Charlie's Holdings, Inc. CHUC US Equity☆

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

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

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 the Charlie’s Premarket Tobacco Applications (“PMTAs”) for both flavored and “plain” tobacco nicotine vapor products.

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

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 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).

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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 Disposables were overwhelmingly preferred over Juul tobacco-flavored vapes. Of 306 survey participants, 287 preferred SBX over Juul.

Because no flavored ENDS product is legal to be sold under the current FDA PMTA framework and because there is little enforcement in the marketplace, there is widespread availability of illicit flavored ENDS products across the United States. The FDA Center for Tobacco Products estimates that more than half of the U.S. e-cigarette market is illicit. In this environment, some states have begun passing legislation to ban certain flavored products. In these select states, where flavored nicotine products are now beginning to face significant regulatory restrictions, we are focusing our SBX sales initiatives. We believe that the list of states that give SBX a “regulatory advantage” will 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:

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

Currently, there is a need for age-gated product technologies that can satisfy or accommodate concerns the FDA has related to under-age youth access. We believe age-gating is both a responsible business practice as well as a potential future competitive advantage for Charlie's.

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

SBX Nicotine Analogue Products –not subject to FDA PMTA Review

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

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

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

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

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

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

V. Grow International Sales to mitigate US regulatory risks

In order to further mitigate FDA regulatory risk in the domestic market and to capture what management continues to believe is a significant commercial opportunity, we have dedicated additional resources to efforts focused on growing our market share internationally. Presently, approximately 8% of our vapor product sales come from the international market. We are well-positioned to increase sales in countries where we already have presence and to capture new business in several additional overseas markets.

VI. Uplist to a National Securities Exchange

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

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Risks and Uncertainties

The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in September 2022, the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive levels. The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating nicotine, flavored e-cigarette liquid, and other electronic nicotine delivery system (“ENDS”) products, could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution. Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company may sell its products. In the event the prevalence of such bans and/or changes in laws and regulations increase across the United States, or internationally, the Company’s business, results of operations, and financial condition could be adversely impacted. In addition, the Company is presently seeking to obtain marketing authorization for certain of its tobacco-derived nicotine e-liquid products. The Company’s applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States. Beginning in August 2021, the FDA began issuing Marketing Denial Orders (“MDO”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health. The Company has not received an MDO for any of its 2020 PMTA submissions; however, there is no assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which could have a significant impact on our sales. On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs. The administrative appeal was granted on October 30, 2023 and the products were accepted to move forward in the PMTA review process. On October 28, 2025, the Company received an MDO from the FDA with respect to certain of our timely-submitted PMTAs. On November 5, 2025, the Company filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted the Company’s opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. We intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation. Though a very small percentage of our current sales are related to our affected PMTA Products, we plan to vigorously defend our PMTAs and pursue all available legal remedies. The FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our other pending applications at any time. More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA’s priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry. In the event the FDA denies our PMTAs, absent a court-ordered stay, we would be required to remove products and cease selling them.

The Company recently launched new alternative alkaloid Metatine-based disposable vape products, under the “SBXTM” 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 MetatineTM (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.

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Recent Developments

Entry into a Material Definitive Agreement for the Disposition of Assets

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

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

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

$2.0 Million Credit Facility with Independent Board Member

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

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

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

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

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

Marketing Denial Orders and Court-granted Administrative Stay on Certain Premarket Tobacco Applications

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

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Company opens US Manufacturing Facility

On December 1, 2025 we reported that the Company opened its first US-manufacturing facility in Huntington Beach, California. Effective September 1, 2025, Texas implemented a new law that bans the sale and possession of certain vape products, including those manufactured or marketed as coming from China or certain other "adversary countries." Tennessee and other states have similar legislation pending. To sell and distribute products that are fully compliant in these markets, Charlie's became one of the first companies to launch a US-filled vapor product line. The Company's popular Pachamama 25K line now meets the domestic manufacturing requirements of the state of Texas and enables Charlie's premium products to appeal, broadly, to adult consumers who prefer "Made in America" products.

