CHUC 10-Q
Charlie's Holdings, Inc. (CHUC)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
For the transition period from _________ to _________
Commission file number
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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.
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).
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.
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Large accelerated filer ☐ |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-12 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act: None
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There were
CHARLIE’S HOLDINGS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2026
INDEX
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Page |
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PART I. FINANCIAL INFORMATION |
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ITEM 1. |
Financial Statements |
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Condensed Consolidated Balance Sheets as of June 30, 2026 (unaudited) and December 31, 2025 |
2 |
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Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2026 and 2025 |
3 |
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Condensed Consolidated Statements of Stockholders’ Deficit (unaudited) for the three and six months ended June 30, 2026 and 2025 |
4 |
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Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2026 and 2025 |
5 |
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Notes to Condensed Consolidated Financial Statements (unaudited) |
6 |
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ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 |
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ITEM 3. |
Quantitative and Qualitative Disclosures About Market Risk |
29 |
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ITEM 4. |
Controls and Procedures |
29 |
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PART II. OTHER INFORMATION |
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ITEM 1. |
Legal Proceedings |
30 |
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ITEM 1A. |
Risk Factors |
31 |
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ITEM 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
31 |
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ITEM 3. |
Defaults Upon Senior Securities |
31 |
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ITEM 4. |
Mine Safety Disclosures |
31 |
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ITEM 5. |
Other Information |
31 |
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ITEM 6. |
Exhibits |
31 |
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SIGNATURES |
32 |
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PART I
ITEM 1. FINANCIAL STATEMENTS
CHARLIE’S HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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June 30, |
December 31, |
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2026 |
2025 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash |
$ | $ | ||||||
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Accounts receivable, net |
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Inventories, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current assets: |
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Property, plant and equipment, net |
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Right-of-use asset, net |
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Other assets |
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Total non-current assets |
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TOTAL ASSETS |
$ | $ | ||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ | $ | ||||||
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Notes payable - related parties |
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Lease liabilities |
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Deferred revenue |
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Total current liabilities |
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Non-current liabilities: |
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Note payable, net of current portion |
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Note payable, related party |
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Lease liabilities, net of current portion |
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Total liabilities |
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COMMITMENTS AND CONTINGENCIES (see Note 12) |
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Stockholders' Equity: |
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Convertible preferred stock ($ |
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Series A, |
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Series B, |
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Common stock ($ |
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Additional paid-in capital |
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Accumulated deficit |
( |
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Total stockholders' equity |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CHARLIE’S HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
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For the three months ended |
For the six months ended |
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June 30, |
June 30, |
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2026 |
2025 |
2026 |
2025 |
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Product revenue, net |
$ | $ | $ | $ | ||||||||||||
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Cost of goods sold - product revenue |
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Gross profit |
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Operating costs and expenses: |
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General and administrative |
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Sales and marketing |
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Research and development |
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Total operating costs and expenses |
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Loss from operations |
( |
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Other income (expense): |
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Interest expense |
( |
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Debt extinguishment loss |
( |
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Gain on sale of intellectual property |
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Total other income (loss) |
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Loss before provision for income taxes |
( |
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Income tax provision |
( |
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Income (loss) from continuing operations after income taxes |
( |
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Discontinued operations: |
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Income from discontinued operations, net of tax |
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Net income (loss) |
$ | ( |
) | $ | $ | ( |
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Net earnings (loss) per share: |
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Loss from continuing operations, basic and diluted |
$ | ( |
) | $ | $ | ( |
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Income from discontinued operations, basic and diluted |
$ | $ | $ | $ | ||||||||||||
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Net earnings (loss) per share, basic and diluted |
$ | ( |
) | $ | $ | ( |
) | $ | ||||||||
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Weighted average number of common shares outstanding |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CHARLIE’S HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands)
(Unaudited)
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For the Three Months Ended June 30, 2026 |
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Series A |
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Convertible Preferred Stock |
Common Stock |
Additional |
Accumulated |
Total Stockholders' |
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Shares |
Par value |
Shares |
Par value |
Paid-in Capital |
Deficit |
Equity | ||||||||||||||||||||||
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Balance at April 1, 2026 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
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Issuance of common stock for cash |
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Issuance of common stock in lieu of redemption of notes payable |
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Issuance of common stock to settle outstanding account payable |
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Issuance of common stock to acquire fixed assets |
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Issuance of common stock to acquire inventory supplies |
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Stock compensation |
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Net loss |
- | - | ( |
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Balance at June 30, 2026 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
| For the Three Months Ended June 30, 2025 | ||||||||||||||||||||||||||||
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Series A |
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Convertible Preferred Stock |
Common Stock |
Additional |
Accumulated |
Total Stockholders' |
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Shares |
Par value |
Shares |
Par value |
Paid-in Capital |
Deficit |
Equity (Deficit) | ||||||||||||||||||||||
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Balance at April 1, 2025 |
$ | $ | $ | $ | ( |
) | $ | ( |
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Stock compensation |
- | - | ||||||||||||||||||||||||||
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Forfeiture of restricted stock awards |
- | - | ( |
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Net income |
- | - | ||||||||||||||||||||||||||
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Balance at June 30, 2025 |
$ | $ | $ | $ | ( |
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For the Six Months Ended June 30, 2026 |
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Series A |
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Convertible Preferred Stock |
Common Stock |
Additional |
Accumulated |
Total Stockholders' |
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Shares |
Par value |
Shares |
Par value |
Paid-in Capital |
Deficit |
Equity | ||||||||||||||||||||||
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Balance at January 1, 2026 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
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Issuance of common stock for cash |
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Issuance of common stock in lieu of redemption of notes payable |
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Issuance of common stock to settle outstanding account payable |
- | - | ||||||||||||||||||||||||||
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Issuance of common stock to acquire fixed assets |
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Issuance of common stock to acquire inventory supplies |
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Stock compensation |
- | - | ||||||||||||||||||||||||||
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Net loss |
- | - | ( |
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Balance at June 30, 2026 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
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For the Six Months Ended June 30, 2025 |
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Series A |
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Convertible Preferred Stock |
Common Stock |
Additional |
Accumulated |
Total Stockholders' |
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Shares |
Par value |
Shares |
Par value |
Paid-in Capital |
Deficit |
Equity (Deficit) | ||||||||||||||||||||||
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Balance at January 1, 2025 |
$ | $ | $ | $ | ( |
) | $ | ( |
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Conversion of Series A convertible preferred stock |
( |
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Stock compensation |
- | - | ||||||||||||||||||||||||||
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Forfeiture of restricted stock awards |
( |
) | ( |
) | ( |
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| Issuance of warrant in connection with a settlement of accounts payable | - | - | - | - | ||||||||||||||||||||||||
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Net income |
- | - | ||||||||||||||||||||||||||
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Balance at June 30, 2025 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CHARLIE’S HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
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For the six months ended |
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June 30, |
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2026 |
2025 |
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Cash Flows from Operating Activities: |
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Net income (loss) |
$ | ( |
) | $ | ||||
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Less: income from discontinued operations, net of tax |
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Net income (loss) from continuing operations |
( |
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Reconciliation of net loss to net cash used in operating activities: |
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Allowance for doubtful accounts |
( |
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Depreciation and amortization |
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Accretion of debt discount |
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Debt extinguishment loss |
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Amortization of operating lease right-of-use asset |
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Stock-based compensation |
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Gain on sale of intellectual property |
( |
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Subtotal of non-cash charges |
( |
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Changes in operating assets and liabilities: |
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Accounts receivable |
( |
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Inventories |
( |
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Prepaid expenses and other current assets |
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Accounts payable and accrued expenses |
( |
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Deferred revenue |
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Lease liabilities |
( |
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Net cash used in operating activities - continuing operations |
( |
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Net cash provided by operating activities - discontinued operations |
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Net cash used in operating activities |
( |
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Cash Flows from Investing Activities: |
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Proceeds from sale of intellectual property |
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Net cash provided by investing activities |
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Cash Flows from Financing Activities: |
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Proceeds from issuance of common shares |
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Proceeds from issuance of notes payable |
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Proceeds from issuance of notes payable to related party |
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Repayment of notes payable |
( |
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Repayment of notes payable to related party |
( |
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Net cash provided by financing activities |
( |
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Net increase (decrease) in cash |
( |
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Cash, beginning of the period |
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Cash, end of the period |
$ | $ | ||||||
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Supplemental disclosure of cash flow information |
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Cash paid for interest |
$ | $ | ||||||
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Cash paid for interest to related party |
$ | $ | ||||||
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Cash paid for income taxes |
$ | $ | ||||||
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Supplemental disclosure of cash flow information |
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Exchange accounts payable with a note payable |
$ | $ | ||||||
| Issuance of common stock in lieu of redemption of notes payable | $ | $ | ||||||
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Issuance of common stock to settle outstanding account payable |
$ | $ | ||||||
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Issuance of common stock to acquire fixed assets |
$ | $ | ||||||
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Issuance of common stock to acquire inventory supplies |
$ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
CHARLIE'S HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries (collectively, the “Company”, “we”), 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 $
Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management’s Plan of Operation
Our condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2026, the Company’s revenue increased, the Company incurred a loss from operations of approximately $
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 $
The proceeds from these transactions 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.
