year Ending December 31, 2030		-
Thereafter		150
		2,285
Total	$	2,430
Debt discount		(127	)
Total	$	2,158

NOTE 10 –LOSS PER SHARE BASIC AND FULLY DILUTED

Basic earnings (loss) per common share is computed by dividing net ~~loss~~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 is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net loss per share (in thousands):

	For the years ended
	December 31,
	2025		2024
Income (loss) from continuing operations after income taxes	$	4,318	$	(4,003	)
Income (loss) from discontinued operations, net of tax		181		(156	)
Net income (loss) - basic and diluted	$	4,499	$	(4,159	)

Weighted average shares outstanding - basic		257,353,423		234,798,277
Diluted preferred shares		21,190,885		-
Weighted average shares outstanding - diluted		278,544,310		234,798,277

Net earnings (loss) per share:
Income (loss) from continuing operations, basic	$	0.02	$	(0.02	)
Income (loss) from discontinued operations, basic	$	0.00	$	0.00
Net earnings (loss) per share, basic	$	0.02	$	(0.02	)

Net earnings (loss) per share:
Income (loss) from continuing operations, diluted	$	0.02	$	(0.02	)
Income (loss) from discontinued operations, diluted	$	0.00	$	0.00
Net earnings (loss) per share, diluted	$	0.02	$	(0.02	)

F-19

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

	For the years ended
	December 31,
	2024		2023
	2025		2024
Options		4,~~648~~408		54,~~272~~648
Warrants		-		40,338
Series A convertible preferred shares		-		27,741
Series A convertible preferred shares		27,741		28,926
Total		4,408		32,389
Total		32,389		74,536

~~F-21~~All common stock options outstanding as of December 31, 2025 were out of the money and were not included in net earnings per share calculation.

NOTE 11 – STOCKHOLDERS’ EQUITY

Conversion of Series A Preferred Shares

For the year ended December 31, ~~2024, the Company issued approximately 1,185,000 shares of Common Stock upon conversion of 5,251 shares of Series A Preferred. For the year ended December 31,~~ 2023, the Company issued approximately 1,183,000 shares of Common Stock upon conversion of 529,~~242~~027 shares of Series A Preferred.

Common Stock Warrants

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 December 31, 2025.

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:

Exercise price	$	0.10
Contractual term (years)		2.98
Volatility (annual)		131.5	%
Risk-free rate		4.3	%
Dividend yield (per share)		0	%

November 2024 Capital Raise

On November 22, 2024, the Company entered into subscription agreements with investors for the sale of an aggregate of 6,875,000 shares of its common stock, par value $0.001 per share, at a purchase price per share of $0.08 (the “November Offering”). The Offering generated gross proceeds to the Company of approximately $550,000, which will be used for working capital purposes. The November Offering was undertaken in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering.

May 2024 Capital Raise

On May 31, 2024, the Company entered into subscription agreements with investors for the sale of an aggregate of 20,375,000 shares of its common stock, par value $0.001 per share, at a purchase price per share of $0.08 (the “May Offering”). The May Offering generated gross proceeds of approximately $1.63 million, which will be used for working capital purposes. The May Offering was undertaken in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering.

As part of the Offering, certain note holders converted their outstanding debt and future debt repayments for total amount of $600,000 in lieu of cash payment for the subscription agreement (see Note 9). The Company recognized a $75,000 debt extinguishment loss for the year ended December 31, 2024.

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 15,000,000 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.

F-2220

Non-Qualified Stock Options

The following table summarizes stock option activities during the year ended December 31, ~~2024~~2025 and ~~2023~~2024 (all option amounts are in thousands):

	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at January 1, 2023		6,003		$	0.56		6.4		-
Outstanding at January 1, 2024		5,272		$	0.58		5.3	$	-
Options forfeited/expired		(731	)		0.45		-		-
Outstanding at December 31, 2023		5,272			0.58		5.3	$	-
Options forfeited/expired		(624	)		1.44		-		-
Outstanding at December 31, 2024		4,648		$	0.46		4.8	$	-
Options vested and exercisable at December 31, 2024		4,648		$	0.46		4.8	$	-
Options forfeited/expired		(240	)		0.44		-		-
Outstanding at December 31, 2025		4,408		$	0.46		3.8	$	-
Options vested and exercisable at December 31, 2025		4,408		$	0.46		3.8	$	-

As of December 31, ~~2024~~2025, all stock options were fully vested and no stock-based compensation expense related to the issuance of stock options was recognized.