Age Gating Partnership with IKE Tech, LLC

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

Discontinued Operations

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

Private Placement – February 13, 2026

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

● Michael King, Independent Director: 500,000 shares

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

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

● Henry Sicignano III, President: 250,000 shares

● Matthew Montesano, Chief Financial Officer: 100,000 shares

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Basis of Presentation

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

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 years ended December 31, 2025 and 2024.

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.

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

For the years ended

December 31, Change

($ in thousands)

Operating costs and expenses:

Other income (expense):

Debt extinguishment loss (50 ) (75 ) 25 -33.3 %

Change in fair value of derivative liabilities - 79 (79 ) -100.0 %

Gain on sale of intellectual property 7,500 - 7,500 100 %

Discontinued operations:

Income (loss) from discontinued operations, net of tax 181 (156 ) 337 -216.0 %

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Revenue

Revenue for the year ended December 31, 2025, increased approximately $13,151,000, or 169.4%, to approximately $20,916,000, as compared to approximately $7,765,000 for the year ended December 31, 2024, 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 during the year ended December 31, 2025. Revenue does not include $3MM in Don Polly sales as the Don Polly LLC division was closed permanently in 2026. The operating results of Don Polly LLC have been classified as income (loss) from discontinued operations.

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 $10,373,000 or 212.2%, to approximately $15,261,000, or 73% of revenue, for the year ended December 31, 2025, as compared to approximately $4,888,000, or 62.9% of revenue, for the same period in 2024. This cost increased compared to last year due primarily to an increase in the volume of products sold during the period.

General and Administrative Expense

For the year ended December 31, 2025, total general and administrative expenses increased by approximately $763,000 to $6,374,000 as compared to approximately $5,611,000 for the same period in 2024. This change was primarily due to decreases of approximately $88,000 in certain professional fees and $59,000 of bad debt expense, and offset by an increase of $748,000 in non-commission wages and benefits and $162,000 of other general and administrative costs. The decrease in professional fees was primarily the result of reductions in legal and audit costs as well as fees paid to members of our Board of Directors. The increase in payroll and benefits costs was primarily driven by bonuses awarded to certain key employees during the period.

Sales and Marketing Expense

For the year ended December 31, 2025, total sales and marketing expense increased by approximately $689,000 to approximately $1,327,000 as compared to approximately $638,000 for the same period in 2024. The increase was primarily due to increased sales commissions paid and display costs for “first-order” sales of the Company’s SBX product as roll-out continued during the year ended December 31, 2025. The Company continues to evaluate its spending on advertising, promotional and tradeshow related expenses as it aims to increase sales of its new SBX Disposable vapor products.

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Research and Development Expense

For the year ended December 31, 2025, research and development expense was approximately $119,000 as compared to approximately $68,000 of income for the year ended December 31, 2024. The increase of approximately $187,000 was primarily due to costs associated with the Company’s ongoing development and testing related to active PMTA filings with the FDA.

Loss from Operations

We incurred a loss from operations of approximately $2,165,000 for the year ended December 31, 2025, as compared to loss from operations of approximately $3,304,000 for the year ended December 31, 2024. The decreased in loss from operations is due primarily to increased sales and gross profit. Net loss from continuing operations is determined by adjusting loss from operations by the following items:

Income Taxes Provision

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

Net Income (Loss) from Continuing Operations

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

Effects of Inflation

Inflation has not had a material impact on our business.

Liquidity and Capital Resources

As of December 31, 2025, we had working capital of approximately $3,137,000, which consisted of current assets of approximately $10,767,000 and current liabilities of approximately $7,630,000, as compared to working capital deficit of approximately $1,855,000 at December 31, 2024. The current liabilities include approximately $5,037,000 of accounts payable and accrued expenses, notes payable from related parties of $2,280,000, $275,000 of lease liabilities and approximately $38,000 of deferred revenue associated with product shipped but not yet received by customers.

