10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

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

For the fiscal year ended December 31, 2022

or

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

Commission file No. 001-32420

CHARLIE’S HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

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

1007 Brioso Drive, Costa Mesa, CA 92627

(Address of Principal Executive Offices)

(949) 531-6855

(Registrant’s Telephone Number, Including Area Code)

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

None

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

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

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

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

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2022 was approximately $8 based on a closing market price of $0.0832 per share, as reported on the OTCQB Venture Market.

There were 224,112,168 shares of the registrant’s common stock outstanding as of April 17, 2023.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for its 2023 Annual Meeting of Stockholders are incorporated herein by reference in Part III of this Annual Report on Form 10-K. Such Proxy Statement will be filed with the Securities and Exchange Commission within 120 days of December 31, 2022.

CHARLIE’S HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K

YEAR ENDED DECEMBER 31, 2022

TABLE OF CONTENTS

		Page
PART I
Item 1.	Description of Business	2
Item 1A.	Risk Factors	15
Item 1B.	Unresolved Staff Comments	27
Item 2.	Properties	27
Item 3.	Legal Proceedings	27
Item 4.	Mine Safety Disclosures	27
PART II
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6.	Selected Financial Data	28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	38
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A.	Controls and Procedures	38
Item 9B.	Other Information	39
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspection	39
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	39
Item 11.	Executive Compensation	42
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	42
Item 13.	Certain Relationships, Related Transactions, and Director Independence	42
Item 14.	Principal Accountant Fees and Services	42
PART IV
Item 15.	Exhibits, Financial Statement Schedules	43
Item 16.	10-K Summary	43
Signatures		44

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

PART I

ITEM 1. DESCRIPTION OF BUSINESS

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

On April 26, 2019, the Company (then known as True Drinks Holdings, Inc.), entered into a Securities Exchange Agreement with each of the members of Charlie’s on that date (the “Charlie’s Members”), pursuant to which the Company acquired all outstanding membership interests beneficially owned by the Charlie’s Members in exchange for certain units consisting of the Company’s securities (the “Share Exchange”). As a result, Charlie’s became a wholly owned subsidiary of the Company. Following the consummation of the Share Exchange, the primary business operations of the Company consisted of those of Charlie’s and, more recently, Don Polly.

Overview

The Company’s objective is to become a leader in three broad product categories: (i) non-combustible nicotine-related products, (ii) alternative alkaloid vapor products, and (iii) hemp-derived vapor and edible 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, as well as in more than 80 countries worldwide. Charlie’s primary international markets include the United Kingdom, Italy, Spain, New Zealand, Australia, and Canada. Through Don Polly, we develop, market and distribute products containing compounds derived from hemp.

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Our Products

Charlie’s Product Line

Our business efforts consist primarily of formulating, marketing and distributing our portfolio of premium vapor products, which we collectively refer to as the “Charlie’s Product Line” or “Charlie’s Products”.  

Disposables

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

Charlie’s disposable products are produced under two brand names distinguished by their size and intended market, and offer users a variety of premium flavors containing synthetic nicotine (not derived from tobacco), tobacco derived nicotine (2ml products), or alternative alkaloids in a compact, discrete format. All disposables are shipped in flavor-specific consumer display units (“CDU”) which hold ten individually packaged disposables for quick and convenient retail sales.

● Pachamama 2mL Disposable. Pachamama 2mL Disposables were specifically designed with the European Union’s (“EU”) Tobacco Products Directive (“TPD”) in mind and are currently sold only in the EU. All thirteen flavors have been registered in eight EU member states.

● Pacha 4mL Disposable. Pacha 4mL Disposables were designed for the US market with the objective of providing a convenient and satisfying user experience. Currently, we have eleven flavors available in the US market.

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

● Pacha 12mL Disposable. Pacha 12mL Disposables offer customers Charlie’s highest puff count, and are available in ten fruit and “Ice” varieties.

E-Liquids

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

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Charlie’s e-liquid products are produced under five brand names distinguished by their flavor profiles, packaging art and ingredient transparency.

● Pacha (domestic) and Pachamama (international markets)™. A line launched in 2016 consisting of eight eclectic mixes of natural fruit flavors such as passion fruit raspberry yuzu, blood orange banana gooseberry, and huckleberry pear acai.

● Black Label and White Label. Charlie’s original black and white product line launched in 2015. Black Label is currently available in five flavors and White Label is currently available in four flavors for sale in international markets.

● Meringue. The third brand launched in 2016, based on creative character stories, currently includes three flavors.

● Campfire™. Outdoors and Smores flavor inspired by camp nostalgia.

Nicotine Salt Products

Nicotine salt e-liquids (“NIC salts”) are formulated for use in lower wattage open, semi-open and closed system vaporizers and are available in higher nicotine concentrations (25mg and 50mg per milliliter) than traditional e-liquids. Nicotine salts consist of nicotine dissolved in an acid that results in a lower PH level than other e-liquids. This form of nicotine has a higher bioavailability resulting in faster blood stream absorption and more closely mimics the effects of combustible tobacco products. We broadly released Pachamama™ Salts, an extension of the Pachamama™ line, in late December 2018 to a select group of key accounts, which now includes 17 flavors domestically and 31 internationally, packaged in 10ml, 30ml, and 60ml bottles. We will continue to evaluate our product offering in this category as demand continues to evolve.