Risks and Uncertainties
The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating 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 FDA 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. On April 1, 2026, the Company received an MDO from the FDA with respect to certain SKUs of our timely-submitted 2020 PMTAs. On May 1, 2026, the Company filed a Petition for Review challenging the MDO with the U.S. Court of Appeals for the Fifth Circuit. On May 11, 2026, the petitioners moved to stay the MDO pending judicial review, and the Fifth Circuit granted that motion on June 8, 2026. The FDA’s response brief is currently due on October 2, 2026, after which the petitioners may file a reply brief. Though only a very small percentage of our current sales are related to these affected PMTA e-liquid products, we plan to vigorously defend our PMTA products on the merits while also continuing to amend our applications with the latest science. Notably, the Company has not received an MDO for its 2020 “tobacco-flavor” PMTA submission; however, there is no assurance that regulatory approval to sell our products will be granted or that Charlie’s will 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 2022 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. 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.
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.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been omitted pursuant to SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented in this Report not misleading. The unaudited interim financial statements furnished in this document reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.
On October 7, 2025, the Company’s Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division, the Company’s variable interest entity. On December 31, 2025, Don Polly entered into a Bill of Sale And Assignment Agreement (the “Assignment Agreement”) with Charlie’s. Pursuant to the Assignment 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 three and six months ended June 30, 2025. See Note 7 for additional information.
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.
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.
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2025 Annual Report.
Recently Adopted Accounting Standards
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 adopted ASU 2024-04 effective January 1, 2026 on a prospective basis, as permitted by the standard. The adoption of ASU 2024-04 did not have impact on the Company’s condensed consolidated financial statements.
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.
Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures
In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). In January 2025, the FASB issued ASU 2025-01, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date to clarify the effective date of ASU 2024-03. The amendments require disclosure of additional information about specific expense categories in the notes to the financial statements. This standard is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments are to be applied either prospectively to financial statements issued for reporting periods after the effective date of this Update or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that the adoption of this standard will have on the consolidated financial statements.
NOTE 3 – FAIR VALUE MEASUREMENTS
In accordance with Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurements and Disclosures” (“ASC 820”), the Company uses various inputs to measure the outstanding warrants on a recurring basis to determine the fair value of the liability. ASC 820 also establishes a hierarchy categorizing inputs into three levels used to measure and disclose fair value. The hierarchy gives the highest priority to quoted prices available in active markets and the lowest priority to unobservable inputs. An explanation of each level in the hierarchy is described below:
Level 1 – Unadjusted quoted prices in active markets for identical instruments that are accessible by the Company on the measurement date.
Level 2 – Quoted prices in markets that are not active or inputs which are either directly or indirectly observable.
Level 3 – Unobservable inputs for the instrument requiring the development of assumptions by the Company.
The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.
In determining the appropriate levels, the Company performs a detailed analysis of the assets and liabilities that are measured and reported on a fair value basis. At each reporting period, all assets and liabilities for which the fair value measurement is based on significant unobservable inputs are classified as Level 3. The valuation of assets and liabilities recognized in business combinations are considered level 3 fair value measurements on the closing date of the acquisition. These assets and liabilities are not remeasured at each reporting period.
As of June 30, 2026 and December 31, 2025, the Company did not have any Level 1, 2 or 3 assets or liabilities measured on a recurring basis.
NOTE 4 – INVENTORY
The components of inventory as of June 30, 2026 and December 31, 2025 are summarized as follows:
|
June 30, |
December 31, |
|||||||
|
2026 |
2025 |
|||||||
|
Finished goods |
$ | $ | ||||||
|
Raw materials |
||||||||
|
Overhead allocation |
||||||||
|
Inventory in transit |
||||||||
|
Less: inventory reserves |
( |
) | ( |
) | ||||
|
Total |
$ | $ | ||||||
NOTE 5 – PROPERTY AND EQUIPMENT
Depreciation and amortization expense totaled $
|
June 30, |
December 31, |
||||||||
|
2026 |
2025 |
Estimated Useful Life |
|||||||
|
Machinery and equipment |
$ | $ |
|
||||||
|
Trade show booth |
|
||||||||
|
Office equipment |
|
||||||||
|
Leasehold improvements |
Lesser of lease term or estimated useful life |
||||||||
|
Accumulated depreciation |
( |
) | ( |
) | |||||
| $ | $ | ||||||||
NOTE 6 – CONCENTRATIONS
Vendors
The Company’s concentration of inventory purchases is as follows:
|
For the three months ended June 30, |
For the six months ended June 30, |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
Vendor A |
% | % | % | % | ||||||||||||
|
Vendor B |
% | % | ||||||||||||||
|
Vendor C |
% | % | % | % | ||||||||||||
|
Vendor D |
% | % | ||||||||||||||
|
Vendor E |
% | % | ||||||||||||||
| % | % | % | % | |||||||||||||
During the three months ended June 30, 2026 and 2025, purchases from vendors represented
As of June 30, 2026, and December 31, 2025, amounts owed to these vendors totaled $
Accounts Receivable
The Company’s concentration of accounts receivable is as follows:
|
June 30, 2026 |
December 31, 2025 |
|||||||||||||||
|
Amount |
Percentage |
Amount |
Percentage |
|||||||||||||
|
Customer A |
$ | $ | % | |||||||||||||
|
Customer B |
$ | $ | % | |||||||||||||
|
Customer C |
$ | $ | % | |||||||||||||
|
Customer D |
$ | $ | % | |||||||||||||
|
Customer E |
$ | % | $ | |||||||||||||
|
Customer F |
$ | % | ||||||||||||||
|
Customer G |
$ | % | ||||||||||||||
customers made up more than
For the three months ended June 30, 2026, customer individually accounted for more than 10% of the Company's net revenues, which represented approximately
NOTE 7 – DISCONTINUED OPERATIONS - DON POLLY, LLC
Don Polly is a Nevada limited liability company that is owned by entities controlled by Ryan Stump, a current executive officer of the Company, and a consolidated variable interest for which the Company is the primary beneficiary. Until its operations were discontinued, Don Polly marketed and distributed third-party product lines.