Our cash and cash equivalents balance at December 31, 2025 was approximately $1,320,000. The Company believes its balances of cash and cash equivalents as of December 31, 2025, along with cash generated by ongoing operations and continued access to debt markets, will be sufficient to satisfy its cash requirements over the next 12 months and beyond.

As of December 31, 2025, we had the following notes outstanding:

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For the year ended December 31, 2025, net cash used in continuing operating activities was approximately $6,314,000, resulting from a net income from continuing operations of $4,499,000, offset by a change in operating assets and liabilities of $4,034,000 and a net non-cash activity of $6,598,000. For the year ended December 31, 2024, net cash used in continuing operating activities was approximately $1,982,000, resulting from a net loss from continuing operations of $4,003,000 and offset by a change in operating assets and liabilities of $913,000 and net non-cash activity of $1,108,000.

For the year ended December 31, 2025, cash provided by investing activities included $7,500,000 in proceeds from the sale of intellectual property related to certain of our PMTA products.

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

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

Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended December 31, 2025, the Company’s revenue increased, the Company incurred a loss from operations of approximately $2,165,000, and a net income from continuing operations of approximately $4,318,000. Net cash used in continuing operating activities was approximately $6,314,000. The Company had a stockholders’ equity of $3,423,000 at December 31, 2025. During the year ended December 31, 2025, the Company’s working capital was increased to $3,137,000 from a deficit of $1,855,000 as of December 31, 2024.

Management evaluated whether these conditions could raise a substantial doubt about the Company’s ability to continue as a going concern. During the year ended December 31, 2025, the Company entered into and closed an Asset Purchase Agreement (the “Agreement”) and subsequent amendment with one of the world’s largest tobacco companies (the “Buyer”) pursuant to which the Buyer purchased 16 of the Company’s PACHA synthetic products and related assets (the “Assets”) that are covered by a premarket tobacco application (“PMTA”) first submitted by the Company in 2022. The combined purchase price for the Assets was $6.5 million paid at closings in April and May 2025, and an additional $1.0 million paid at closings in August 2025, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets.

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

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

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

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

The accounting policies identified as critical are as follows:

Revenue Recognition

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

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

Accounts receivable is recorded at the invoiced amount and does not bear interest. We determine the credit losses by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and set up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2025 and 2024, the allowance for bad debt totaled $105,000 and $88,000, respectively.

Inventories

Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2025 and 2024, the reserve for excess and obsolete inventories totaled $514,000 and $531,000, respectively.

Stock-Based Compensation

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

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Income Taxes

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS

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

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

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

Based on our evaluation, our President, the principal executive officer, and Chief Financial Officer concluded that, as of December 31, 2025, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President, the principal executive officer, and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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

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

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

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

(c) Changes in internal control over financial reporting.

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

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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

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

Name Age Position

Henry Sicignano 58 President (Principal Executive Officer)

Matthew P. Montesano 40 Chief Financial Officer

Ryan Stump 37 Chief Operating Officer and Director

Scot Cohen 56 Director

Jeffrey Fox 62 Director

Edward Carmines 71 Director

Michael King 56 Director

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

Henry Sicignano, III, President (Principal Executive Officer). Mr. Sicignano was appointed as President of the Company on April 1, 2021. Prior to joining the Company, Mr. Sicignano held multiple positions, including Chief Executive Officerof22nd Century Group, Inc. (NASDAQ: XXII), a plant-based biotechnology company that is focused on tobacco harm reduction, very low nicotine content tobacco, and hemp/cannabis research from March 2015 through July 2019. He also served as President and as a member of the Board of Directors with22nd Century from January 2011 through July 2019. In addition, from December 2014 to August 2018, Mr. Sicignano served on the Board of Directors of Anandia Laboratories, Inc., a cannabis-focused science company that was sold to Aurora Cannabis (NYSE: ACB). Mr. Sicignano holds a B.A. Degree in Government from Harvard College and an M.B.A. Degree from Harvard University.