Don Polly

Don Polly is a company under common ownership with the Company, and was established in April 2019 for the specific purpose of developing, marketing, and distributing proprietary and innovative hemp-derived, non-THC, products which we refer to the “Don Polly Products” and “Don Polly Product Line”. In June 2019, we introduced, through Don Polly, full-spectrum hemp extract and CBD isolate wellness products across a variety of formats and with different strengths. The Company’s current portfolio also includes products containing compounds that are derived from hemp, including Delta-8-Tetrahydrocannabinol (“Delta-8-THC”) and other novel cannabinoids , all of which are offered by way of a licensing agreement between Don Polly and Charlie’s, entered on April 25, 2019 (the “Licensing Agreement”). In the near term, we expect to continue expanding the hemp-derived products line to include products based on other innovative cannabinoids, currently in development.

Don Polly is owned by two limited liabilities companies, of which one is wholly-owned by Brandon Stump, the Company’s former Chief Executive Officer, and the other is wholly-owned by Ryan Stump, the Company’s Chief Operating Officer. Pursuant to the Licensing Agreement, Charlie’s granted Don Polly a limited right and license to use certain of Charlie’s trademarks, copyrights, and original artwork, in connection with Don Polly’s branded hemp products, as well as a Services Agreement pursuant to which Charlie’s provides certain services to Don Polly related to the sales, marketing, and brand development of Don Polly products.

Full Spectrum CBD Products

Our full spectrum hemp extract comes from whole plant extraction which retains the plant’s natural compounds. This extraction method ensures each product preserves the holistic benefits of the plant including minimal amounts of THC (0.3% or less), which allows for optimal absorption of the plant’s nutrients. While CBD alone is a beneficial cannabinoid, full spectrum products provide the body access to all the plant’s cannabinoids, allowing the end user to achieve a wide range of benefits. The full spectrum products are formulated with single-source and single strain hemp extracts. Don Polly believes this sourcing practice yields various compounds that work synergistically to heighten the effects of the products, making them superior to single-compound CBD isolates. In June 2019, we introduced the Pachamama™ tincture and topical full spectrum products. Currently, the tincture offering includes two flavors Black Pepper Turmeric and Kava Kava Valerian, which are available in 30ml bottle sizes and both 750mg and 1750mg strengths.

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Broad Spectrum CBD Products

In addition to isolate and full spectrum CBD products, we believe broad spectrum hemp-derived CBD products can be developed to provide the same benefits of full spectrum CBD products. Through additional processing of hemp-derived extracts, we can eliminate the presence of THC. This category of THC-free, broad spectrum products will provide consumers with the same level of quality and the same nutrients we value in our full spectrum products, without the concern of consuming minimal amounts of THC. In Q4 of 2019, we released three very dynamic broad spectrum topicals; our Pain Cream 850mg, Icy Muscle Gel 500mg and Body Lotion 300mg. The Pain Cream, offered in a 100ml bottle, offers a combination of broad-spectrum CBD, menthol, MSM, arnica and capsaicin to provide quick, effective relief. The Icy Muscle Gel roll-on has a blend of ancient Chinese herbs along with cooling menthol and camphor to temporarily relieve nagging pains, and provide anti-inflammatory treatment to muscles and joints. Don Polly’s Body Lotion rounds out the initial broad spectrum topical portfolio offerings with 300mg of CBD and an ultra-nourishing blend of botanical oils for soft, radiant, and balanced skin. The Body Lotion is not currently offered. In March 2021 we launched Sleep Well Gummies, specifically formulated with a unique blend of cannabinol (“CBN”), CBD, melatonin, and Elderberry extract to support the immune system and to encourage better sleep. Sleep Well Gummies have grown to become the Company’s best-selling product in the broad-spectrum category.

Other Cannabinoids

Offered to adult consumers under the PINWEEL™ brand name, our Other Cannabinoid products are formulated from proprietary live resin blends of hemp-derived cannabinoids. Since our PINWEEL product line contains only cannabinoids made from 100% hemp extract, we are able to legally manufacture, distribute and sell to consumers in the United States. As a result of the Agriculture Improvement Act (the “Farm Bill”), ratified and signed into law in December 2018, cannabis containing less than 0.3% Delta 9-THC is legally classified as hemp and is thus legal under federal law. All Other Cannabinoid products are shipped in flavor specific CDUs which hold ten individually packaged disposables for quick and convenient retail sales.

● PINWEEL Disposable is a vaping device that is designed to be used until empty; then its is discarded. The device comes pre-charged, pre-filled, and provides the ultimate convenience, giving the user an effortless vaping experience that requires no knowledge of vapor products. It is as simple as taking a puff and enjoying the proprietary blend of hemp-derived cannabinoids with which the device is filled. While most disposable vaping devices come filled with vape juice, PINWEEL Disposables are filled with hemp-derived cannabinoids with an infusion of terpenes. The distillate blend provides the many benefits and effects the cannabinoid is known for, while the variety of terpenes act as diluents and also provide unique, award-winning flavor profiles. 