Restricted Stock Awards

The following table summarizes restricted stock awards activities during the years ended December 31, ~~2024~~2025 and ~~2023~~2024 (all share amounts are in thousands).

	Number of Shares			Weighted Average Grant Date Fair Value per Share
Nonvested at January 1, 2023		6,616		$	0.041
Nonvested at January 1, 2024		10,095			0.055
Restricted stock granted		9,100			0.033
Vested		(4,710	)		0.054
Forfeited		(911	)		0.036
Nonvested at December 31, 2023		10,095			0.055
Restricted stock granted		525			0.041
Vested		(4,781	)		-
Forfeited		(209	)		-
Nonvested at December 31, 2024		5,630		$	0.054
Restricted stock granted		3,200			0.027
Vested		(4,055	)		-
Forfeited		(83	)		-
Nonvested at December 31, 2025		4,692		$	0.054

During the ~~year~~years ended December 31, 2025 and 2024, the Company granted 3,200,000 and 525,000 restricted stock awards (“RSAs”) to employees and contractors of the Company pursuant to the 2019 Plan, as amended, respectively. 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 for the years ended December 31, 2025 and 2024 was approximately $126,000 and $77,000, respectively. During the ~~year~~years ended December 31, 2025 and 2024, approximately 83,000 and 209,000 RSAs issued to employees were forfeited, respectively.

F-2321

~~During~~As ~~the~~of ~~year ended~~ December 31, ~~2023~~2025, ~~the~~there ~~Company~~was ~~granted 9~~approximately $101,~~100,~~000 ~~restricted~~ ~~stock~~of ~~awards~~total ~~(“RSAs”)~~unrecognized tocompensation ~~employees,~~expense ~~officers,~~related ~~directors~~to ~~and~~non-vested ~~contractors~~restricted ofshare-based ~~the~~compensation ~~Company~~arrangements ~~pursuant~~granted tounder the 2019 Plan, as amended. ~~The~~That ~~RSAs~~cost ~~are~~is ~~subject~~expected to abe ~~vesting~~recognized ~~schedule~~over ~~and~~a ~~have~~weighted ~~all~~average ~~the~~period ~~rights~~ of a2.6 ~~shareholder~~years. ofThe ~~the~~ Company ~~with~~recorded ~~respect~~total tostock-based ~~voting,~~compensation ~~share adjustments, receipt~~ of ~~dividends~~approximately ~~(if~~$187,000 ~~any)~~ and ~~distributions (if any) on such shares. The grant date fair value was approximately~~ $~~585~~230,000. ~~During~~during the ~~year~~years ended December 31, ~~2023,~~2025 ~~approximately 911,000 RSAs~~and ~~issued~~2024 related to ~~employees~~the ~~and~~RSAs, ~~contractors were forfeited~~respectively.

As of December 31, 2024, there was approximately $170,000 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 2.0 years. The Company recorded total stock-based compensation of approximately $230,000 and $288,000 during the years ended December 31, 2024 and 2023 related to the RSAs, respectively.

NOTE 13 – SEGMENT AND GEOGRAPHICAL INFORMATION

In November 2023, the Financial Accounting Standards Board, or FASB, issued ASU 2023-07, Segment Reporting: Improvements in Reportable Segment Disclosures (“ASU No. 2023-07”). The amendments in the ASU are expected to improve disclosures about a public entity’s reportable segments and addresses requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 requires public companies to disclose, on an annual and interim basis, significant expenses that are regularly provided to the chief operating decision maker (CODM) and included within each reported measure of segment profit and loss. The amendments in the ASU require that a public company provide all annual disclosures about a reportable segment’s profit or loss and assets currently required under ASC 280 in interim periods. The amendments in the ASU also require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition. The other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss. The amendments in the ASU, among other items, also requires that a public company disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The ASU applies to all public entities that are required to report segment information in accordance with Topic 280. All public entities will be required to report segment information in accordance with the new guidance starting in annual periods beginning after December 15, 2023. The Company adopted ASU 2023-07 effective with the 2024 10-K and the adoption only impacted its disclosures with no impacts to the Company's results of operations, cash flows, or financial condition.