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

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

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

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

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

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

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

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

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

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

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

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

Code of Ethics

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

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ITEM 11. EXECUTIVE COMPENSATION

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

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

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

ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

Exhibit No. Description

23.1 Consent of Urish Popeck & Co., LLC filed herewith.

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101.SCH Inline XBRL Taxonomy Extension Schema

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB Inline XBRL Taxonomy Extension Label Linkbase

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase

ITEM 16. FORM 10-K SUMMARY

None.

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SIGNATURES

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

Date: March 31, 2026 CHARLIE’S HOLDINGS, INC.

By: /s/ Henry Sicignano III

Henry Sicignano III President (Principal Executive Officer)

/s/ Matthew P. Montesano

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

Signature Title Date

/s/ Ryan Stump Ryan Stump Chief Operating Officer and Director March 31, 2026

/s/ Scot Cohen Scot Cohen Director March 31, 2026

/s/ Jeffrey Fox Jeffrey Fox Director March 31, 2026

/s/ Edward Carmines Edward Carmines Director March 31, 2026

/s/ Michael King Michael King Director March 31, 2026

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

Charlie’s Holdings, Inc.

Costa Mesa, California

Opinion on the Consolidated Financial Statements

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

Basis for Opinion

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

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

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

Critical Audit Matters

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

Going Concern

The ability of the Company to continue as a going concern is dependent on their ability to increase revenues, procure cost-effective financing, and continue its business development efforts to support the PMTA process for the Company’s submissions to the FDA. Management intends to continue to fund its business by way of public or private offerings of the Company’s stock or through loans from related parties and private funding, in order satisfy the Company’s obligations as they come due for at least one year from the financial statement issuance date. Management believes any substantial doubt has been alleviated as they expect increase revenues and profitability to continue. Management’s plans include (i) streamlining profitable product lines (ii) focusing on the procurement of the FDA approval on the nicotine product line (iii) increasing marketing efforts.

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

The principal considerations for our determination that performing procedures relating to the Company’s liquidity and plans to meet future cash requirements is a critical audit matter are the significant judgments by management in determining future cash flows and ability to execute on its business strategy which led to a high level of auditor judgment, subjectivity and effort in performing procedures.

● Reviewed management plans for future events and conditions;

/s/ Urish Popeck & Co., LLC

PCAOB ID: 1013

We have served as the Company's auditor since 2024

Pittsburgh, Pennsylvania

March 31, 2026

F-2

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

December 31, December 31,

ASSETS

Current assets:

Accounts receivable, net 440 331

Prepaid expenses and other current assets 2,288 465

Current assets in discontinued operations - 582

Non-current assets:

Property, plant and equipment, net 37 53

Right-of-use asset, net 632 71

Total non-current assets 797 225

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:

Accounts payable and accrued expenses $ 5,037 $ 3,242

Notes payable, net - 520

Notes payable - related parties 2,280 1,488

Deferred revenue 38 25

Current liabilities in discontinued operations - 227

Non-current liabilities:

Note payable, net of current portion 150 -

Lease liabilities, net of current portion 361 -

Non-current liabilities in discontinued operations - 150

Total non-current liabilities 511 150

COMMITMENTS AND CONTINGENCIES (see Note 12)

Stockholders' equity (deficit):

Convertible preferred stock ($0.001 par value); 1,800,000 shares authorized

Total stockholders' equity (deficit) 3,423 (1,780 )

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 11,564 $ 3,945

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

F-3

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

For the years ended

December 31,

Cost of goods sold - product revenue 15,261 4,888

Operating costs and expenses:

Research and development 119 (68 )

Total operating costs and expenses 7,820 6,181

Other income (expense):

Debt extinguishment gain (loss) (50 ) (75 )

Change in fair value of derivative liabilities - 79

Gain on sale of intellectual property 7,500 -

Total other income (loss) 6,758 (699 )

Income (loss) before provision for income taxes 4,593 (4,003 )

Income tax provision (275 ) -

Income (loss) from continuing operations after income taxes 4,318 (4,003 )

Discontinued operations:

Income (loss) from discontinued operations, net of tax 181 (156 )

Net earnings (loss) per share:

Income (loss) from continuing operations, basic $ 0.02 $ (0.02 )

