Charlie's Holdings, Inc.

Part I

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

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

(in thousands)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

CHARLIE'S HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Description of the Business

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

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

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

Substantial Doubt to Continue as a Going Concern

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

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts. The Company may require additional financing in the future to support the development of new product categories as well as general operations. There can be no assurance that additional financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and, in the Company’s best interests. The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.

Risks and Uncertainties

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

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

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

Basis of Presentation

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

Use of Estimates

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

Significant Accounting Policies

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

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 quarterly condensed 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 quarterly condensed consolidated financial statements.

Recently Issued Accounting Standards, Not Yet Adopted

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 condensed 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.

Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures

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

NOTE 3–** FAIR VALUE MEASUREMENTS**

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

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

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

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

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

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

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

NOTE 4–** INVENTORY**

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

NOTE 5–** PROPERTY AND EQUIPMENT**

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

NOTE 6–** CONCENTRATIONS**

Vendors

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

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

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

Accounts Receivable

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

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

NOTE 7–** DON POLLY, LLC**

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

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

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

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

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

NOTE 9–** NOTES PAYABLE**

February 2025 Short-Term Loan–* Related Party*

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

January 2025 Chemular Secured Promissory Note

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

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

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

September 2024 and January 2025 Pinnacle Receivables Financing

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

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

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

July 2023Note Financing

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

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

Secured Promissory Notes

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

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

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

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

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

August 2022Note Financing –Related Party

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

Economic Injury Disaster Loan

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

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

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

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

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

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

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

NOTE 11–** STOCKHOLDERS**’** EQUITY**

Conversion of Series A Preferred Shares

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

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 September 30, 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:

NOTE 12–** STOCK-BASED COMPENSATION**

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

On December 22, 2021, our Board of Directors unanimously adopted resolutions by written consent approving an amendment to increase the number of shares of Common Stock available for issuance under the 2019 Plan by 15.0 million shares, from 11,072,542 to 26,072,542 shares (the “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.

Non-Qualified Stock Options

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

Restricted Stock Awards

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

During the nine months ended September 30, 2025, the Company granted 3,200,000 restricted stock awards (“RSAs”) to employees of the Company pursuant to the 2019 Plan, as amended. The RSAs are subject to a vesting schedule and have all the rights of a shareholder of the Company with respect to voting, share adjustments, receipt of dividends (if any) and distributions (if any) on such shares. The grant date fair value was approximately $126,000. During the nine months ended September 30, 2025, approximately 83,000 RSAs issued to employees were forfeited.

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

NOTE 13–** COMMITMENTS AND CONTINGENCIES**

Leases

The Company leases office space under agreements classified as operating leases that expire on various dates through 2024. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expired on September 30, 2024, and effective October 1, 2024, the lease will be on a month-to-month basis, and its warehouse in Huntington Beach, California, which was renewed in May 2022 and expires May 2025. On April 29, 2022, the Company entered into a commercial lease agreement for the Company’s sales and marketing operations in Williamsville, New York (“Williamsville Lease”) with Henry Sicignano Jr., a relative of the Company’s President, Henry Sicignano III. The Williamsville Lease, which became effective on May 1, 2022, had a term of one year and a base rent of $1,650 per month. The Williamsville Lease has been subsequently extended for additional one-year periods, with the same terms. The Williamsville Lease is considered a modified gross lease and therefore the Company is also responsible for additional monthly expenses including gas, electricity, and internet. The Williamsville Lease was evaluated and approved by the Company’s Board of Directors.

Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not act as a lessor or have any leases classified as financing leases.

The Company excludes short-term leases having initial terms of 12 months or less from ASC Topic 842, “Leases”, as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company entered into a commercial lease for the Company’s corporate headquarters (the “Lease”) in Costa Mesa, California with Brandon Stump, the Company’s former Chief Executive Officer, Ryan Stump, the Company’s Chief Operating Officer, and Keith Stump, a former member of the Company’s Board of Directors. The Stumps purchased the property that is the subject of the Lease in July 2019. The Lease, which was effective as of September 1, 2019, on a month-to-month basis, was then formalized on November 1, 2019 to have a term offive years and a base rent rate of $22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease. The terms of the Lease were negotiated and approved by the independent members of the Board of Directors, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. Effective October 1, 2024, the lease was on a month-to-month basis. The total rent paid to related parties for the nine months ended September 30, 2025 and 2024 was approximately $207,000 and $207,000, respectively.

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

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

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

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

Legal Proceedings

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

New Executive Employment Agreement

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

NOTE 14–** INCOME TAXES**

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

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

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

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

NOTE 15–** SUBSEQUENT EVENTS**

Discontinuation of Don Polly Business Operations

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.

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. Early SBX sales continue to exceed Company expectations.

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

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