● PINWEEL Carts are similar to disposables in the sense that they are designed to be used until they are empty and then discarded. PINWEEL carts work just like standard vape carts, which means the user can attach the cartridge to a standard 510-threaded battery and then use the device. A cart is made up of a cylindrical container that houses the distillate blend, a wick, an atomizer, and a mouthpiece. When the user attaches the cart to the battery, the battery delivers power to the atomizer to heat up the extract until it vaporizes for inhalation. PINWEEL carts are designed for the more advanced, regular user of hemp-derived cannabinoids who do not require a ready-to-use product right out of the box. By having the end user supply the battery for the cart we are able to market and sell PINWEEL Carts at a relatively low price point. 

● PINWEEL Edibles are products that are infused with hemp derived cannabinoids and intended to be ingested by adult consumers. Edibles are a popular alternative to the traditional form of smoking or vaping a hemp product. PINWEEL Edibles are made with a proprietary blend of hemp-derived cannabinoids, natural and artificial flavoring, and terpenes.

Manufacturing and Distribution

Manufacturing

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

Don Polly Product Line. Our hemp-derived, Don Polly Products are manufactured with contract manufacturers to meet our formula specifications. While we do not have any long-term contracts with these parties, we are strengthening our supplier partnerships as well as identifying additional supplier and contract manufacturing opportunities.

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Distribution

Charlie’s Product Line. Once manufactured, Charlie’s Products are directly distributed throughout the United States and in more than 80 countries, primarily the United Kingdom, Italy, Spain, New Zealand, Australia, and Canada.   Our products are carried by more than 3,000 specialty retailers that are serviced through direct sales and through distributors and wholesalers both in the United States and internationally. While growing our base of specialty retailers, we have also increased distribution of our products in convenience stores, liquor stores, and gas stations.  With respect to products that we sell through third-party distributors and wholesalers, we typically sell our products to these customers for their re-sale. In select markets we maintain exclusive arrangements with distributors and, when warranted, will memorialize these agreements contractually.

Don Polly Product Line. Don Polly Products are currently distributed to more than 1,000 distributor and retail accounts in the United States and United Kingdom. Like the Charlie’s Product Line, we sell Don Polly Products directly to retailers, as well as through distributors, third-party wholesalers, and independent brokers. We currently sell certain Don Polly Products through multiple internally managed e-commerce platforms.

Online Sales

Charlie’s Product Line and Don Polly Product Line. We do not currently sell our Charlie’s Products on an e-commerce platform. However, we market Charlie’s Products and sell branded merchandise through our website, charlieschalkdust.com and pacha.co. A portion of the Don Polly Product Line is offered for sale directly to consumers under our Pachamama brand through our in-house, e-commerce platforms on our websites, pachamamacbd.com, and donpolly.com.

Sales and Marketing

Charlie’s and Don Polly Product Lines. We have an experienced, twelve-person sales team, based in the United States, that promotes our Charlie’s and Don Polly Products globally. Salespeople seek to form long-term “360 degree” collaborative relationships with their clients, partnering with them on sell-through efforts, providing access to our marketing and creative teams, and advising and educating them on not only the Charlie’s and Don Polly Product Lines but also on industry-related issues. In 2021, we expanded our sales and marketing strategy to include use of “Brand Advocates” who are responsible for canvassing for potential new customers, while raising general awareness of both the Charlie’s and Don Polly product lines. Currently, we advertise our products primarily through customer engagement through social media channels, print media, directed internet marketing, industry tradeshows and, collaborative events with retail partners. Participation at industry-specific tradeshows has traditionally played a large role in our marketing and distribution strategy. In addition, we have allocated resources to collaborative events; our marketing team is now focusing its efforts on fostering relationships with key distributors and retailers by launching customer-specific marketing campaigns, in-person visits to new customer accounts, and other forms of direct customer engagement. In 2022, approximately 16% of our sales were made to customers outside of the United States. 

Source and Availability of Raw Materials

Charlie’s Product Line. Our manufacturing partners source the ingredients for our proprietary vapor products from a variety of sources, in accordance with our formulations and quality specifications. We source our proprietary e-liquids from multiple ISO Class 7 certified manufacturers in the United States, which helps ensure their purity and quality. Our disposable vapor products are designed in collaboration with our Chinese manufacturer; however, the manufacturer is responsible for procurement of all raw materials necessary to complete our purchase orders. In an effort to maintain consistency across our supply chain, we purchase directly certain product packaging and are responsible for managing various third-party supplier relationships.

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Don Polly Product Line. For our hemp-derived, alternative cannabis and CBD products, we currently source the individual components and oils from several suppliers. Each is delivered to our primary manufacturer for storage prior to manufacturing. We source hardware components from China for certain of our other hemp-derived products, which are then combined with ingredients sourced domestically to create finished goods.

Although we own the formulas for the Charlie’s Products and the Don Polly Products, we obtain certain components, such as packaging, flavors and certain raw materials, from third party suppliers. None of the third-party suppliers are considered to be material to the business on a standalone basis and the components are readily available from other suppliers on the market. However, given the rapid growth of the vaping, e-cigarette and hemp-derived products industries, there may be fluctuations in the availability of certain of the materials we obtain from third-parties due to high demand from our competitors. If any given supplier or distributor is lost or unavailable in a specific region, and we are unable to contract with alternative suppliers or distributors to provide the requisite service(s) and product(s), we may be unable to fulfill customer orders and our business could be materially harmed.

