Charlie's Holdings, Inc.
For the period ended Dec 31, 2025. Filed Apr 1, 2026.
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FY2025 · Filed Apr 1, 2026
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What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2024-12-31; filed 2025-05-29.
0001437749-25-018798
Item 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCurrent report: 10-K
Period ended 2025-12-31; filed 2026-04-01.
0001437749-26-010761
Item 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
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28 unchanged; 21 reworded; 55 added; 35 removed; 1 previous and 1 current paragraphs rearranged.
Tables are not compared: 10 previous and 30 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
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Added paragraphs (55)
Current report
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.
Current report
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.
Current report
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.
Current report
Strategic Priorities
Current report
Accordingly, here are the primary strategic initiatives on which we intend to focus in 2026:
Current report
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:
Current report
Grow SBX sales and distribution through chain convenience stores in select markets across the United States
Current report
SBX Beats Juul…** 15:1**
Current report
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 thatmore 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.
Current report
Grow Pachamama/PACHA sales and distribution in select markets across the United States
Current report
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:
Current report
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.
Current report
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.
Current report
SBX Nicotine Analogue Products–** **not subject to FDA PMTA Review
Current report
New tobacco products (those containing either plant-derived nicotine or synthetic nicotine) are required to submit a PMTA to the FDA to obtain a marketing order prior to their sale in the United States. The SBX product line does contain nicotine from any source, and instead utilizes Charlie’s proprietary nicotine substitute, Metatine™.Accordingly, SBX is not subject to FDA PMTA requirements and Charlie’s will be able to introduce age-gated, flavored SBX devices almost immediately. It is the Company’s intention to test market age-gated SBX Disposables in 200-300 compliance-minded retail stores in Q2 2026.
Current report
PACHA brand Electronic Nicotine Delivery Systems (ENDS) with FDA PMTA’s
Current report
In order to legally sell flavorednicotine products in the United States, Charlie’s intends to collect market data from sales of itsnon-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.
Current report
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.
Current report
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.
Current report
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.
Current report
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.
Current report
Risks and Uncertainties
Current report
Entry into a Material Definitive Agreement for the Disposition of Assets
Current report
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.
Current report
On May 29, 2025, the Company amended the Agreement with the Buyer pursuant to which the Buyer purchased three additional PACHA synthetic products and related assets (the “May Additional Assets”) that are covered by a PMTA first submitted by the Company in 2022, bringing the total purchased by the Buyer, to date, to 15 products. The purchase price for the May Additional Assets was $1.5 million paid at closing.
Current report
On August 8, 2025, the Company entered into and closed on another Amendment to the Agreement with the Buyer pursuant to which the Buyer purchased one additional PACHA synthetic product and related asset (the “August Additional Assets”) that are covered by aPMTA 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.
Current report
$2.0 Million Credit Facility with Independent Board Member
Current report
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.
Current report
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.”
Current report
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.
Current report
Company Secures More Than $6MM in Sales During NACS Show; $4.4 million SBX purchase is the single largest sale in Charlie's history
Current report
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.
Current report
Marketing Denial Orders and Court-granted Administrative Stay on Certain Premarket Tobacco Applications
Current report
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.
Current report
Company opens US Manufacturing Facility
Current report
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 popularPachamama 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.
Current report
Age Gating Partnership with IKE Tech, LLC
Current report
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.
Current report
Discontinued Operations
Current report
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.
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Removed paragraphs (35)
Previous report
The Company’s objective is to become a leader in two broad product categories: (i) non-combustible nicotine-related products and (ii) alternative alkaloid vapor products. Through our Charlie’s subsidiary, we formulate, market, and distribute premium, nicotine-based and alternative alkaloid vapor products. Charlie’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States and select international markets.
Previous report
Operational Plan
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Management believes that these initiatives will enhance Charlie’s competitive position in the marketplace, significantly reduce costs, help accelerate the Company’s path to profitability, support business growth, and, ultimately, allow the Company to achieve greater liquidity and visibility through an uplist to a national securities exchange.