The Company's CODM is its President. The CODM has determined that the Company operates in a single operating and reportable segment and manages segment performance and resource allocation based upon consolidated net income (loss). The measure of segment assets is reported on the consolidated balance sheet as total consolidated assets. Significant expenses reviewed by the CODM include those that are presented in the Consolidated Statements of Operations and Comprehensive Income (Loss).

The following table disaggregates revenue from our single operating segment by geographic market and customer type for the periods ending December 31, ~~2024~~2025 and ~~2023~~2024, respectively:

	December 31, 2024		December 31, 2023
	December 31, 2025		December 31, 2024
Geographic Market
International	$	~~680~~920	$	~~1,625~~620
United States	$	719,~~814~~995	$	147,~~625~~145
Total	$	820,~~494~~916	$	167,~~250~~765
Customer Type
Retailer	$	2,~~124~~112	$	41,~~875~~942
Distribution	$	618,~~370~~804	$	115,~~375~~823
Total	$	820,~~494~~916	$	167,~~250~~765

F-2422

NOTE 14 - COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space under agreements classified as operating leases that expire on various dates through ~~2024~~2028. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which ~~expires~~expired inon ~~2024,~~September ~~its warehouse in Santa Ana~~30, ~~California~~2024, ~~which was renewed in May 2022~~ and ~~expires~~effective ~~May~~October ~~2025~~1, ~~its~~2024, ~~office~~the ~~and~~lease ~~warehouse~~will inbe ~~Denver,~~on ~~Colorado,~~a ~~which~~month-to-month ~~expired in May 2022~~basis, and its warehouse ~~space~~ in Huntington Beach, California, which was renewed in ~~June~~August ~~2022~~2025 and expires May 2028. 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, ~~has~~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 ~~will~~is also be 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, ~~and~~of ~~executed by Mr. David Allen~~Directors, ~~the Company’s former Chief Financial Officer,~~ after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. Effective October 1, 2024, the lease was on a month-to-month basis. The total ~~amount~~rent paid to related parties for the years ended December 31, ~~2024~~2025 and ~~2023~~2024 was approximately $275,~~280~~000 and $275,~~280~~000, respectively.

Effective June 12, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025. ~~The~~On ~~Company~~August is12, ~~currently~~2025, ~~operating~~the inCompany renewed this ~~facility~~lease onfor aan ~~month~~additional tothree ~~month~~years ~~basis~~commencing on September 1, 2025 and isending ~~working~~August ~~with~~31, ~~the~~2028. ~~landlord~~The torenewal ~~renew~~resulted ~~the~~in an additional $583,000 in right-of-use assets and $583,000 in lease liabilities.

AtIn ~~December~~September 312025, ~~2024~~the Company entered into a lease agreement commencing on October 1, 2025 (the “October Lease”), pursuant to which the Company ~~had~~leases ~~operating~~certain ~~lease~~premises ~~liabilities~~located ofat ~~approximately~~15902-06 ~~$73~~Manufacture Lane,~~000~~ Huntington Beach, CA for purposes of filling and ~~right~~assembling certain of ~~use~~its ~~assets~~nicotine and alternative alkaloid vapor products. The October Lease has a term of ~~approximately~~1.5 years concluding March 31, 2027. The Company recognized $71123,000, in ~~which~~right-of-use ~~were~~assets ~~included~~and $123,000 in lease liabilities on the consolidated balance sheet as of the commencement date.

~~F-25~~At December 31, 2025, the Company had operating lease liabilities of approximately $636,000 and right of use assets of approximately $632,000 which were included in the consolidated balance sheet.