Competition

The industries in which we operate are highly competitive.

Charlie’s Product Line. Our Charlie’s Product Line competes in a highly-fragmented and rapidly evolving industry. Some identifiable competitors of Charlie’s include Naked100, Savage, Elf Bar, Puff Bar, Flum, and Hyde. Other brands such as Juul, Vuse, Group Mark Ten, Green Smoke, Blu, Vaporfi, Njoy, and Logic all participate in a different but related segment of the electronic cigarette market which focuses heavily on distribution in national and regional chain stores (primarily convenience, gas, and grocery stores) .

In the vapor products space, due to low barriers to entry, and despite FDA regulations for many products, new brands and products emerge frequently. The market is highly fragmented and the barriers to entry are relatively low. Recently, the rapid emergence of disposable vapor products from companies such as Elf Bar have become popular in the market. Some brands compete by offering a wide variety of choices and/or low-priced “value” products, while other companies, like Charlie’s Chalk Dust, carve out their identity with branding and more nuanced flavor combinations.

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

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

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

Don Polly Product Line. The market for hemp-based products is growing rapidly, highly competitive, and continually evolving. The competition consists of publicly traded and privately-owned companies, which tend to be highly fragmented in terms of both geographic market coverage and products offered. With the Company’s leading brand status, innovation capabilities, existing sales and marketing platform, established distribution channels, and high-quality manufacturing, Management believes the Company is well-positioned to capitalize on favorable long-term trends in the hemp-based products segment.

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Intellectual Property

Patents and Trademarks

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

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

Licensing Agreements

Charlie’s Product Line. The Company occasionally evaluates and enters into licensing opportunities to expand its footprint in the global nicotine-based products marketplace.

Don Polly Product Line. On April 25, 2019, the Company and Charlie’s entered into a Licensing Agreement with Don Polly. Don Polly is classified as a variable interest entity for which the Company is the primary beneficiary, and is owned by entities controlled by Ryan Stump, the Company’s Chief Operating Officer, and Brandon Stump, the Company’s former Chief Executive Officer. Pursuant to the Licensing Agreement, Charlie’s provides Don Polly with a limited right and license to use certain of Charlie’s intellectual property rights, including certain trademarks, copyrights and original artwork, in connection with certain of Don Polly’s branded CBD products. In exchange for such license, Don Polly (i) pays Charlie’s monthly royalties amounting to 75% of its net profits, (ii) uses its best efforts to market, promote and advertise its products, (iii) provides Charlie’s with most favored nations pricing in the event that Charlie’s wishes to sell products sold by Don Polly, (iv) provide Charlie’s with the exclusive right of first refusal to purchase Don Polly, including all of its assets and liabilities, for a purchase price of $111,618 on or before December 31, 2025, and (v) will not license any intellectual property from any other source other than Charlie’s in connection with its design, manufacture, advertisement, promotion distribution, and sale of CBD infused products within the agreed upon territory. The Licensing Agreement will continue in perpetuity unless terminated in accordance with its terms.

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

Government Regulations

Nicotine Products

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

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

● actual and proposed excise tax increases;

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

● other federal, state and local government actions, including:

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

o additional restrictions on the advertising and promotion of tobacco products;

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o other actual and proposed tobacco-related legislation and regulation;

o reductions in consumption levels of nicotine products;

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

● additional regulation over synthetic nicotine products.

FSPTCA and FDA Regulation

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

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

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

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

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

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

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

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

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

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

o restricts the use of non-tobacco trade and brand names on cigarettes and smokeless tobacco products;

o prohibits sampling of all tobacco products except that sampling of smokeless tobacco products is permitted in qualified adult-only facilities;

o prohibits the sale or distribution of items such as hats and tee shirts with cigarette or smokeless tobacco brands or logos;

o prohibits cigarettes and smokeless tobacco brand name sponsorship of any athletic, musical, artistic or other social or cultural event, or any entry or team in any event; and

o requires the development by the FDA of graphic warnings for cigarettes, establishes warning requirements for other tobacco products, and gives the FDA the authority to require new warnings for any type of tobacco product.

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

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

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

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

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

During the quarter ended September 30, 2020, the FDA's Center for Tobacco Products informed us that our PMTA received a valid submission tracking number, passed the FDA’s filing review phase, and recently entered the substantive review phase. To date, the Company has invested more than $5.1 million for our PMTA submissions. We engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create our comprehensive PMTA submission. During the quarter ended September 30, 2021, the FDA began issuing Marketing Denial Orders (“MDOs”) for electronic nicotine delivery system (“ENDS”) products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine.  These regulations make synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products.  As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement.  The Company filed new PMTAs for its synthetic Pacha products, on May 13, 2022, prior to the May 14, 2022, deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept 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, and has resubmitted PMTAs for, and continues to sell, the affected synthetic nicotine products while the administrative appeal process is pending.

As December 31, 2022, Charlie’s 2020 PMTA remains among the select minority of applications submitted to the FDA for a tobacco-derived nicotine ENDS product that has not received an MDO or Refuse-to-File designation.