Previous report
Considering industry-specific hurdles, as well as the potential for future regulatory changes, management has prioritized several principal initiatives as opportunities for growth:
Previous report
Priority 1: Over the last two years, we initiated a plan and began to invest substantial time and resources to develop various proprietary products and new technologies in order to achieve competitive advantages in the vapor and alternative products marketplace. Marshaling very significant internal and external research and development resources, we endeavored to identify a nicotine substitute (“Metatine™”) to be used in lieu of tobacco-based and synthetically derived nicotine. We believe adult consumers will enjoy Metatine alternative alkaloid vapor products in much the same way that they enjoy traditional vapor products. Notably, because Metatine is not made or derived from tobacco, and because Metatine does not consist of or contain nicotine from any source, the FDA's Center for Tobacco Products does not have jurisdiction to regulate Metatine. Accordingly, if the Company is successful utilizing Metatine in a viable commercial product, such a product will allow us additional flexibility in offering both flavored and non-flavored vapor products to adult consumers looking to transition away from traditional combustible and smokeless tobacco products.
Previous report
Applying these findings to our ongoing product development initiatives, by the end of 2024 Charlie’s unveiled the Company’s second-generation Metatine product line: SBX Disposables. SBX Disposables feature: (i) the modern disposable product format (with digital display) that consumers overwhelmingly prefer over pod system vapes; (ii) award-winning flavors (preferred over plain tobacco vapor by more than 80% of adult consumers); and, most significantly, for regional and national convenience store chains that are our largest potential customers, (iii) Charlie’s proprietary nicotine substitute that makes SBX legal across most of the United States (without FDA PMTA review).
Previous report
Following up on these encouraging early results, we are currently test marketing SBX in mass market convenience chains. If one or more of these tests prove successful, regional and national rollouts could prove transformational for Charlie’s.
Previous report
Further, we have recently begun test-marketing Metatine-based e-liquids under the PACHAMAMA PLUS+ trademark. In response to the rapidly emerging new “pouch products” category in the nicotine products industry, we are also developing a Metatine-based pouch line that could be ready for market in late 2025. We do, however, recognize the challenges in marketing non-nicotine-based alternative alkaloid products in a market that is saturated with traditional nicotine products; accordingly, we are committed to continuous improvement of our Metatine-based products in order to satisfy the ever-evolving demands of US adult consumers.
Previous report
Priority 2: Since our founding in 2014, Charlie’s has created literally hundreds of products that provide adult smokers with a viable means of abandoning cigarettes. Not coincidentally, over the last 10-15 years e-cigarette usage in the United States has grown significantly, and cigarette smoking rates have dropped.* Accordingly, *tobacco and synthetically derived nicotine vapor products continue to provide significant growth opportunities for Charlie’s. In 2021, we launched our synthetic nicotine (not derived from tobacco) Pacha (formerly Pachamama Disposable) product line, which provides access to additional sales channels and broadens our customer base. These innovative product formats continue to represent an extremely important product category for Charlie’s and we intend to develop new distribution partnerships in order to grow our nicotine disposable business in 2025.
Previous report
We believe that our substantial investments in FDA regulatory compliance make Charlie’s an attractive partner in this space. Charlie's has received FDA Acceptance Filings for more than 650 PMTAs. By investing an additional $1.2 million in Q4 2024 to amend and enhance certain of our 2022 PMTA submissions, we maintained our commitment to full regulatory compliance and we enhanced the strategic value of our PMTA portfolio. The Company believes Charlie’s 650+ PMTAs, as a stand-alone asset, have a monetary value that far exceeds Charlie’s current market cap. (See Note 16 - Subsequent Events)
Previous report
In total, Charlie’s has invested more than $6.5 million on the submission of Premarket Tobacco Applications (“PMTAs”) and subsequent amendments to these applications to the FDA. We engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create Charlie’s comprehensive PMTA submissions. Notwithstanding Charlie’s meaningful and costly regulatory initiatives – and even though hundreds of other companies across the United States invested hundreds of millions of dollars to submit more than 26 million PMTAs – to date, the FDA has authorized only 34 tobacco-flavored (and a handful of menthol) e-cigarette products and devices. Accordingly, even though former FDA Commissioner Dr. Scott Gottlieb described e-cigarettes as far lower on the “continuum of risk” than combustible cigarettes, fewer than 1% of the PMTA’s for e-cigarette products and devices have survived FDA’s regulatory gauntlet.