F-23

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

	For the years ended
	December 31,
	2024		2023
	2025		2024
Operating leases
Operating lease cost	$	~~382~~173	$	~~451~~382
Variable lease cost		-		-
Operating lease expense		~~382~~173		~~451~~382
Short-term lease rent expense		~~772~~340		20772
Total rent expense	$	~~1,154~~513	$	~~471~~1,154

	For the years ended
	December 31,
	2024			2023
	2025			2024
Operating cash flows from operating leases	$	385		$	449
Right of use assets exchanged for new operating lease liabilities	$	706		$	-
Weighted-average remaining lease term – operating leases (in years)		0.42			1.11
Operating cash flows from operating leases	$	171		$	385
Weighted-average remaining lease term – operating leases (in years)		2.23			0.42
Weighted-average discount rate – operating leases		12.0	%		12.0	%

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

Year Ending December 31, 2025	$	75
Year ended December 31, 2026		316
Total		75
Year ended December 31, 2027		259
Less present value discount		(2	)
Year ended December 31, 2028		163
Operating lease liabilities as of December 31, 2024	$	73
Total		738
Less present value discount		(103	)
Operating lease liabilities as of December 31, 2025	$	636

Legal proceedings

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.

New Executive Employment Agreement

On June 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.

F-2624

NOTE 15- INCOME TAXES

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

The table below presents the components of the (benefit) for income taxes. The Company's (benefit) is driven primarily by operating income, nontaxable derivative fair value adjustments, and state taxes (in thousands).

	As of December 31,
	2024		2023
	2025		2024
Current
US Federal	$	-33	$	-
US State		-242		-
Total current (benefit) provision		-		-
Total current provision		275		-
Deferred
US Federal		-		-
US State		-		-
Total deferred (benefit) provision		-		-
Total deferred provision		-		-
Total (benefit) provision for income taxes	$	-	$	-
Total provision for income taxes	$	275	$	-

The tax effects of temporary differences and tax loss carryovers that give rise to significant portions of deferred tax assets and liabilities at December 31, ~~2024~~2025 and ~~2023~~2024 are comprised of the following (in thousands):

	As of December 31,
	2024			2023
	2025			2024
Deferred tax assets:
Bad debt	$	2725		$	727
Inventory		~~271~~55			~~300~~271
Accrued expenses		~~188~~189			~~138~~188
Lease liability		19141			~~114~~19
Research and development credits		~~141~~92			141
Stock compensation		~~149~~176			90149
Net operating loss carryovers		31,~~107~~718			23,~~077~~107
Capitalized R&D		~~155~~-			~~191~~155
Other		2-			63
Derivatives		-			5-
Depreciation		2528			424
Gross deferred income tax assets		42,~~084~~427			34,~~073~~084
Deferred income tax liabilities:
ROU assets		(19140	)		(~~113~~19	)
Total deferred income tax liabilities		42,~~065~~287			24,~~960~~065
Net deferred income tax assets
Valuation allowance		(42,~~065~~287	)		(24,~~960~~065	)
Deferred tax asset, net of allowance	$	-		$	-

The Company recognizes federal and state deferred tax assets or liabilities based on the Company's estimate of future tax effects attributable to temporary differences and carryovers. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. As of December 31, ~~2024~~2025, as a result of a three-year cumulative loss and lack of sufficient positive evidence, we concluded that a full valuation allowance was necessary to offset our deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized.

F-2725

At December 31, ~~2024~~2025, the Company had Federal and state net operating loss carryovers for income tax purposes of approximately $105.92 million and $139.8 9 million, respectively. The Federal net operating losses can be carried forward indefinitely but are limited to offsetting only 80% of taxable income each year. The state net operating losses expire at various dates through 2043, if not utilized beforehand.

At December 31, ~~2024~~2025, the Company had federal research and development credit carryovers of approximately $0.21 million. The federal research credits expire by 2040 if not utilized beforehand.

The utilization of net operating loss carryforwards and research tax credit carryovers could be subject to annual limitations under Section 382 and 383 of the Internal Revenue Code of 1986, and similar state tax provisions, due to ownership change limitations that may have occurred previously or that could occur in the future. These ownership changes limit the amount of net operating loss carryforwards and other deferred tax assets that can be utilized to offset future taxable income and tax, respectively. In general, an ownership change, as defined by Section 382 and 383, results from transactions increasing ownership of certain stockholders or public groups in the stock of the corporation by more than 50 percent points over a three-year period. The Company has not conducted an analysis of an ownership change under section 382. The Company experienced an ownership change in 2019. Absent an analysis, the Company has assumed that net operating losses generated prior to the change are not available to offset income subsequent to the ownership change date. To the extent that a study is completed, and certain pre-acquisition losses are deemed to be available to be utilized to offset taxable income, the Company's tax liabilities could be reduced. To the extent that a study is completed and additional or future ownership changes are deemed to occur, the Company's net operating losses and tax credits could be further limited.