In October 2025 the Company’s Board of Directors unanimously approved a resolution to discontinue sales of all hemp/CBD-related products and to close permanently its Don Polly division.
On December 31, 2025, Don Polly entered into the Assignment Agreement, pursuant to which 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 Company received no cash consideration related to the assignment.
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 three and six months ended June 30, 2026 and 2025 (amount in thousands):
|
For the Three Months Ended |
For the Six Months Ended |
|||||||||||||||
|
June 30, |
June 30, |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
Product revenue, net |
$ | $ | $ | $ | ||||||||||||
|
Cost of goods sold - product revenue |
||||||||||||||||
|
Gross profit |
||||||||||||||||
|
Operating expenses: |
||||||||||||||||
|
General and administrative |
||||||||||||||||
|
Sales and marketing |
||||||||||||||||
|
Research and development |
||||||||||||||||
|
Total operating expenses |
||||||||||||||||
|
Income from operations |
||||||||||||||||
|
Interest expense |
( |
) | ( |
) | ||||||||||||
|
Income from discontinued operations, before income tax |
||||||||||||||||
|
Income tax provision |
( |
) | ( |
) | ||||||||||||
|
Income from discontinued operations, net of tax |
$ | $ | $ | $ | ||||||||||||
NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses as of June 30, 2026 and December 31, 2025, are as follows (amounts in thousands):
|
June 30, |
December 31, |
|||||||
|
2026 |
2025 |
|||||||
|
Accounts payable |
$ | $ | ||||||
| Accrued compensation | ||||||||
|
Accrued income taxes |
||||||||
|
Customer deposits |
||||||||
|
Accrued purchases |
||||||||
|
Other accrued expenses |
||||||||
| $ | $ | |||||||
NOTE 9 – NOTES PAYABLE
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 $
During the year ended December 31, 2023, the Company made a $
During the six months ended June 30, 2026, the Company made a $
Secured Promissory Notes – April 2022 Note
On April 6, 2022, the Company issued a secured promissory note (the “Note”) to one of its large individual stockholders, Michael King (the “Lender"), in the principal amount of $
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 $
On May 31, 2024, as part of the May 2024 capital raise, the Lender converted his next four debt repayments for the period from June to September 2024, for a total amount of $
On April 28, 2025 the Lender agreed to accept a payment of approximately $
During the six months ended June 30, 2026, the Company made a $
Secured Promissory Notes – August 2025 Note
On August 6, 2025, the Company issued an additional secured promissory note (the “August Note”) to the Lender in the principal amount of $
On March 24, 2026, the Company entered into an amendment to the August Note to extend the maturity date of the loan to June 1, 2027 with a balloon principal payment due on maturity with interest only paid monthly until maturity. The amendment was accounted as a debt modification.
Economic Injury Disaster Loan
On September 24, 2020, SBA authorized (under Section 7(b) of the Small Business Act, as amended) an Economic Injury Disaster Loan (“EID Loan”) to Don Polly in the amount of $
The following summarizes the Company’s notes payable maturities as of June 30, 2026 (amounts in thousands):
|
Remaining periods in 2026 |
$ | |||
|
Year Ending December 31, 2027 |
||||
|
Year Ending December 31, 2028 |
||||
|
Year Ending December 31, 2029 |
||||
|
Year Ending December 31, 2030 |
||||
|
Thereafter |
||||
|
Total |
$ |
NOTE 10 – EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS
Basic (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reporting period. Diluted (loss) per common share is computed similar to basic (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 securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
|
For the six months ended |
||||||||
|
June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
Options |
||||||||
|
Warrants |
||||||||
|
Series A convertible preferred shares |
||||||||
|
Total |
||||||||
NOTE 11 – STOCKHOLDERS’ EQUITY
May 2026 Capital Raise
On May 19, 2026, the Company entered into subscription agreements with investors for the sale of an aggregate of
February 2026 Capital Raise
On February 13, 2026, the Company completed a private placement of
|
Name |
Title |
Shares Purchased |
|||
|
Michael King |
Independent Director |
||||
|
Edward Carmines |
Independent Director |
||||
|
Ryan Stump |
Director and Chief Operating Officer |
||||
|
Henry Sicignano III |
President |
||||
|
Matthew Montesano |
Chief Financial Officer |
||||
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
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
On April 6, 2026, the Company's Board of Directors unanimously approved an amendment (the "Second Amendment") to the 2019 Plan, subject to stockholder approval, to increase the number of shares of common stock reserved for issuance thereunder by
Non-Qualified Stock Options
The following table summarizes stock option activities during the three months ended June 30, 2026 (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, 2026 |
$ | |||||||||||||||
|
Options forfeited/expired |
- | - | ||||||||||||||
|
Outstanding at June 30, 2026 |
$ | $ | ||||||||||||||
|
Options vested and exercisable at June 30, 2026 |
$ | $ | ||||||||||||||
Restricted Stock Awards
The following table summarizes restricted stock awards activities during the three months ended June 30, 2026 (all share amounts are in thousands):
|
Number of Shares |
Weighted Average Grant Date Fair Value per Share |
|||||||
|
Nonvested at January 1, 2026 |
$ | |||||||
|
Vested |
( |
) | ||||||
|
Nonvested at June 30, 2026 |
$ | |||||||
As of June 30, 2026, there was approximately $
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Leases
The Company leases office space under agreements classified as operating leases that expire on various dates through 2028. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expired on September 30, 2024, and effective October 1, 2024, the lease has been on a month-to-month basis, and its warehouse in Huntington Beach, California, which was renewed in August 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, had a term of year and a base rent of $
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 years and a base rent rate of $
Effective June 2, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional -year term, concluding May 31, 2025. On August 12, 2025, the Company renewed this lease for an additional years commencing on September 1, 2025 and ending August 31, 2028. The renewal resulted in an additional $
In September 2025, the Company entered into a lease agreement commencing on October 1, 2025 (the “October Lease”), pursuant to which the Company leases certain premises located at 15902-06 Manufacture Lane, Huntington Beach, CA for purposes of filling and assembling certain of its nicotine and alternative alkaloid vapor products. The October Lease has a term of
As of June 30, 2026, the Company had operating lease liabilities of approximately $
The following table summarizes quantitative information about the Company’s operating leases for the three and six months ended June 30, 2026 (amounts in thousands):
|
For the three months ended |
For the three months ended |
|||||||||||||||
|
June 30, |
June 30, |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
Operating leases |
||||||||||||||||
|
Operating lease cost |
$ | $ | $ | $ | ||||||||||||
|
Variable lease cost |
||||||||||||||||
|
Operating lease expense |
||||||||||||||||
|
Short-term lease rent expense |
||||||||||||||||
|
Total rent expense |
$ | $ | $ | $ | ||||||||||||
|
For the three months ended |
||||||||
|
June 30, |
||||||||
|
2026 |
2025 |
|||||||
|
Operating cash flows from operating leases |
$ | $ | ||||||
|
Weighted-average remaining lease term – operating leases (in years) |
- | |||||||
|
Weighted-average discount rate – operating leases |
% | % | ||||||
Maturities of our operating leases as of June 30, 2026, excluding short-term leases, are as follows (amounts in thousands):
|
Remaining periods in 2026 |
$ | |||
|
Year ended December 31, 2027 |
||||
|
Year ended December 31, 2028 |
||||
|
Total |
||||
|
Less present value discount |
( |
) | ||
|
Operating lease liabilities as of June 30, 2026 |
$ |
Legal Proceedings
As of the date hereof, 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.