Previous report
Nonetheless, we are continuing to seek FDA marketing authorization for certain of both our nicotine vapor products and our synthetic nicotine vapor products. Obtaining one or more marketing orders from the FDA could, we believe, help to remediate perceived health issues related to vaping, and further position the Company as a trusted industry leader. While we continue in the FDA review process, we are also beginning to seek out strategic partners to monetize our PMTAs; given that Charlie’s 650+ PMTAs (primarily for flavored vapor products) remain among the fraction of 1% that are still under active review with the FDA, and given that more than 80% of adults in the United States prefer flavored vapor products over plain tobacco vapor products, we believe that Charlie’s PMTA portfolio represents an important competitive advantage – of significant monetary value.
Previous report
Underlining the importance of Charlie’s work with age-gating technology are initiatives taken by JUUL Labs, Altria, and R.J. Reynolds, three of the largest competitors in our industry. In July 2023 JUUL announced that it had submitted a PMTA with the FDA for a new e-cigarette device that also included information on novel, data-driven technologies to restrict underage access. JUUL’s chief product officer explained, “With our next-generation platform, we have designed a technological solution for two public-health problems: improving adult-smoker switching from combustible cigarettes and restricting underage access to vapor products...” In the second quarter of 2024, Altria and R.J. Reynolds announced news of their own PMTA submissions to the FDA for mobile applications that verify consumers’ ages through third-party age verification providers. Similar to the age-gating technology under development at Charlie’s, the Big Tobacco company devices include mobile and web-based apps that enable age-verification technology, including device-locking, and real-time product information and usage insights for age-verified consumers with industry-leading data-privacy protections.
Previous report
Risks and Uncertainties and Ability to Continue as a Going Concern
Previous report
Expiration of Warrants
Previous report
On April 26, 2024, the Investor Warrants and Placement Agent Warrants expired without being exercised.
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January 2024 Note Financing
Previous report
On January 24, 2024, the Company issued an unsecured promissory note (the “Red Beard Note”) to one of its largest stockholders Red Beard Holdings LLC (the “Red Beard Lender"), in the principal amount of $500,000. Red Beard Note shall bear interest at twenty-one percent (21%) per annum and have maturity through July 24, 2024.
Previous report
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.
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May 2024 Capital Raise
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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 $1.6 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.
Previous report
September 2024 Pinnacle Receivables Financing
Previous report
On September 6, 2024, the Company entered into a future receivables sale agreement (“Pinnacle Receivables Financing Agreement”) with Pinnacle Business Funding (“Pinnacle”) by which Pinnacle purchases from the Company its future accounts receivable and contract 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 requires forty equal payments of $25,687.50 to be paid weekly for a total repayment of $1,027,500 over the term of the agreement.
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November 2024 Capital Raise
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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 November Offering generated gross proceeds to the Company of approximately $550,000, which will be used for working capital purposes. The November Offering was undertaken in reliance on Section 4(a)(2) under the Securities Act of 1933, as amended, as a transaction not involving a public offering.
Previous report
Revenue for the year ended December 31, 2024, decreased approximately $7,756,000, or 47.7%, to approximately $8,494,000, as compared to approximately $16,250,000 for the year ended December 31, 2023, due to a $6,481,000 decrease in our nicotine-based product sales, and a $1,275,000 decrease in sales of our hemp-derived products. The decrease in our nicotine-based vapor product sales was primarily driven by decreased sales of our Pacha Disposable line as well as reduced demand for our e-liquid products. The launch of the Company’s SPREE BAR nicotine substitute vapor products did not meet performance expectations, resulting in further development efforts and ultimately the release our Metatine-based, SBX line of disposable vapor products.
Previous report
For the year ended December 31, 2024, total sales and marketing expense decreased to approximately $693,000 as compared to approximately $1,107,000 for the year ended December 31, 2023, which was primarily due to lower sales commissions paid as well as a significant reduction in tradeshow and customer event related costs. Commissions decreased due to reduced sales activity during the year.
Previous report
For the year ended December 31, 2024, we had income from research and development of approximately $68,000 as compared to approximately $169,000 expense for the year ended December 31, 2023. The decrease of approximately $237,000 was primarily due to reduced costs associated with the development of new technologies and product formats as well as a vendor refund of approximately $136,000.