Income (loss) from discontinued operations, basic $ 0.00 $ 0.00

Net earnings (loss) per share, basic $ 0.02 $ (0.02 )

Net earnings (loss) per share:

Income (loss) from continuing operations, diluted $ 0.02 $ (0.02 )

Income (loss) from discontinued operations, diluted $ 0.00 $ 0.00

Net earnings (loss) per share, diluted $ 0.02 $ (0.02 )

Weighted average number of common shares outstanding

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

F-4

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

Series A

Shares Par value Shares Par value Paid-in Capital Deficit Equity (Deficit)

Issuance of common shares from debt redemption - - 7,500 8 668 - 676

Conversion of Series A convertible preferred stock (5 ) - 1,185 1 (1 ) - -

Forfeiture of restricted stock awards - - (209 ) - (2 ) - (2 )

Conversion of Series A convertible preferred stock (29 ) - 6,551 7 (7 ) - -

Warrants exercised for vendor credit - - 3,700 4 366 - 370

Forfeiture of restricted stock awards - - (84 ) - (4 ) - (4 )

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

F-5

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

For the years ended

December 31,

Cash Flows from Operating Activities:

Less: income (loss) from discontinued operations, net of tax 181 (156 )

Net income (loss) from continuing operations 4,318 (4,003 )

Reconciliation of net loss to net cash used in operating activities:

Allowance for doubtful accounts 17 75

Depreciation and amortization 39 102

Accretion of debt discount 465 352

Change in fair value of derivative liabilities - (79 )

Debt extinguishment loss 50 75

Amortization of operating lease right-of-use asset 145 353

Stock based compensation 186 230

Gain on sale of intellectual property (7,500 ) -

Subtotal of non-cash charges (6,598 ) 1,108

Changes in operating assets and liabilities:

Accounts receivable (126 ) (88 )

Prepaid expenses and other current assets (1,453 ) 192

Other assets (27 ) -

Accounts payable and accrued expenses 2,290 436

Deferred revenue 13 (32 )

Lease liabilities (143 ) (355 )

Net cash used in operating activities - continuing operations (6,314 ) (1,982 )

Net cash provided by operating activities - discontinued operations 536 361

Net cash used in operating activities (5,778 ) (1,621 )

Cash Flows from Investing Activities:

Proceeds from sale of intellectual property 7,500 -

Purchase of property, plant and equipment (23 ) -

Net cash provided by investing activities 7,477 -

Cash Flows from Financing Activities:

Proceeds from issuance of common shares - 1,580

Proceeds from issuance of notes payable 546 742

Proceeds from issuance of notes payable to related party 2,100 500

Repayment of notes payable (1,924 ) (1,272 )

Repayment of notes payable to related party (1,312 ) (85 )

Net cash (used in) provided by financing activities (590 ) 1,465

Net increase (decrease) in cash 1,109 (156 )

Cash, beginning of the year 211 367

Supplemental disclosure of cash flow information

Cash paid for interest $ 9 $ 61

Cash paid for interest to related party $ 277 $ 146

Cash paid for income taxes $ - $ -

Supplemental disclosure of cash flow information

Conversion of Series A convertible preferred stock $ 7 $ 1

Exchange accounts payable with a note payable $ 495 $ -

Issuance of common shares from debt redemption $ - $ 676

Warrants exercised for vendor credit $ 370 $ -

Right-of-use asset recognized in exchange for lease liability $ 706 $ -

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

F-6

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries (collectively, the “Company”, “we”), currently formulates, markets and distributes premium, non-combustible nicotine-related products and alternative alkaloid vapor products. The Company’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States, and in select international markets.

Charlie’s Chalk Dust, LLC (“Charlie’s” or “CCD”), is the Company’s wholly owned subsidiary which produces and sells nicotine-based and alternative alkaloid vapor products.

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

Basis of Presentation

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

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 years ended December 31, 2025 and 2024. 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.