As more fully described under “Risks and Uncertainties” (above), and in our 2025 Annual Report in “RISK FACTORS,” the Company’s wholly owned subsidiary, Charlie’s Chalk Dust LLC (“CCD”), is a petitioner in two proceedings challenging Marketing Denial Orders (“MDOs”) issued by the U.S. Food and Drug Administration (“FDA”) with respect to certain premarket tobacco product applications (“PMTAs”).
On April 1, 2026, the FDA issued an MDO to CCD covering certain products included in CCD’s timely submitted 2020 PMTA. On May 1, 2026, CCD and Toro Imports LLC filed a petition for review challenging the MDO in the U.S. Court of Appeals for the Fifth Circuit, Charlie’s Chalk Dust LLC, et al. v. U.S. Food and Drug Administration, et al., Case No. 26-60320. On May 11, 2026, the petitioners moved to stay the MDO pending judicial review, and the Fifth Circuit granted that motion on June 8, 2026. Merits briefing is underway. The petitioners filed their opening brief on August 3, 2026; the FDA’s response brief is currently due on October 2, 2026, after which the petitioners may file a reply brief. Although the affected products represent only a small percentage of the Company’s current sales, CCD intends to vigorously pursue its challenge to the MDO while continuing to supplement the applicable PMTA with the latest scientific evidence.
On October 28, 2025, the FDA issued MDOs to CCD covering certain products included in CCD’s timely submitted 2022 PMTAs. CCD and FOK of Houma LLC, doing business as Nocko’s, filed a petition for review challenging the MDOs in the U.S. Court of Appeals for the Fifth Circuit, Charlie’s Chalk Dust LLC, et al. v. U.S. Food and Drug Administration, et al., Case No. 25-60609. On November 5, 2025, the petitioners filed an emergency motion for a temporary administrative stay. On November 10, 2025, the Fifth Circuit granted a temporary administrative stay pending its consideration of the petitioners’ motion to stay the MDOs pending judicial review. On December 24, 2025, a Fifth Circuit panel granted that motion. Merits briefing has been completed, and oral argument is currently scheduled for the week of October 5, 2026, subject to possible extension by the Court. As a result of the stay, the affected PMTAs were returned to pending status and continue to be treated as timely filed as of May 2022 while the litigation proceeds. Accordingly, where permitted by state law, the affected products remain eligible for inclusion on state vapor product directories, including in Louisiana, that permit the sale of products associated with timely submitted synthetic-nicotine PMTAs that remain pending before the FDA, subject to satisfaction of all other applicable state requirements.
Except for these proceedings, the Company is not a party to any material legal or administrative proceeding.
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.
NOTE 14 – INCOME TAXES
Charlie's Holdings, Inc. and its subsidiaries are taxed as a C corporation and file a consolidated federal income tax return. Income tax expense is comprised of domestic (U.S. federal and state) income taxes at the applicable statutory rates, adjusted for non-deductible expenses, stock-based compensation, and other permanent differences. The Company maintains a full valuation allowance against its deferred tax assets, as it is not more likely than not that such assets will be realized. As a result, the net impact of changes in estimates on the Company's overall income tax expense is limited.
At December 31, 2025, the Company had federal and state net operating loss carryforwards of approximately $
At December 31, 2025, the Company had federal research and development tax credit carryforwards of approximately $
The utilization of net operating loss carryforwards and research and development tax credit carryforwards may be subject to annual limitations under Sections 382 and 383 of the Internal Revenue Code, and analogous state provisions, due to ownership changes that may have occurred previously or that could occur in the future. In general, an ownership change, as defined under Section 382, occurs when the ownership of certain stockholders or public groups increases by more than 50 percentage points over a three-year period. The Company experienced an ownership change in 2019. The Company has not completed a formal Section 382 analysis; however, it has assumed for purposes of these financial statements that net operating loss carryforwards generated prior to the 2019 ownership change are not available to offset taxable income arising after that date. If a formal analysis were completed and pre-change losses were determined to be available, the Company's tax liabilities could be reduced. Conversely, if a formal analysis were to identify additional ownership changes, the Company's net operating loss carryforwards and tax credit carryforwards could be subject to further limitation.
For the three months ended June 30, 2026, the Company determined that income tax expense was not material to the condensed consolidated financial statements, and accordingly, income tax provision has been recorded for the period. For the three months ended June 30, 2025, the Company recorded a tax expense from continuing operations of approximately $
NOTE 15 – SUBSEQUENT EVENTS
Future Receivables Sale Agreement – July 23, 2026
On July 23, 2026, the Company entered into a Future Receivables Sale Agreement with Austin Business Finance, LLC (“Backd”), under which the Company sold $
Resignation of Ryan Stump as Chief Operating Officer – August 3, 2026
On August 3, 2026, Ryan Stump provided notice to our Board of Directors of his intention to resign as Chief Operating Officer of the Company, effective as of September 4, 2026. Mr. Stump’s resignation was not due to any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices. Mr. Stump will continue to serve as a member of the Board but now with core responsibility for strategic partnerships and mergers and acquisitions.
Appointment of Henry Sicignano III as Chief Executive Officer – August 4, 2026
On August 4, 2026, the Board appointed Henry Sicignano III, Charlie’s President, as the Company’s Chief Executive Officer, effective immediately. Mr. Sicignano will continue to serve as the Company’s President.
ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of Charlie’s Holdings, Inc. should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this Quarterly Report on Form 10-Q (this “Report”) and with audited financial statements and other information presented in our Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Annual Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this Report, and in our other filings with the Securities and Exchange Commission (“SEC”), including particularly matters set forth under Part I, Item 1A (Risk Factors) of the 2025 Annual Report. Furthermore, such forward-looking statements speak only as of the date of this Report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
As used in this Report, unless otherwise stated or the context otherwise requires, references to the “Company”, “we”, “us”, “our”, or similar references mean Charlie’s Holdings, Inc., its subsidiaries and consolidated variable interest entity on a consolidated basis.