FDA Regulatory Actions

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

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

o Potential Product Standards

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

o Flavors in Tobacco Products: In April 2022, the FDA issued two proposed product standards: (i) banning menthol in cigarettes and (ii) banning all characterizing flavors (including menthol) in cigars. The Biden Administration’s Fall 2022 Unified Regulatory Agenda includes the FDA’s plans to complete rulemaking with respect to these proposed product standards by the end of 2023.

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Excise Taxes

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

International Treaty on Tobacco Control

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

Other International, Federal, State and Local Regulation

Various states and localities have enacted or proposed legislation that imposes restrictions on tobacco products (including cigarettes, smokeless tobacco, cigars, e-vapor products and oral nicotine pouches), such as legislation that (i) prohibits the sale of all tobacco products or certain tobacco categories, such as e-vapor, (ii) prohibits the sale of tobacco products with characterizing flavors, such as menthol cigarettes and flavored e-vapor products, (iii) requires the disclosure of health information separate from or in addition to federally mandated health warnings and (iv) restricts commercial speech or imposes additional restrictions on the marketing or sale of tobacco products. The legislation varies in terms of the type of tobacco products, the conditions under which such products are or would be restricted or prohibited, and exceptions to the restrictions or prohibitions. For example, a number of proposals involving characterizing flavors would prohibit smokeless tobacco products with characterizing flavors. As of February 23, 2023, multiple states and localities are considering legislation to ban flavors in one or more tobacco products, and six states (California, Massachusetts, New Jersey, Utah, New York and Illinois) and the District of Columbia have passed such legislation. The legislation in California, which became effective in December 2022, bans the sale of most tobacco products with characterizing flavors. Massachusetts passed legislation capping the amount of nicotine in e-vapor products. Similar legislation is pending in other states.

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

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

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

Don Polly Product Line

Don Polly’s CBD products are subject to various state and federal laws regarding the production and sales of hemp-based products. Section 12619 of the Agriculture Improvement Act of 2018 (“2018 Farm Bill”) removed “hemp”, as defined in the Agricultural Marketing Act of 1946 (the “1946 Agricultural Act”), from the classification of “marijuana,” which is generally prohibited as a Schedule I drug under the Controlled Substances Act of 1970 (“CSA”). Under the 1946 Agricultural Act (as amended by the 2018 Farm Bill), the term “hemp” means “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis”. As a result of the passage of the 2018 Farm Bill, and since the Company believes the Don Polly Products contain parts of the cannabis plant with a THC concentration of not more than 0.3 percent on a dry weight basis, the Company believes that Don Polly Products are not governed by the CSA and, ergo, would not be subject to prosecution thereunder because the Company believes Don Polly Products contain “hemp” within the meaning of the 1946 Agricultural Act (as amended by the 2018 Farm Bill) and do not contain any “marijuana” as prohibited under the CSA (as amended by the 2018 Farm Bill); provided, however, there is a lack of legal protection for hemp-based products that contain more than 0.3 percent THC and there is a risk that the Company would be subject to prosecution under the CSA in the event that its CBD products are found to contain more than 0.3 percent THC.

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Furthermore, the 1946 Agricultural Act (as amended by the 2018 Farm Bill) provides additional regulations regarding the production of hemp-based products and there is the risk that Don Polly Products may be found to be in violation of these regulations. Specifically, the 1946 Agricultural Act (as amended by the 2018 Farm Bill) contains provisions relating to the shared state-federal jurisdiction over hemp cultivation and production, whereby states and Indian tribes have been delegated the broad authority to regulate and limit the production and sale of hemp and hemp products within their borders. Under the 1946 Agricultural Act (as amended by the 2018 Farm Bill), a plan under which a State or Indian tribe monitors and regulates the production of hemp shall only be required to include “(i) a practice to maintain relevant information regarding land on which hemp is produced in the State or territory of the Indian tribe, including a legal description of the land, for a period of not less than three calendar years; (ii) a procedure for testing, using post-decarboxylation or other similarly reliable methods, delta-9 tetrahydrocannabinol concentration levels of hemp produced in the State or territory of the Indian tribe; (iii) a procedure for the effective disposal of—(I) plants, whether growing or not, that are produced in violation of this subtitle; and (II) products derived from those plants; (iv) a procedure to comply with enforcement procedures; (v) a procedure for conducting annual inspections of, at a minimum, a random sample of hemp producers to verify that hemp is not produced in violation of this subtitle; (vi) a procedure for submitting the information, as applicable, to the Secretary of Agriculture (the “Secretary”) not more than 30 days after the date on which the information is received; and (vii) a certification that the State or Indian tribe has the resources and personnel to carry out the practices and procedures described in clauses (i) through (vi)”. Further, a hemp producer in a State or the territory of an Indian tribe for which a State or Tribal plan is approved shall be determined to have negligently violated the State or Tribal plan, including by negligently— “(i) failing to provide a legal description of land on which the producer produces hemp; (ii) failing to obtain a license or other required authorization from the State department of agriculture or Tribal government, as applicable; or (iii) producing Cannabis sativa L. with a delta-9 THC concentration of more than 0.3 percent on a dry weight basis.” A hemp producer that negligently violates a State or Tribal plan 3 times in a 5-year period shall be ineligible to produce hemp for a period of 5 years beginning on the date of the third violation. If the State department of agriculture or Tribal government in a State or the territory of an Indian tribe for which a State or Tribal plan, as applicable, determines that a hemp producer in the State or territory has violated the State or Tribal plan with a culpable mental state greater than negligence— “(i) the State department of agriculture or Tribal government, as applicable, shall immediately report the hemp producer to —(I) the Attorney General; and (II) the chief law enforcement officer of the State or Indian tribe, as applicable.” In the case of a State or Indian tribe for which a State or Tribal plan is not approved, the production of hemp in that State or the territory of that Indian tribe shall be subject to a plan established by the Secretary to monitor and regulate that production. A plan established by the Secretary under shall include— “(A) a practice to maintain relevant information regarding land on which hemp is produced in the State or territory of the Indian tribe, including a legal description of the land, for a period of not less than 3 calendar years; (B) a procedure for testing, using post-decarboxylation or other similarly reliable methods, delta-9 tetrahydrocannabinol concentration levels of hemp produced in the State or territory of the Indian tribe; (C) a procedure for the effective disposal of—(i) plants, whether growing or not, that are produced in violation of this subtitle; and (ii) products derived from those plants; (D) a procedure to comply with the enforcement procedures; and (E) a procedure for conducting annual inspections of, at a minimum, a random sample of hemp producers to verify that hemp is not produced in violation of this subtitle; and (F) such other practices or procedures as the Secretary considers to be appropriate. The Secretary shall also establish a procedure to issue licenses to hemp producers. In the case of a State or Indian tribe for which a State or Tribal plan is not approved under applicable law, it shall be unlawful to produce hemp in that State or the territory of that Indian tribe without a license issued by the Secretary. A violation of a plan established by the Secretary shall be subject to enforcement and the Secretary shall report the production of hemp without a license issued by the Secretary to the Attorney General.” In the event that the Company’s hemp-derived products are found to be in violation of these regulations, the Company may become subject to enforcement action as provided for in the 1946 Agricultural Act (as amended by the 2018 Farm Bill) and may become subject to prosecution thereunder.