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Income Taxes (Benefit)
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Net Loss
Previous report
On March 28, 2023, the Company entered into a second modification to the Note to extend the maturity date to April 28, 2024, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note. Principal shall be payable on the 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining principal balance will be paid. Immediately following the second modification, the Company entered into a third modification agreement to further extend the maturity date to March 28, 2025. The third modification agreement was effective on March 28, 2023 and superseded the second modification. Interest shall accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and shall be payable on the same day as installments of principal are payable. The Company may prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty. All outstanding principal and interest are due earlier of March 28, 2025, or a liquidity event. The third modification was recognized as a debt extinguishment, resulting in a gain on debt extinguishment of approximately $35,000. The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing. As of December 31, 2024, approximately $793,000 of principal remained outstanding.
Previous report
On May 31, 2024, as part of the May 2024 capital raise (see Note 11), the Lender converted his next four debt repayments for the period from June to September 2024 for a total amount of $100,000 in lieu of cash payment for the subscription agreement.
Previous report
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.
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For the year ended December 31, 2024 and 2023, we did not incur any expenditures for investment activities.
Previous report
Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts, including cumulative expenditures of approximately $6,500,000 as of December 31, 2024, to support our PMTA process for the Company’s submissions to the FDA. The Company has undergone cost-cutting measures including salary reductions of up to 50% for officers and certain managers and a reduction in headcount for certain departments. During the fourth quarter of 2024, the Company launched SBX, a non-nicotine, disposable vapor product which is not subject to FDA review. The Company may require additional financing in the future to support the development of new product categories as well as subsequent PMTA filings, and/or in the event the FDA requests additional testing for one, or several, of the Company’s prior PMTA submissions. There can be no assurance that additional financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and, in the Company’s best interests. The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.
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Previous wording
You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto contained in this Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of certain factors, including those set forth under“Risk Factors Associated with Our Business”* and elsewhere in this Annual Report.*
Current wording
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.*
Previous wording
In today’s economic landscape, particularly within the vapor products industry, seeking and securing competitive advantage is paramount. Unlike many competitors in our industry, Charlie’s has focused on achieving full compliance with FDA regulations – while also establishing a regulatory “hedge” through the development of alternative “zero-nicotine” product lines that are not currently subject to FDA review. Simultaneous to undertaking these initiatives, in 2024 management took aggressive steps to “right size” the business, preserve working capital, and achieve profitability in 2025. Our key initiatives include:
Current wording
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.
Previous wording
In 2024, to test consumer acceptance of nicotine substitute vapor products in the marketplace, we launched the SPREE BAR disposable flavor pod system (with Metatine inside) in select markets across the US. This initiative demonstrated that adult consumers: (i) overwhelmingly prefer “flavored” vapor products over plain tobacco products; (ii) are highly receptive to nicotine substitute products that offer the same vaping experience as that provided by conventional nicotine vapor products; and, surprisingly (iii) are not particularly interested in the cost savings that SPREE BAR flavor pods (with reusable batteries) represent vs. conventional disposable vapes (with single use batteries).
Current wording
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).
Previous wording
In a Company-sponsored focus group survey of adult consumers who vape, Charlie's SBX Disposables were overwhelming preferred over Juul tobacco-flavored vapes. Of 306 survey participants, 287 preferred SBX over Juul. In Company marketing materials, SBX advantages are highlighted: "Compared to mass-market vapes offered by Big Tobacco ̶ namely Juul ̶ SBX provides many MORE FLAVOR options, UNBEATABLE TAX ADVANTAGES, and THOUSANDS MORE PUFFS!”
Current wording
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.
Previous wording
Priority 3: The Company continues to develop intellectual property around, and to seek strategic partnerships for, technologies designed to prevent youth access to nicotine vapor products. Edward Carmines, Ph.D., a member of Charlie’s Board of Directors and an accomplished scientist and regulatory affairs expert, is spearheading Charlie's development of patented "age-gating technology" for both Charlie's and potential licensees of the Company. Currently, there is a need for age-gated product technologies that can satisfy or accommodate concerns the FDA has related to under-age youth access in the ENDS market. We believe age-gating is both a responsible business practice as well as a potential future competitive advantage for Charlie’s. If our age-gated e-cigarettes-in-development are recognized as "products of merit" by the FDA, Charlie's e-cigarettes could emerge among the select minority of flavored nicotine disposables able to be sold legally in the $8 billion U.S. vapor products market.
Current wording
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.