Overview
Charlie's is a leader in the premium vapor products industry. Long known for its pioneering history and award-winning products, the Company’s mission is to provide adult smokers with better alternatives to combustible cigarettes. To this end, Charlie’s has developed a family of proprietary e-liquids as well as an array of compact, easy-to-use disposable vaping devices. The Company’s products are sold around the world to select distributors, specialty retailers, and third-party online resellers.
The 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 Charlie’s Premarket Tobacco Applications (“PMTAs”) for both flavored and “plain” tobacco nicotine vapor products.
In December 2025, 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. The Company believes that demonstrating robust age-gating capabilities through this technology could support a showing to the FDA that its flavored ENDS products are "appropriate for the protection of public health," consistent with the PMTA review standard. A successful regulatory outcome could prove transformational for the Company's flavored product portfolio and for the vapor products industry more broadly.
Strategic Priorities
In today’s economic landscape, particularly within the vapor products industry, seeking and securing competitive advantage is paramount. Unlike many competitors in our industry, Charlie’s has focused on achieving full compliance with FDA regulations – while also establishing a regulatory “hedge” through the development of alternative “zero-nicotine” product lines that are not currently subject to FDA review. Simultaneous to undertaking these initiatives, in 2025 management took aggressive steps to (i) monetize sixteen of the Company’s PMTA products, (ii) launch the SBX product line, (iii) establish a U.S. manufacturing facility, and (iv) achieve profitability. Charlie’s success, in all these endeavors, set the stage for continued growth, potential FDA marketing orders, and a potential uplist to a national securities exchange.
Accordingly, here are the primary strategic initiatives on which we intend to focus in 2026:
|
● |
Grow sales and retail distribution through chain convenience stores in select markets across the US. |
|
● |
Utilize the IKE age-gating license to deploy age-gated SBX disposables, accumulate real-world compliance data, and amend the Company's PACHA PMTAs to incorporate age-gating — positioning Charlie's to demonstrate to the FDA that its flavored vapor products are "appropriate for the protection of public health." |
|
● |
Introduce cutting edge 75K-Puff disposable devices for both the SBX and the Pachamama product lines |
|
● |
Form new strategic partnership(s) to monetize the Company's PMTA-submitted PACHA synthetic nicotine products. |
|
● |
Grow international sales to mitigate US regulatory risks. |
|
● |
Uplist to a National Securities Exchange |
Collectively, all these initiatives represent Charlie's commitment to adult smokers. Through innovation and a hyper-focus on quality, our Company strives to provide our customers with an exceptionally satisfying vaping experience. In order to put the value of some of these initiatives into context, here is a more detailed overview of our business plans and strategy:
|
I. |
Grow Charlie’s sales and retail distribution |
Grow SBX sales and distribution through chain convenience stores in select markets across the United States
Our market research indicates that adult consumers overwhelmingly prefer "flavored" vapor products over plain tobacco products and are highly receptive to nicotine substitute products that offer the same vaping experience as that provided by conventional nicotine vapor products. SBX Disposables feature Charlie's award-winning flavors (preferred over plain tobacco vapor by more than 80% of adult consumers).
SBX nicotine analogue-based vape liquids are not made from or derived from tobacco, nor do they contain nicotine from any source. Accordingly, the Company's proprietary nicotine substitute alkaloid (patented in the United States and in China by the Company's chemical supplier) does not meet the definition of "nicotine" and therefore SBX products are not subject to FDA PMTA requirements and are LEGAL across most of the United States.
SBX Beats Juul… 15:1
In a Company-sponsored focus group survey of adult consumers who vape, Charlie's SBX flavored Disposables were overwhelmingly preferred over Juul tobacco-flavored vapes. Of 306 survey participants, 287 preferred SBX over Juul.
Despite the fact that adult consumers overwhelmingly prefer flavored ENDS products, the FDA has granted marketing authorization to only two (2) non-tobacco, non-menthol “fruit flavored” ENDS products (blueberry and mango flavored pods made by Glas Vapor). Due to a patent dispute, Glas’ newly authorized “fruit flavored” products are unlikely to go on the market any time soon. Juul Labs filed a patent infringement lawsuit against Glas, Inc. in the U.S. District Court for the Central District of California and also launched an investigation with the U.S. International Trade Commission (ITC). Juul alleges that Glas's vapor products and e-cigarette technologies violate their proprietary hardware and design patents. Under these circumstances, the overwhelming majority of flavored ENDS products on the market today remain unauthorized under the current PMTA framework. With enforcement remaining limited, illicit flavored ENDS products are widely available across the United States, and the FDA Center for Tobacco Products estimates that more than half of the U.S. e-cigarette market consists of illicit products. In response, certain states have enacted legislation restricting or banning flavored nicotine products. In those states, compliant products such as SBX benefit from a structural competitive advantage, and the Company is focusing its SBX sales initiatives accordingly. We believe the number of states where SBX holds this regulatory advantage will continue to grow.
Grow Pachamama/PACHA sales and distribution in select markets across the United States
Distinguished by award-winning flavors and by Charlie’s commitment to regulatory compliance, PACHA and Pachamama are well-known brands that are positioned to grow significantly in 2026. The Company plans to leverage the brands’ emerging and distinct competitive advantages:
|
● |
Pachamama is the ONLY vapor products brand that has been on the market for more than a decade and is now fully compliant with Texas domestic manufacturing requirements; |
|
● |
Pachamama will be one of the select brands that is fully compliant with Indiana’s “foreign adversary prohibited” manufacturing legislation (effective July 1, 2026); |
|
● |
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-stores throughout the State of California. |
|
● |
PACHAMAMA flavored Disposables, as well as the Company’s PACHA e-liquids, have all been approved for inclusion on the Nebraska State Directory. |
|
● |
PACHA flavored 4mL, 8mL, and 12mL Disposables, as well as the Company’s PACHA e-liquids, have all been approved by the state of Louisiana. |
|
|
● |
PACHA flavored 4mL, 8mL, and 12mL Disposables, as well as the Company’s PACHA e-liquids, have all been submitted for approval for inclusion on the Alabama State Directory. |
|
|
● |
PACHAMAMA 2020 e-liquids, have all been submitted for approval to Iowa, Pennsylvania and South Carolina. |
With a 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.
In January 2026 we reported that 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 vape products in the United States. Utilizing the patented technology that IKE validated in a multi-center Human Factors Validation Study, Charlie’s plans to launch an age-gated product in 200-300 compliance-minded retail stores in Q3 2026. The test-market initiative will incorporate the age-gating system in a special line of the Company’s flavored ENDS disposables; 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.
PACHA brand Electronic Nicotine Delivery Systems (ENDS) with FDA PMTA’s
Charlie’s intends to collect market data from sales of its 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 significant unmet need for technologies that address the FDA's concerns regarding youth access to vapor products, representing a substantial market opportunity for flavored vapes that are inoperable for underage individuals. By deploying age-gated disposables under the IKE license and accumulating real-world compliance data — while simultaneously amending the Company's PACHA PMTAs to incorporate age-gating technology — the Company believes it can demonstrate to the FDA that its flavored vapor products are "appropriate for the protection of public health." The Company believes a successful regulatory outcome would be transformational for Charlie's flavored product portfolio and could establish a meaningful precedent for the broader vapor products 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.
|
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 678 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 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.