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Research and Development

Our research and development activities consist of development and testing of new flavors, formulations, formats, and delivery methods for our existing products, as well as development of new products for the Charlie’s Product Line and the Don Polly Product Line. Costs related to the completion and submission of PMTAs to the FDA also constitute research and development activities. For the years ended December 31, 2022, and 2021, respectively, research and development costs primarily consisted of product development and testing fees.

For the years ended December 31, 2022 and 2021, Charlie’s recorded research and development expense of $804,000 and $24,000, respectively.

Employees

We had 35 full-time employees across Charlie’s Holdings Inc., Charlie’s Chalk Dust LLC and Don Polly LLC as of April 17, 2023. We believe that we maintain a good working relationship with our employees, and we have not experienced any labor disputes. None of our employees are represented by labor unions.

Cost of Compliance with Environmental Laws

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

Available Information

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

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

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ITEM 1A. RISK FACTORS

We are subject to various risks that could have a negative effect on the Company and its financial condition. These risks could cause actual operating results to differ from those expressed in certain “forward looking statements” contained in this Annual Report on Form 10-K as well as in other communications.

Risks Related to the Company

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

Although Charlie’s generated net revenue of approximately $26.4 million during the year ended December 31, 2022 and $21.5 million for the year ended December 31, 2021, there can be no guarantee that the Company will continue to grow revenue or achieve positive cash flow in the future. Cash used in operating activities was approximately $1.7 million and $1.3 million during the years ended December 31, 2022 and 2021, respectively. Generating positive cash flows in the future will depend on our ability to successfully create, sell and market nicotine, nicotine alternative and hemp-derived products. There is no guarantee that we will be able to achieve or sustain positive cash flows and profitability in the future. Our inability to successfully achieve positive cash flows and profitability will decrease our long-term viability and prospects.

We have limited cash resources and may require additional financing.

As of December 31, 2022, we had working capital of approximately $1.1 million, which consisted of current assets of approximately $5.9 million and current liabilities of approximately $4.8 million. If needed, our ability to obtain additional financing will be subject to many factors, including limitations on incurring debt in with respect to our Series A convertible preferred stock (“Series A Preferred”), market conditions, our operating performance and investor sentiment. If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained. 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 of their investment in us.

Our auditors have issued a going concern opinion on our financial statements as of December 31, 2022.

Our financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States. Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA. There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application. The issuance of one or several Marketing Denial Orders (“MDO”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables. These regulatory risks, as well as other industry-specific challenges remain factors that raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations.

If we are unable to generate sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.