A reconciliation of the statutory income tax rates and the Company's effective tax rate for the years ended December 31, ~~2024~~2025 and ~~2023~~2024, are as follows (dollars in thousands):

	Year ended December 31, 2024			Year ended December 31, 2023
	Year ended						Year ended
Statutory federal income tax rate		21.0	%		21.0	%
	December 31, 2025						December 31, 2024
Non-taxed loss from VIE		0.0	%		0.0	%
Statutory federal income tax rate	$	996			21.0	%	$	(840	)	21.0	%
Research credits		0.0	%		0.0	%
State taxes, net of federal tax benefit		191			4.0	%*		-		-	%*
State taxes, net of federal tax benefit		5.8	%		6.0	%
Tax Credits
Stock compensation		(0.1	)%		(4.3	)%
Research credits		(77	)		(1.6	)%		-		-	%
Permanent Items		(0.1	)%		(0.4	%
Nontaxable or Nondeductible Items
Section 382 NOL Adjustments		(0.1	)%		(0.2	)%
Stock compensation		3			0.1	%		2		-	%
Derivatives		0.3	%		4.2	%
Other permanent items		8			0.2	%		5		(0.1	)%
Return to provision adjustments		0.1	%		2.0	%
Other Adjustments		16			0.3	%		(14	)	0.3	%
Other		(0.3	)%		2.0	%
Change in valuation allowance		(862	)		(18.2	)%		847		(21.2	)%
Change in valuation allowance		(26.6	)%		(30.3	)%
Total	$	275			5.8	%	$	-		-	%
Total effective tax rate		0.0	%		0.0	%

~~ASC~~* ~~740~~The ~~prescribes~~following astate ~~recognition threshold~~ and alocal ~~measurement attribute for the financial statement recognition and measurement of~~ tax ~~positions~~jurisdictions ~~taken~~make orup expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The following table summarizes the ~~activity~~majority ~~related~~of to the ~~Company’s~~effect ~~gross~~of ~~unrecognized tax benefits at~~ the ~~beginning~~state and ~~end~~local ofincome ~~the~~tax ~~years~~line ~~ended December 31, 2024 and 2023 (in thousands)~~item: California.

	Year ended December 31, 2024		Year ended December 31, 2023
Gross unrecognized tax benefits at the beginning of the year	$	109	$	109
Increases related to current year positions		-		-
Increases related to prior year positions		-		-
Decreases related to prior year positions		-		-
Expiration of unrecognized tax benefits		-		-
Gross unrecognized tax benefits at the end of the year	$	109	$	109

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2025 and 2024 (in thousands):

	Year ended December 31, 2025			Year ended December 31, 2024
Gross unrecognized tax benefits at the beginning of the year	$	109		$	109
Increases related to current year positions		-			-
Increases related to prior year positions		-			-
Decreases related to prior year positions		-			-
Expiration of unrecognized tax benefits		(77	)		-
Gross unrecognized tax benefits at the end of the year	$	32		$	109

The unrecognized tax benefit amounts are reflected in the determination of the Company’s deferred tax assets. If recognized, none of these amounts would affect the Company’s effective tax rate, since it would be offset by an equal corresponding adjustment in the deferred tax asset valuation allowance. The Company does not foresee material changes to its liability for uncertain tax benefits within the next twelve months.

F-2826

The Company’s policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, ~~2024~~2025 and ~~2023~~2024, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

The Company’s tax years from ~~2019~~ 2022 and ~~2018~~2021 remain open for examination by the Federal and state taxing authorities, respectively. In addition, to the extent that the Company's tax attributes are utilized in future years to offset income or income taxes, those years which generated the tax attributes are open and subject to examination by the taxing authorities. The Company is not aware of any examinations that are currently taking place by federal or state taxing authorities.

NOTE 16 - SUBSEQUENT EVENTS

~~January~~The ~~2025~~Company ~~Chemular~~has ~~Secured~~evaluated ~~Promissory~~subsequent ~~Note~~events for recognition and disclosure through the date these financial statements were issued, in accordance with ASC 855, Subsequent Events.