Risks and Uncertainties
The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating 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 FDA 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. On April 1, 2026, the Company received an MDO from the FDA with respect to certain SKUs of our timely-submitted 2020 PMTAs. On May 1, 2026, the Company filed a Petition for Review challenging the MDO with the U.S. Court of Appeals for the Fifth Circuit. On May 11, 2026, the petitioners moved to stay the MDO pending judicial review, and the Fifth Circuit granted that motion on June 8, 2026. The FDA’s response brief is currently due on October 2, 2026, after which the petitioners may file a reply brief. Though only a very small percentage of our current sales are related to these affected PMTA e-liquid products, we plan to vigorously defend our PMTA products on the merits while also continuing to amend our applications with the latest science. Notably, the Company has not received an MDO for its 2020 “tobacco-flavor” PMTA submission; however, there is no assurance that regulatory approval to sell our products will be granted or that we will 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 2022 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. 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.
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.
Recent Developments
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 (see Note 9). 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:
|
Name |
Title |
Shares Purchased |
|||
|
Michael King |
Independent Director |
500,000 | |||
|
Edward Carmines |
Independent Director |
250,000 | |||
|
Ryan Stump |
Director and Chief Operating Officer |
250,000 | |||
|
Henry Sicignano III |
President |
250,000 | |||
|
Matthew Montesano |
Chief Financial Officer |
100,000 | |||
U.S. Food and Drug Administration Expands Market Access – May 5, 2026
On May 5, 2026, the U.S. Food and Drug Administration (“FDA”) authorized the marketing of four Glas Inc.’s age-gated electronic nicotine delivery systems (“ENDS”) through the premarket tobacco product application (“PMTA”) pathway. Each product is an e-liquid pod containing 50mg/ml (or 5%) of tobacco-derived nicotine. The authorized pods include Classic Menthol and Fresh Menthol, as well as two “fruit flavors,” Gold, and Sapphire. This action marks the FDA’s first authorization of non-tobacco, non-menthol “fruit-flavored” ENDS products. Industry officials view these developments – combined with the May 12, 2026 resignation of FDA Commissioner Marty Makary – as a sign that the FDA’s long-standing resistance to broader flavored vape approvals may be starting to soften.
Private Placement – May 19, 2026
On May 19, 2026, the Company completed a private placement of 6,350,000 shares of its common stock at a purchase price of $0.20 per share, resulting in aggregate consideration of $1,670,000. Of the total consideration, $270,000 was received in cash, $868,000 of which was paid in the form of debt and outstanding accounts payable forgiveness, and the remainder was paid in exchange for supplies and fixed assets.
FDA Enforcement Priorities Guidance
On June 23, 2026, the FDA notified us that certain of our PACHA products (30 SKUs) for which PMTAs have been submitted have been tentatively identified for inclusion on the FDA's public-facing webpage of products for which the FDA generally does not intend to prioritize enforcement of premarket authorization requirements ̶ a development we view as highly favorable. Inclusion on the FDA’s new list of “low-enforcement priority products” does not, however, constitute FDA marketing authorization, preclude case-by-case enforcement, or bear on whether any PMTA will ultimately be granted. Accordingly, we intend to continue pursuing FDA review of our pending PMTAs and to comply with all applicable requirements.
Results of Operations for the Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025
A review of the three-month period ended June 30, 2026, follows:
|
For the three months ended |
||||||||||||||||
|
June 30, |
Change |
|||||||||||||||
|
2026 |
2025 |
Amount |
Percentage |
|||||||||||||
|
($ in thousands) |
||||||||||||||||
|
Product revenue, net |
$ | 3,802 | $ | 1,761 | $ | 2,041 | 115.9 | % | ||||||||
|
Cost of goods sold - product revenue |
2,684 | 1,275 | 1,409 | 110.5 | % | |||||||||||
|
Gross profit |
1,118 | 486 | 632 | 130.0 | % | |||||||||||
|
Operating costs and expenses: |
||||||||||||||||
|
General and administrative |
1,924 | 1,360 | 564 | 41.5 | % | |||||||||||
|
Sales and marketing |
378 | 79 | 299 | 378.5 | % | |||||||||||
|
Research and development |
50 | 1 | 49 | 4900.0 | % | |||||||||||
|
Total operating costs and expenses |
2,352 | 1,440 | 912 | 63.3 | % | |||||||||||
|
Loss from operations |
(1,234 | ) | (954 | ) | (280 | ) | ||||||||||
|
Other income (expense): |
- | |||||||||||||||
|
Interest expense |
(81 | ) | (333 | ) | 252 | -75.7 | % | |||||||||
|
Debt extinguishment loss |
(347 | ) | 99 | (446 | ) | -450.5 | % | |||||||||
|
Gain on sale of intellectual property |
- | 6,500 | (6,500 | ) | ||||||||||||
|
Total other loss |
(428 | ) | 6,266 | (6,694 | ) | -106.8 | % | |||||||||
|
Loss before provision for income taxes |
(1,662 | ) | 5,312 | (6,974 | ) | -131.3 | % | |||||||||
|
Income tax provision |
- | (388 | ) | 388 | -100.0 | % | ||||||||||
|
Income (loss) from continuing operations after income taxes |
(1,662 | ) | 4,924 | (6,586 | ) | -133.8 | % | |||||||||
|
Discontinued operations: |
||||||||||||||||
|
Income from discontinued operations, net of tax |
- | 37 | (37 | ) | -100.0 | % | ||||||||||
|
Net income (loss) |
$ | (1,662 | ) | $ | 4,961 | $ | (6,623 | ) | -133.5 | % | ||||||
Revenue
Revenue for the three months ended June 30, 2026, increased by approximately $2,041,000 or 115.9%, to approximately $3,802,000, as compared to approximately $1,761,000 for same period in 2025, which is all due to the increase in our nicotine-based product and nicotine alternative products sales. Sales of SBX, a non-nicotine, disposable vapor product which is not subject to FDA review, experienced a significant increase in 2026.
Cost of Revenue
Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $1,409,000 or 110.5%, to approximately $2,684,000, or 70.6% of revenue, for the three months ended June 30, 2026, as compared to approximately $1,275,000, or 72.4% of revenue, for the same period in 2025. This cost increased compared to last year due primarily to an increase in the volume of products sold during the period.
General and Administrative Expenses
For the three months ended June 30, 2026, total general and administrative expenses increased $564,000 to $1,924,000 as compared to approximately $1,360,000 for the same period in 2025. The increase was primarily comprised of an increase of approximately $120,000 of non-commission wages and benefits, $170,000 of professional fees, as well as $274,000 in other general and administrative expenses. The increase in non-commission wages and benefits of $120,000 reflects headcount additions in operations and manufacturing to support the Company's new Huntington Beach manufacturing facility. The $170,000 increase in professional fees was primarily driven by higher legal and board-related costs incurred during the period. The $274,000 increase in other general and administrative expenses was driven by higher occupancy costs, bad debt expense, and merchant processing fees — the latter of which increases commensurately with sales volume.