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

Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended December 31, 2025, the Company’s revenue increased, the Company incurred a loss from operations of approximately $2,165,000, and a net income from continuing operations of approximately $4,318,000. Net cash used in continuing operating activities was approximately $6,314,000. The Company had a stockholders’ equity of $3,423,000 at December 31, 2025. During the year ended December 31, 2025, the Company’s working capital was increased to $3,137,000 from a deficit of $1,855,000 as of December 31, 2024.

Management evaluated whether these conditions could raise a substantial doubt about the Company’s ability to continue as a going concern. During the year ended December 31, 2025, the Company entered into and closed an Asset Purchase Agreement (the “Agreement”) and subsequent amendment with one of the world’s largest tobacco companies (the “Buyer”) pursuant to which the Buyer purchased 16 of the Company’s PACHA synthetic products and related assets (the “Assets”) that are covered by a premarket tobacco application (“PMTA”) first submitted by the Company in 2022. The combined purchase price for the Assets was $6.5 million paid at closings in April and May 2025, and an additional $1.0 million paid at closings in August 2025, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets.

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

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

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

F-7

Risks and Uncertainties

The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in September 2022, the FDA announced a plan to reduce nicotine levels in cigarettes to minimally or non-addictive levels. The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating nicotine, flavored e-cigarette liquid and other electronic nicotine delivery system (“ENDS”) products, could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution. Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company may sell its products. In the event the prevalence of such bans and/or changes in laws and regulations increase across the United States, or internationally, the Company’s business, results of operations and financial condition could be adversely impacted. In addition, the Company is presently seeking to obtain marketing authorization for certain of its tobacco-derived nicotine e-liquid products. The Company’s applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States. Beginning in August 2021, the FDA began issuing Marketing Denial Orders (“MDO”) for ENDS products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health. The Company has not received an MDO for any of its 2020 submissions; however, there is no assurance that regulatory approval to sell our products will be granted or that Charlie’s would be able to raise additional financing if required, which could have a significant impact on our sales. On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs. The administrative appeal was granted on October 30, 2023 and the products were accepted to move forward in the PMTA review process. On October 28, 2025, the Company received an MDO from the FDA with respect to certain of our timely-submitted PMTAs. On November 5, 2025, the Company filed a motion for a temporary administrative stay with the United States Court of Appeals for the Fifth Circuit. On November 10, 2025, the Court granted the Company’s opposed motion for a temporary administrative stay pending resolution of our forthcoming stay motion. Though a very small percentage of our current sales are related to our affected PMTA Products, we intend to promptly seek a preliminary injunction to remain in effect during the pendency of the litigation, and we plan to vigorously defend our PMTAs and pursue all available legal remedies. The FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our other pending applications at any time. More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA’s priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry. In the event the FDA denies our PMTAs, absent a court-ordered stay, we would be required to remove products and cease selling them.

During the fourth quarter of 2024 the Company launched new disposable vape products, under the “SBXTM” 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 MetatineTM (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.

F-8

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its 100% wholly owned subsidiary, Charlie’s Chalk Dust, LLC. All inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

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

Fair Value of Financial Instruments

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

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

Revenue Recognition

The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) 606 – Contracts with Customers. Revenues are generated from contracts with customers that consist of sales to retailers and distributors. Contracts with customers are generally short term in nature with the delivery of product as a single performance obligation. Revenue from the sale of product is recognized at the point in time when the single performance obligation has been satisfied and control of the product has transferred to the customer. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, the right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are received by customers. Shipping generally occurs prior to the transfer of control to the customer and is therefore accounted for as a fulfillment expense.

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

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

Cash and Cash Equivalents

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

AccountsReceivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. We determine the credit losses by regularly evaluating historical customer information and individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and establish an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2025 and 2024, the allowance for bad debt totaled $105,000 and $88,000, respectively.

F-9

Inventories

Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2025 and 2024, the reserve for excess and obsolete inventories totaled $514,000 and $531,000, respectively.