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Our products could fail to attract or retain users or generate revenue and profits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

●  Potentially reduced protection for intellectual property rights;

●  Unexpected changes in tariffs, trade barriers and regulatory requirements;

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

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

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

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

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

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

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

Regulatory and Market Risks

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

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

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

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

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

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

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

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

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

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

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

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

As at the date of this Report, we have submitted PMTAs for certain of our nicotine vapor products, including, but not limited to menthol and/or tobacco products with the assistance of Avail, pursuant to the terms of the Avail Agreement, as well other vendors to assist with our May 13, 2022 submissions. The costs to date associated with these PMTAs are approximately $5.1 million in total. We are also evaluating the potential market perception and clinical studies that may be required in connection with each PMTA. If we do not submit a PMTA for any Charlie’s products considered to be Deemed Tobacco Products prior to the lapse of the grace period or if any PMTA submitted by the Company is denied, we will be required to cease the marketing and distribution of such Charlie’s products, which, in turn, would have a material adverse effect on the Company’s business, results of operations and financial condition. Furthermore, there can be no assurance that if the Company were to complete a PMTA for any of the affected Charlie’s products, that any application would be approved by the FDA and any non-approval would require us to remove products from the marketplace, which would have an adverse impact on our business.

Certain of our products contain nicotine, which is considered to be a highly addictive substance.

Certain of our products contain nicotine, a chemical found in cigarettes, e-cigarettes, certain other vapor products and other tobacco products, which is considered to be highly addictive. The Family Smoking Prevention and Tobacco Control Act empowers the FDA to regulate the amount of nicotine found in vapor products, but may not require the reduction of nicotine yields of a vapor product to zero. Any FDA regulation may require us to reformulate, recall and or discontinue certain of the products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, financial condition, results of operations, cash flows and or future prospects.

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

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

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

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

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

The marketing and sale of Delta-8-THC, other cannabinol and/or CBD products by the Company could subject it to limitations or restrictions imposed by the FDA, the states or other regulatory authorities.   

The Company’s production of Delta-8-Tetrahydrocannabinol ("Delta-8-THC"), other cannabinol and/or CBD products derived from hemp could subject it to limitations or restrictions, which could result in an outright ban on such marketing or sale.  Regulatory uncertainties regarding potential adverse changes in Federal and state laws may have a materially adverse effect on our business and the trading price of our common stock. These risks are heightened as they relate to the nicotine, marijuana, Delta-8-THC, Synthetic THC, CBD and other cannabinoid varieties, derivatives and /or equivalents which are controversial socially, scientifically and legally.  In addition, although we believe that Delta-8-THC is legal under the Farm Bill, certain states have moved to ban Synthetic THC or have moved to regulate Synthetic THC as marijuana. 

Notwithstanding the foregoing, the legality of hemp derived Synthetic THC is in a gray area and varies from state-to-state, with some states allowing Synthetic THC, others not addressing Synthetic THC specifically, while others have banned Synthetic THC due to its similarity to tetrahydrocannabinol. The Federal legality of Synthetic THC is still unknown, and the Federal government has yet to take a definitive position. Additionally, the FDA has indicated its view that certain types of products containing CBD may not be permissible under the FDCA. The FDA’s position is related to its approval of Epidiolex, a marijuana-derived prescription medicine to be available in the United States. The active ingredient in Epidiolex is CBD. On December 20, 2018, after the passage of the 2018 Farm Act, FDA Commissioner Scott Gottlieb issued a statement in which he reiterated the FDA’s position that, among other things, the FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce and that the FDCA prohibits introducing into interstate commerce food products containing added CBD, and marketing products containing CBD as a dietary supplement, regardless of whether the substances are hemp-derived.

Should the Company become subject to enforcement action by Federal, state or other regulatory agencies, it could be forced to spend significant sums defending against such enforcement action and ultimately could be forced to stop marketing and selling some or all of its  products and/or be subject to other sanctions, which would have a material adverse effect on the Company’s business and shareholders’ investments.

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

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

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Sources of hemp-derived CBD depend upon legality of cultivation, processing, marketing and sales of products derived from those plants under state law.

Hemp-derived CBD can only be legally produced in states that have laws and regulations that allow for such production and that comply with the 2018 Farm Act, apart from state laws legalizing and regulating medical and recreational cannabis or marijuana, which remains illegal under federal law and regulations. We purchase all of our hemp-derived CBD from licensed growers and processors in states where such production is legal. As described in the preceding risk factor, in the event of repeal or amendment of laws and regulations which are now favorable to the cannabis/hemp industry in such states, we would be required to locate new suppliers in states with laws and regulations that qualify under the 2018 Farm Act. If we were to be unsuccessful in arranging new sources of supply of our raw ingredients, or if our raw ingredients were to become legally unavailable, our intended business plan with respect to such products could be adversely impacted.

We have limited supply sources for industrial hemp, and price increases or supply shortages of key raw materials could materially and adversely affect our business, financial condition and results of operations.

Our hemp-based cannabinoid products are composed of certain key raw materials. If the prices of such raw materials increase significantly, it could result in a significant increase in our product development costs. If raw material prices increase in the future, we may not be able to pass on such price increases to our customers. A significant increase in the price of industrial hemp or other raw materials that cannot be passed on to customers could have a material adverse effect on our business, financial condition and results of operations.

Our success will depend upon the availability of industrial hemp and other raw materials that permit us to meet our labeling claims and quality control standards. The supply of our industrial hemp is subject to the same risks normally associated with agricultural production, such as climactic conditions, insect infestations and availability of manual labor or equipment for harvesting. Any significant delay in or disruption of the supply of raw materials could substantially increase the cost of such materials, could require product reformulations, the qualification of new suppliers and repackaging and could result in a substantial reduction or termination by us of our sales of certain products, any of which could have a material adverse effect upon us. Accordingly, there can be no assurance that the disruption of our supply sources will not have a material adverse effect on us.