Sales and Marketing Expense
For the three months ended June 30, 2026, total sales and marketing expense was approximately $378,000 as compared to approximately $79,000 for the same period in 2025. The increase was primarily due to increased sales commissions paid as well as a significant increase in tradeshow and customer event related costs. The Company continues to evaluate its spending on advertising, promotional and tradeshow related expenses as it aims to increase sales of its new SBX Disposable vapor products.
Research and Development Expense
For the three months ended June 30, 2026, total research and development expense was approximately $50,000 as compared to $1,000 for the same period in 2025. The $49,000 increase reflects ongoing product development and testing activity in support of the Company's active PMTA portfolio, consistent with management's strategy of advancing regulatory approvals for its nicotine product lines.
Income (Loss) from Operations
We incurred a loss from operations of approximately $1,234,000 for the three months ended June 30, 2026, compared to a loss of approximately $954,000 for the same period in 2025, due primarily to higher general and administrative expenses. Net income (loss) is determined by adjusting loss from operations by the following items:
|
● |
Interest Expense. For the three months ended June 30, 2026, and 2025, we recorded interest expense related to notes payable of approximately $81,000 and $333,000, respectively. The decrease was primarily due to the payoff of a significant amount of outstanding notes payable. |
|
● |
Debt Extinguishment Loss. For the three months ended June 30, 2026 and 2025, we recorded approximately $347,000 debt extinguishment loss and $99,000 debt extinguishment gain, respectively. |
|
● |
Gain on sale of PMTA assets. For the three months ended June 30, 2025, we recorded a $6,500,000 gain related to the sales agreement entered with one of the world’s largest tobacco companies. |
Income Taxes Provision
For the six months ended June 30, 2026 and 2025, the Company recorded an income tax provision of approximately $0 and $388,000, respectively.
Net Income (Loss) from Continuing Operations
For the three months ended June 30, 2026 and 2025, we incurred net loss of $1,662,000 and net income of $4,924,000 from continuing operations, respectively.
Results of Operations for the Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025
A review of the six-month period ended June 30, 2026, follows:
|
For the six months ended |
||||||||||||||||
|
June 30, |
Change |
|||||||||||||||
|
2026 |
2025 |
Amount |
Percentage |
|||||||||||||
|
($ in thousands) |
||||||||||||||||
|
Product revenue, net |
$ | 8,606 | $ | 3,339 | $ | 5,267 | 157.7 | % | ||||||||
|
Cost of goods sold - product revenue |
6,308 | 2,467 | 3,841 | 155.7 | % | |||||||||||
|
Gross profit |
2,298 | 872 | 1,426 | 163.5 | % | |||||||||||
|
Operating costs and expenses: |
||||||||||||||||
|
General and administrative |
3,662 | 2,446 | 1,216 | 49.7 | % | |||||||||||
|
Sales and marketing |
761 | 252 | 509 | 202.0 | % | |||||||||||
|
Research and development |
84 | 7 | 77 | 1100.0 | % | |||||||||||
|
Total operating costs and expenses |
4,507 | 2,705 | 1,802 | 66.6 | % | |||||||||||
|
Loss from operations |
(2,209 | ) | (1,833 | ) | (376 | ) | 20.5 | % | ||||||||
|
Other income (expense): |
100 | % | ||||||||||||||
|
Interest expense |
(156 | ) | (574 | ) | 418 | -72.8 | % | |||||||||
|
Debt extinguishment loss |
(347 | ) | (50 | ) | (297 | ) | 594.0 | % | ||||||||
|
Gain on sale of intellectual property |
- | 6,500 | (6,500 | ) | -100.0 | % | ||||||||||
|
Total other loss |
(503 | ) | 5,876 | (6,379 | ) | -108.6 | % | |||||||||
|
Loss before provision for income taxes |
(2,712 | ) | 4,043 | (6,755 | ) | -167.1 | % | |||||||||
|
Income tax provision |
- | (388 | ) | 388 | -100.0 | % | ||||||||||
|
Income (loss) from continuing operations after income taxes |
(2,712 | ) | 3,655 | (6,367 | ) | -174.2 | % | |||||||||
|
Discontinued operations: |
||||||||||||||||
|
Income from discontinued operations, net of tax |
- | 89 | (89 | ) | -100.0 | % | ||||||||||
|
Net income (loss) |
$ | (2,712 | ) | $ | 3,744 | $ | (6,456 | ) | -172.4 | % | ||||||
Revenue
Revenue for the six months ended June 30, 2026, increased by approximately $5,267,000 or 157.7%, to approximately $8,606,000, as compared to approximately $3,339,000 for same period in 2025, which is all due to the increase in our nicotine-based product and nicotine alternative products sales. Sales of SBX, a non-nicotine, disposable vapor product which is not subject to FDA review, experienced a significant increase in 2026.
Cost of Revenue
Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased by approximately $3,841,000 or 155.7%, to approximately $6,308,000, or 73.3% of revenue, for the six months ended June 30, 2026, as compared to approximately $2,467,000, or 73.9% of revenue, for the same period in 2025. This cost increased compared to last year due primarily to an increase in the volume of products sold during the period.
General and Administrative Expenses
For the six months ended June 30, 2026, total general and administrative expenses increased $1,216,000 to $3,662,000 as compared to approximately $2,446,000 for the same period in 2025. The increase was primarily comprised of an increase of approximately $417,000 of non-commission wages and benefits, $260,000 of professional fees, as well as $539,000 in other general and administrative expenses, including costs related to our new Huntington Beach manufacturing facility. The increase in non-commission wages and benefits of $417,000 reflects headcount additions in operations and manufacturing to support the Company's new manufacturing facility during the period. The $260,000 increase in professional fees was primarily driven by higher legal and board-related costs incurred during the period. The $539,000 increase in other general and administrative expenses was driven by higher occupancy costs, bad debt expense, and merchant processing fees — the latter of which increases commensurately with sales volume.
Sales and Marketing Expense
For the six months ended June 30, 2026, total sales and marketing expense was approximately $761,000 as compared to approximately $252,000 for the same period in 2025. The increase was primarily due to increased sales commissions paid as well as a significant increase in tradeshow and customer event related costs. The Company continues to evaluate its spending on advertising, promotional and tradeshow related expenses as it aims to increase sales of its new SBX Disposable vapor products.
Research and Development Expense
For the six months ended June 30, 2026, total research and development expense was approximately $84,000 as compared to $7,000 for the same period in 2025. The $77,000 increase reflects ongoing product development and testing activity in support of the Company's active PMTA portfolio, consistent with management's strategy of advancing regulatory approvals for its nicotine product lines.
Income (Loss) from Operations
We incurred a loss from operations of approximately $2,209,000 for the six months ended June 30, 2026, compared to a loss of approximately $1,833,000 for the same period in 2025, due primarily to higher general and administrative expenses. Net income (loss) is determined by adjusting loss from operations by the following items:
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Interest Expense. For the six months ended June 30, 2026, and 2025, we recorded interest expense related to notes payable of approximately $156,000 and $574,000, respectively. The decrease was primarily due to the payoff of a significant amount of outstanding notes payable. |
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Debt Extinguishment Loss. For the six months ended June 30, 2026 and 2025, we recorded approximately $347,000 and $50,000 debt extinguishment loss, respectively. |
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Gain on sale of PMTA assets. For the six months ended June 30, 2025, we recorded a $6,500,000 gain related to the sales agreement entered with one of the world’s largest tobacco companies. |
Income Taxes Provision
For the six months ended June 30, 2026 and 2025, the Company recorded an income tax provision of approximately $0 and $388,000, respectively.