Plant, Property and Equipment

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

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

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

Leases

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

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

Stock-Based Compensation

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

Income Taxes

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

F-10

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

Research and Development

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

Segments

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

Discontinued Operations

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

Recently Adopted Accounting Standards

Improvements to Income Tax Disclosures

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

Scope Applications of Profits Interests and Similar Awards

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

F-11

Recently Issued Accounting Standards Not Yet Adopted

Interim Reporting

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

Accounting for Government Grants Received by Business Entities

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

Intangibles - Goodwill and Other - Internal-Use Software

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

Induced Conversions of Convertible Debt Instruments

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

IncomeStatement - 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.

F-12

NOTE 3 – FAIR VALUE MEASUREMENTS

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

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

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

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

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

F-13

NOTE 4 – INVENTORY

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

December 31, December 31,

Overhead allocation 19 22

Less: inventory reserves (514 ) (531 )

NOTE 5 – PROPERTY AND EQUIPMENT

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

December 31, December 31,

Machinery and equipment $ 41 $ 41 5 years

Leasehold improvements 266 254 Lesser of lease term or estimated useful life

Accumulated depreciation (1,022 ) (983 )

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

NOTE 6 – CONCENTRATIONS

Vendors

The Company’s concentration of purchases are as follows:

For the years ended

December 31,

Vendor A 9 % 35 %

Vendor B 3 % 13 %

During the year ended December 31, 2025, purchases from three vendors represented 76% of total inventory purchases. During the year ended December 31, 2024, purchases from two vendors represented 58% of total inventory purchases As of December 31, 2025 and 2024, amounts owed to these vendors totaled $2,229,000 and $266,000 respectively, which are included in accounts payable in the accompanying condensed consolidated balance sheets.

F-14

Accounts Receivable

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

For the years ended December 31,

Four customers made up more than 10% of net accounts receivable at December 31, 2025, and four customers made up more than 10% of net accounts receivable as of December 31, 2024.

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

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, respectively, and a consolidated variable interest for which the Company is the primary beneficiary. Don Polly markets and distributes third-party product lines.

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 item of assets and liabilities included as part of discontinued operations of Don Polly in the consolidated balance sheet as of December 31, 2024 (amount in thousands):

Accounts receivable, net $ 33

Inventory, net 536

Prepaid expenses and other current assets 12

Total current assets in discontinued operations 582

Total assets in discontinued operations $ 582

Accounts payable $ 154

Deferred revenue 73

Total current liabilities in discontinued operations 227

Note payable 150

Total non-current liabilities in discontinued operations 150

Total liabilities in discontinued operations $ 377

F-15

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

For the Years Ended

December 31,

Cost of goods sold - product revenue 2,557 715

Operating expenses:

General and administrative 199 107

Sales and marketing 166 55

Research and development 3 -

Total operating expenses 368 162

Loss from operations 195 (148 )

Interest expense (5 ) (8 )

Loss from discontinued operations, before income tax 190 (156 )

Income tax provision (9 ) -

Income (loss) from discontinued operations, net of tax $ 181 $ (156 )

NOTE 8 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

December 31, December 31,

F-16

NOTE 9 – NOTES PAYABLE

February 2025 Short-Term Loan – Related Party

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

January 2025 Chemular Secured Promissory Note

On January 7, 2025, the Company issued a secured promissory note (“Chemular Note”) to one of its vendors Chemular, Inc. (“Chemular”) to settle the outstanding accounts payable of $495,000, in the principal amount of $370,000 which bears interest at the rate of 10% per annum. Commencing on January 15, 2025 and continuing on the first (1st) day and the fifteenth (15th) day of each month thereafter until September 15, 2025, (the “Maturity Date”), the Company shall pay $10,000 in accordance with the repayment schedule. The Company also issued 3,700,000 warrants (“Chemular Warrants”) to Chemular in conjunction with the Chemular Note. On September 24, 2025, the Vendor exercised the Warrants entirely. The Vendor issued the Company a $370,000 vendor credit as the purchase price consideration for the warrant exercise. The Company recognized the $370,000 vendor credit in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2025.

The fair value of the Chemular Warrants was $148,000 as of the issuance date (see Note 11). As a result, the Company recognized a debt extinguishment loss of $23,000 during the year ended December 31, 2025.