Previous wording
Priority 4: In order to mitigate FDA regulatory risk in the domestic market and to capture what management continues to believe is a significant commercial opportunity, we have dedicated additional resources to efforts focused on growing our market share internationally. Presently, approximately 10% of our vapor product sales come from the international market and we are well positioned to increase sales in countries where we already have presence and, in additional overseas markets, as we have already built an international distribution platform.
Current wording
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.
Previous wording
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 inSeptember 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in June 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 d…
Excerpt shortened here; the source contains the full paragraph.
Current wording
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 inSeptember 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, 2…
Excerpt shortened here; the source contains the full paragraph.
Previous wording
The Company recently launched new alternative alkaloid Metatine-based disposable vape products, under the “SBX™” brand, that the Company expects will (i) replace a significant portion of its legacy products and (ii) become the single largest, most important commercial opportunity in Charlie’s history. The Company and its attorneys believe Metatine-based products are not subject to FDA review. Based on the information provided by the Company’s contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company’s chemical supplier) in the Company’s alternative alkaloid products does not meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as “tobacco products” under 21 U.S.C. § 321(rr). Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s alternative alkaloids vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source. The documentary support for these facts, including a Certificate of Analysis (COA) for the Metatine used in the Company’s alternative alkaloid products, corroborates these conclusions. However, should any of these understandings be incorrect, the Company’s position on Metatine not qualifying as a “tobacco product” would need to be revisited. Further, should Congress bestow regulatory control over Metatine to the FDA, or should the FDA deem Metatine disposable vape devices “tobacco products” despite the facts that Metatine is not a salt or complex of nicotine, and is not itself derived from nicotine or tobacco, Metatine-based products might then be subject to the FDA tobacco requirements, including, but not limited to, the requirement that all newly deemed tobacco products obtain premarket authorization before entering the U.S. market. If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization. More generally, FDA’s regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA’s priorities and/or potential jurisdiction over our products will require us to remove our products from the market and to cease selling them.
Current wording
The Company recently launched new alternative alkaloid Metatine-based disposable vape products, under the “SBX™” brand, that the Company expects will (i) replace a significant portion of its legacy products and (ii) become the single largest, most important commercial opportunity in Charlie’s history. The Company and its attorneys believe Metatine-based products are not subject to FDA review. Based on the information provided by the Company’s contracted chemical suppliers and its consultants, the proprietary Metatine™ (patented in the United States and in China by the Company’s chemical supplier) in the Company’s alternative alkaloid products does not meet the definition of nicotine set forth in 21 U.S.C. § 387(12) and therefore its products containing Metatine, as their active ingredient, are not subject to regulation as “tobacco products” under 21 U.S.C. § 321(rr). Further, according to information provided by the Company’s chemists, the other ingredients in the Company’s alternative alkaloids vape liquid are not made or derived from tobacco, nor do they contain nicotine from any source. The documentary support for these facts, including a Certificate of Analysis (COA) for the Metatine used in the Company’s alternative alkaloid products, corroborates these conclusions. However, should Congress bestow regulatory control over Metatine to the FDA, or should the FDA deem Metatine disposable vape devices “tobacco products” despite the facts that Metatine is not a salt or complex of nicotine, and is not itself derived from nicotine or tobacco, Metatine-based products might then be subject to the FDA tobacco requirements, including, but not limited to, the requirement that all newly deemed tobacco products obtain premarket authorization before entering the U.S. market. If this were to happen, the FDA could bring an enforcement action against our Metatine products for lack of premarket authorization. More generally, FDA’s regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA’s priorities and/or potential jurisdiction over our products will prompt the Agency to attempt to require us to remove our products from the market and to cease selling them.
Previous wording
Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased approximately $4,603,000 or 45.1%, to approximately $5,603,000, or 66.0% of revenue, for the year ended December 31, 2024, as compared to approximately $10,206,000, or 62.8% of revenue, for the year ended December 31, 2023. This cost, as a percent of revenue, increased compared to last year due a combination of lower fixed cost absorption resulting from reduced sales performance as well as overall margin compression across most product categories.
Current wording
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.