Net Income (Loss) from Continuing Operations
For the six months ended June 30, 2026 and 2025, we incurred net loss of $2,712,000 and net income of $3,655,000 from continuing operations, respectively.
Effects of Inflation
Inflation has not had a material impact on our business.
Liquidity and Capital Resources
As of June 30, 2026, we had working capital of approximately $4,742,000, which consisted of current assets of approximately $11,986,000 and current liabilities of approximately $7,244,000, as compared to working capital of approximately $3,137,000 at December 31, 2025. The current liabilities include approximately $6,865,000 of accounts payable and accrued expenses, $251,000 of lease liabilities and approximately $128,000 of deferred revenue associated with product shipped but not yet received by customers.
Our cash and cash equivalents balance at June 30, 2026 was approximately $527,000. As of June 30, 2026, we have the following notes outstanding:
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Amended August 2025 Notes. As of June 30, 2026, $2,000,000 notes payable plus accrued interest held by Michael King remained outstanding. |
For the six months ended June 30, 2026, net cash used in continuing operating activities was approximately $1,488,000, resulting from a net loss from continuing operations of $2,712,000, and offset by a change in operating assets and liabilities of $640,000 and a net non-cash activity of $584,000. For the six months ended June 30, 2025, net cash used in continuing operating activities was approximately $3,385,000, resulting from a net income from continuing operations of $3,655,000 and offset by a change in operating assets and liabilities of $1,205,000 and net non-cash activity of $5,835,000.
For the six months ended June 30, 2025, cash provided by investing activities included $6,500,000 in proceeds from the sale of intellectual property related to certain of our PMTA products.
For the six months ended June 30, 2026, we generated approximately $695,000 in cash from financing activities related to the issuance of common shares of $780,000 and the repayment of $85,000 in notes payable to a related party. For the six months ended June 30, 2025, we used approximately $2,195,000 in cash from financing activities related to the issuance of notes payable of $546,000, notes payable to a related party of $100,000 and the repayment of $2,841,000 in notes payable, including $917,000 to a related party.
Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management’s Plan of Operation
Our condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the six months ended June 30, 2026, the Company’s revenue increased, the Company incurred a loss from operations of approximately $2,209,000, and a net loss from continuing operations of approximately $2,712,000. Net cash used in continuing operating activities was approximately $1,488,000. The Company had a stockholders’ equity of $3,135,000 at June 30, 2026. During the six months ended June 30, 2026, the Company’s working capital was increased to $4,742,000 from $3,137,000 as of December 31, 2025.
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 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.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements other than operating lease commitments.
Critical Accounting Policies
The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expense in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025.
ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4 – CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our management, with the participation of our President and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on our evaluation, our President, the principal executive officer, and Chief Financial Officer concluded that, as of June 30, 2026, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the quarter ended June 30, 2026, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of the date, 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.
As more fully described under “Risks and Uncertainties” (above), and in our 2025 Annual Report in “RISK FACTORS,” the Company’s wholly owned subsidiary, Charlie’s Chalk Dust LLC (“CCD”), is a petitioner in two proceedings challenging Marketing Denial Orders (“MDOs”) issued by the U.S. Food and Drug Administration (“FDA”) with respect to certain premarket tobacco product applications (“PMTAs”).
On April 1, 2026, the FDA issued an MDO to CCD covering certain products included in CCD’s timely submitted 2020 PMTA. On May 1, 2026, CCD and Toro Imports LLC filed a petition for review challenging the MDO in the U.S. Court of Appeals for the Fifth Circuit, Charlie’s Chalk Dust LLC, et al. v. U.S. Food and Drug Administration, et al., Case No. 26-60320. On May 11, 2026, the petitioners moved to stay the MDO pending judicial review, and the Fifth Circuit granted that motion on June 8, 2026. Merits briefing is underway. The petitioners filed their opening brief on August 3, 2026; the FDA’s response brief is currently due on October 2, 2026, after which the petitioners may file a reply brief. Although the affected products represent only a small percentage of the Company’s current sales, CCD intends to vigorously pursue its challenge to the MDO while continuing to supplement the applicable PMTA with the latest scientific evidence.
On October 28, 2025, the FDA issued MDOs to CCD covering certain products included in CCD’s timely submitted 2022 PMTAs. CCD and FOK of Houma LLC, doing business as Nocko’s, filed a petition for review challenging the MDOs in the U.S. Court of Appeals for the Fifth Circuit, Charlie’s Chalk Dust LLC, et al. v. U.S. Food and Drug Administration, et al., Case No. 25-60609. On November 5, 2025, the petitioners filed an emergency motion for a temporary administrative stay. On November 10, 2025, the Fifth Circuit granted a temporary administrative stay pending its consideration of the petitioners’ motion to stay the MDOs pending judicial review. On December 24, 2025, a Fifth Circuit panel granted that motion. Merits briefing has been completed, and oral argument is currently scheduled for the week of October 5, 2026, subject to possible extension by the Court. As a result of the stay, the affected PMTAs were returned to pending status and continue to be treated as timely filed as of May 2022 while the litigation proceeds. Accordingly, where permitted by state law, the affected products remain eligible for inclusion on state vapor product directories, including in Louisiana, that permit the sale of products associated with timely submitted synthetic-nicotine PMTAs that remain pending before the FDA, subject to satisfaction of all other applicable state requirements.
Except for these proceedings, the Company is not a party to any material legal or administrative proceeding.
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.
ITEM 1A. RISK FACTORS
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our 2025 Annual Report. In addition to the other information set forth in this Report, you should carefully consider the risk factors discussed in Part I, Item 1A, of the 2025 Annual Report and subsequent reports filed pursuant to the Exchange Act which could materially and adversely affect the Company’s business, financial condition, results of operations, and stock price. Any losses or damages we incur could have a material adverse effect on our financial results and our ability to conduct business as expected. The risks described in our 2025 Annual Report and in our subsequent reports filed pursuant to the Exchange Act are not the only risks facing the Company. Additional risks and uncertainties not presently known to management, or that management presently believes not to be material, may also result in material and adverse effects on our business, financial condition, and results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the quarter ended June 30, 2026, director or Section 16 Officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6. EXHIBITS
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(a) |
Exhibits |
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31.1 |
Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a). |
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31.2 |
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32.1 |
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32.2 |
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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 |
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101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Date: August 17, 2026 |
CHARLIE’S HOLDINGS, INC. |
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By: |
/s/ Henry Sicignano, III |
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Henry Sicignano, III |
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President & Chief Executive Officer |
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(Principal Executive Officer) |
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By: |
/s/ Matthew P. Montesano |
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Matthew P. Montesano |
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Chief Financial Officer |
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(Principal Financial and Accounting Officer) |
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