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

September 2024 and January 2025 Pinnacle Receivables Financing

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

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

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

January 2024 Note Financing

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

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

F-17

July 2023 Note Financing

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

During the year ended December 31, 2023, the Company made a $1,070,000 repayment to the Notes, including a $70,000 interest payment. As of December 31, 2024, $400,000 of Notes remained outstanding with Ryan Stump and Henry Sicignano III, and the maturity dates of the outstanding notes had been extended to December 31, 2024. On April 28, 2025 Ryan Stump and Henry Sicignano III were each paid approximately $75,000 of accrued interest and have agreed to modify the Notes to include a 10% interest rate, with monthly payments of principal and interest of approximately $18,000. The maturity date has been extended to April 28, 2026. As of December 31, 2025, approximately $138,000 of the Notes remained outstanding.

Secured Promissory Notes

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

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

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

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

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

August 2022 Note Financing – Related Party

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

Economic Injury Disaster Loan

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

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

Year Ending December 31, 2027 -

Year Ending December 31, 2028 -

Year Ending December 31, 2029 -

Year Ending December 31, 2030 -

NOTE 10 –LOSS PER SHARE BASIC AND FULLY DILUTED

Basic earnings (loss) per common share is computed by dividing net income by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per common share is computed similar to basic earnings (loss) per common share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock. Diluted weighted average common shares include common stock potentially issuable under the Company’s convertible preferred stock, warrants and vested and unvested stock options.

The following is a reconciliation of the weighted average number of common shares outstanding used in calculating basic and diluted net loss per share (in thousands):

For the years ended

December 31,

Income (loss) from continuing operations after income taxes $ 4,318 $ (4,003 )

Income (loss) from discontinued operations, net of tax 181 (156 )

Net income (loss) - basic and diluted $ 4,499 $ (4,159 )

Net earnings (loss) per share:

Income (loss) from continuing operations, basic $ 0.02 $ (0.02 )

Income (loss) from discontinued operations, basic $ 0.00 $ 0.00

Net earnings (loss) per share, basic $ 0.02 $ (0.02 )

Net earnings (loss) per share:

Income (loss) from continuing operations, diluted $ 0.02 $ (0.02 )

Income (loss) from discontinued operations, diluted $ 0.00 $ 0.00

Net earnings (loss) per share, diluted $ 0.02 $ (0.02 )

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

For the years ended

December 31,

Series A convertible preferred shares - 27,741

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

NOTE 11 – STOCKHOLDERS’ EQUITY

Conversion of Series A Preferred Shares

For the year ended December 31, 2023, the Company issued approximately 1,183,000 shares of Common Stock upon conversion of 29,027 shares of Series A Preferred.

Common Stock Warrants

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

On September 24, 2025, the Vendor exercised the Warrants entirely. The Vendor issued the Company a $370,000 vendor credit as the purchase price consideration for the warrant exercise. The Company recognized the $370,000 vendor credit in prepaid expenses and other current assets on the consolidated balance sheet as of December 31, 2025.

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

Exercise price $ 0.10

Contractual term (years) 2.98

Volatility (annual) 131.5 %

Risk-free rate 4.3 %

Dividend yield (per share) 0 %

November 2024 Capital Raise

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

May 2024 Capital Raise

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

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

NOTE 12 – STOCK-BASED COMPENSATION

On May 8, 2019, our Board of Directors approved the Charlie’s Holdings, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”), and the 2019 Plan was subsequently approved by holders of a majority of our outstanding voting securities on the same date. Up to 11,072,542 stock options were originally grantable under the 2019 Plan.

On December 22, 2021, our Board of Directors unanimously adopted resolutions by written consent approving an amendment to increase the number of shares of Common Stock available for issuance under the 2019 Plan by 15,000,000 shares, from 11,072,542 to 26,072,542 shares (the “2019Plan Amendment”). Furthermore, the Company received written consents approving the 2019 Plan Amendment from holders of approximately 50.3% of our outstanding voting securities. In accordance with Rule 14c of the Exchange Act, our Board of Directors’ authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders.

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