Previous wording
For the year ended December 31, 2024, total general and administrative expense decreased approximately $1,252,000 to approximately $5,718,000, or 67.3% of revenue, as compared to approximately $6,970,000, or 42.9% of revenue, for the year ended December 31, 2023. This decrease was primarily comprised of reductions of approximately $762,000 of non-commission wages and benefits, $60,000 of professional fees, $139,000 of information systems costs, as well as $291,000 in other general and administrative expenses. The decrease in payroll and benefits costs was primarily driven by elective salary reductions for executives and reduced headcount. The decrease in professional fees is largely due to reduced legal and consulting costs. Decreased information systems costs were the result of a company-wide cost-cutting effort during the period. The reduction in other general and administrative expenses largely consisted of decreases in bad debt, insurance costs and merchant processing costs.
Current wording
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.
Previous wording
We incurred a loss from operations of approximately $3,452,000 for the year ended December 31, 2024, as compared to loss from operations of approximately $2,202,000 for the year ended December 31, 2023, due primarily to lower sales and gross profit. Net loss is determined by adjusting loss from operations by the following items:
Current wording
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:
Previous wording
The Company did not record income tax for the years ended December 31, 2024 and 2023.
Current wording
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.
Previous wording
For the years ended December 31, 2024, and 2023, we had a net loss of $4,159,000 and $2,093,000, respectively.
Current wording
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.
Previous wording
As of December 31, 2024, we had working capital deficit of approximately $1,855,000, which consisted of current assets of approximately $3,720,000 and current liabilities of approximately $5,575,000, as compared to working capital of approximately $332,000 at December 31, 2023. The current liabilities include approximately $3,396,000 of accounts payable and accrued expenses, notes payable of $520,000, note payable from related parties of $1,488,000, approximately $98,000 of deferred revenue associated with product shipped but not yet received by customers, approximately $73,000 of current lease liabilities.
Current wording
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.
Previous wording
Our cash and cash equivalents balance at December 31, 2024 was approximately $211,000. As of December 31, 2024, we had the following notes outstanding:
Current wording
As of December 31, 2025, we had the following notes outstanding:
Previous wording
For the year ended December 31, 2024, net cash used in operating activities was approximately $1,621,000, resulting from a net loss of $4,159,000, offset by a change in operating assets and liabilities of $1,427,000 and a net non-cash activity of $1,111,000. For the year ended December 31, 2023, net cash used in operating activities was approximately $783,000, resulting from a net loss of $2,093,000 and a change in operating assets and liabilities of $811,000, offset by net non-cash activity of $499,000.
Current wording
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.
Previous wording
For the year ended December 31, 2024, we generated approximately $1,465,000 in cash from financing activities which was comprised of the issuance of common shares of $1,580,000, notes payable of $742,000, and notes payable to a related party of $500,000 as well as the repayment of $1,357,000 in notes payable, including $85,000 to a related party. For the year ended December 31, 2023, we generated approximately $893,000 cash from financing activities, resulting from the issuance of $2,769,000 notes payable and offset by repayment $1,876,000 of certain notes.
Current wording
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.
Previous wording
Substantial Doubt to Continue as a Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management’s Plan of Operation
Current wording
Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management’s Plan of Operation
Previous wording
Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States. Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA. There was a significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future applications. For the year ended December 31, 2024, the Company’s revenue declined, the Company generated a loss from operations of approximately $3,452,000, and a consolidated net loss of approximately $4,159,000 and used cash from operations of approximately $1,621,000. The Company had a stockholders’ deficit of $1,780,000 at December 31, 2024. During the year ended December 31, 2024, the Company’s working capital position decreased to a deficit of $1,855,000 from $332,000, as of December 31, 2023. Considering these facts, the issuance of one or several Marketing Denial Orders ("MDOs”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and the removal of certain products for sale. These regulatory risks, as well as other industry-specific challenges and our low working capital and cash position, remain factors that raise substantial doubt about the Company’s ability to continue as a going concern.
Current wording
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.
Previous wording
Accounts receivable is recorded at the invoiced amount and does not bear interest. We determine the allowance for doubtful accounts by regularly evaluating individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and set up an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2024, and 2023, the allowance for bad debt totaled $88,000 and $24,000, respectively.
Current wording
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.
Previous wording
Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2024, and 2023, the reserve for excess and obsolete inventories totaled $999,000 and $1,100,000, respectively.
Current wording
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.
Rearranged current paragraphs (1)
Current report — wording carried from elsewhere
SBX nicotine analogue-based vape liquids arenot 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.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
As discussed below, our financial statements and working capital raise substantial doubt about the Company’s ability to continue as a going concern. Our financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. See Liquidity and Capital Resources below for additional information.