OnPrivate ~~January~~Placement 7,– ~~2025,~~February ~~the Company issued a secured promissory note (“Chemular Note”) to one of its vendors Chemular~~13, Inc. (“Chemular”), in the principal amount of $370,000 which will bear 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 June 15, 2025, (the “Maturity Date”), the Company shall pay Ten Thousand Dollars ($10,000) in accordance with the repayment schedule.2026

AsOn ~~part~~February of13, 2026, the ~~closing~~Company completed a private placement of ~~the~~3,550,000 ~~Asset~~shares ~~Purchase~~of ~~Agreement~~its oncommon ~~April~~stock 16at ~~(see~~a ~~below)~~purchase price of $0.20 per share, Rresulting in aggregate consideration of $710,000.J. ~~Reynolds~~Of ~~Vapor~~the ~~Company~~total ~~wired~~consideration, ~~directly~~$510,000 towas ~~Chemular~~received ~~approximately~~in cash and $~~319~~200,000 towas ~~satisfy~~satisfied ~~CHUC'~~through the forgiveness of certain outstanding indebtedness owed by the Company. The issuance of shares increased the Company’s ~~debt~~liquidity inand ~~full~~reduced a portion of its outstanding debt obligations. Charlie’s management and directors purchased 1,350,000 shares of the 3,550,000 total shares that were sold, as follows:

~~Entry~~Michael ~~into~~King, aIndependent ~~Material~~Director: ~~Definitive~~500,000 ~~Agreement for the Disposition of Assets~~shares

~~On April 16, 2025, the Company entered into and closed an Asset Purchase Agreement (the “Agreement”) with R~~Dr.J. ~~Reynolds~~Ed Vapor Company (the “Buyer”) pursuant to which the Buyer purchased twelve 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 closingCarmines, ~~plus~~Independent aDirector: 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 representations250,000 ~~warranties, and indemnities by each of the parties.~~shares

~~Company~~Ryan ~~Receives~~Stump, ~~FDA~~Director ~~PMTA~~and ~~Acceptance~~Chief ~~Filings~~Operating ~~for~~Officer: ~~Eleven~~250,000 ~~PACHA™ Flavored Disposables~~shares

OnHenry ~~March 4~~Sicignano, ~~2025~~President: ~~the~~250,000 Company announced that the Center for Tobacco Products of the U.S. Food and Drug Administration ("FDA") informed Charlie’s that eleven (11) of Charlie's best-selling flavored PACHA Disposables Pre-Market Tobacco Applications ("PMTAs") received Acceptance Filings.shares

ToMatthew ~~date~~Montesano, noChief ~~company~~Financial inOfficer: ~~the~~100,000 ~~world has received an FDA marketing order for a flavored (non-tobacco or non-menthol) disposable vape product. Charlie's has received Acceptance Filings for more than 700 of its PMTA submissions.~~shares

~~Repayment~~Amended ofPromissory ~~Pinnacle~~Note ~~Receivables~~With ~~Financing~~Michael ~~Agreement~~King

On ~~April~~March ~~16th~~24, ~~2025~~2026, ~~the~~we ~~Company~~entered ~~issued~~into aan ~~payment~~amendment ofto ~~approximately~~the ~~$1,250,000~~loan to ~~satisfy~~extend ~~all~~the ~~outstanding~~maturity ~~principal~~date ~~and~~of ~~interest~~the ~~owed~~loan to ~~Pinnacle.~~June By1, ~~satisfying~~2027 ~~the~~with ~~balance~~a inballoon ~~full~~principal ~~prior~~payment todue ~~April~~on ~~16,~~maturity ~~2025,~~with ~~the~~interest ~~Company~~only ~~was~~paid ~~able~~monthly tountil ~~secure a discount of approximately $99,000~~maturity.

~~Modification of Ryan Stump and Henry Sicignano III Promissory Notes~~F-27

On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $75,000 of accrued interest and have agreed to modify their Notes to include a 10% interest rate, with monthly payments of principal and interest of approximately $18,000. The maturity date has been extended to April 28, 2026. (Exhibit 10.15)

Repayment of August 17, 2022 Loan From Ryan Stump

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.

Modification of April 22, 2022 Loan From Michael King

On April 28, 2025 Michael King, a current member of the Company’s Board of Directors, 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. (Exhibit 10.17)

F-29

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