Because our distributors may only sell and ship our products containing hemp-derived CBD in states that have adopted laws and regulations qualifying under the 2018 Farm Act, a reduction in the number of states having such qualifying laws and regulations could limit, restrict or otherwise preclude the sale of intended products containing hemp-derived CBD.

The interstate shipment of hemp-derived CBD from one state to another is legal only where both states have laws and regulations that allow for the production and sale of such products and that qualify under the 2018 Farm Act. Therefore, the marketing and sale of our intended products containing hemp-derived CBD is limited by such factors and is restricted to such states. Although we believe we may lawfully sell any of our finished products, including those containing CBD, in a majority of states, a repeal or adverse amendment of laws and regulations that are now favorable to the distribution, marketing and sale of finished products we intend to sell could significantly limit, restrict or prevent us from generating revenue related to our products that contain hemp-derived CBD. Any such repeal or adverse amendment of now favorable laws and regulations could have an adverse impact on our business plan with respect to such products.

Due to recent expansion into the CBD industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability.

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

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

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

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

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

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

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

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

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

There is limited availability of clinical studies related to hemp-based products.

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

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

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

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

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

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

The presence of trace amounts of THC in our products may cause adverse consequences to users of such products that will expose us to the risk of litigation, liability and other consequences.

Some of our products that contain hemp-derived CBD, or other hemp-derived cannabinoids, may contain trace amounts of THC. THC is a controlled substance in many jurisdictions, including under the federal laws of the U.S. Whether or not ingestion of THC (at low levels or otherwise) is permitted in a particular jurisdiction, there may be adverse consequences to consumers of our products who test positive for any amounts of THC because of the presence of trace amounts of THC in our hemp products. In addition, certain metabolic processes in the body may negatively affect the results of drug tests. Positive tests for THC may expose us to litigation from our consumers, adversely affect our reputation, our ability to obtain or retain customers and individuals’ participation in certain athletic or other activities. A claim or regulatory action against us based on such positive test results could materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance.

We must develop and introduce new products to succeed.

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

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

● proper new product selection;

● successful sales and marketing efforts;

● timely delivery of new products;

● availability of raw materials;

● pricing of raw materials;

● regulatory allowance of the products; and

● customer acceptance of new products.

Competition from the illicit cannabis market could impact our ability to succeed.

We face competition from illegal market operators that are unlicensed and unregulated including illegal dispensaries and illicit market suppliers selling cannabis and cannabis-based products. As these illegal market participants do not comply with the regulations governing the cannabis industry, their operations may have significantly lower costs. The perpetuation of the illegal market for cannabis may have a material adverse effect on our business, results of operations, as well as the perception of cannabis use.

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

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

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Risks Related to Our Common Stock

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

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

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

Sales of a substantial number of shares of our Common Stock in the public market could occur at any time. These sales, or the perception that such sales may occur, may adversely impact the price of our Common Stock, even if there is no relationship between such sales and the performance of our business. As of December 31, 2022, we had 219,163,631 shares of Common Stock outstanding, as well as outstanding options to purchase an aggregate of 6,002,937 shares of our Common Stock at a weighted average exercise price of $0.56 per share, up to 30,109,234 shares of Common Stock issuable upon conversion of outstanding shares of Series A Preferred and outstanding warrants to purchase up to an aggregate of 40,424,136 shares of our Common Stock at a weighted average exercise price of $0.44313 per share. The exercise and/or conversion of such outstanding derivative securities may result in further dilution to our stockholders.

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

Our Charter currently authorizes the issuance of up to 500.0 million shares of Common Stock, of which approximately 224 million shares are issued and outstanding as of April 17, 2023. In addition, we have reserved approximately [74.1] million shares for issuance upon conversion and/or exercise of our outstanding shares of Series A Preferred, warrants and stock options, as well as for issuance as awards under our 2019 Omnibus Incentive Plan. The issuance of any additional shares of our Common Stock, including those shares issuable upon conversion and/or exercise of our outstanding derivative securities, will result in significant dilution to our stockholders and a reduction in value of our outstanding Common Stock. Further, any such issuance may result in a change of control of our corporation.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Facilities

The Company leases office space that expires on various dates through 2025. All of the Company’s lease liabilities result from the lease of its warehouse space in Huntington Beach, California, which expires in 2025, and its corporate headquarters in Costa Mesa, California which expires in 2024. Management believes that the Company's sites are adequate to support the business and suitable for present purposes and the properties and equipment have been well maintained.

Insurance

We maintain commercial general liability insurance, including product liability coverage, and property insurance. The Charlie’s policy provided for a general liability limit of $1.0 million per occurrence and $2.0 million in annual aggregate coverage. The Don Polly policy provided for a general liability limit of $6.0 million per occurrence and $7.0 million in annual aggregate coverage. We also maintain Director's and Officer's insurance.

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 4. MINE SAFETY DISCLOSURES

None.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is traded on the OTCQB Venture Marketplace under the symbol “CHUC”. Prior to August 3, 2021, our common stock was traded on the OTC Pink Marketplace under the symbol "CHUC", and prior to July 3, 2019, our common stock was traded on the OTC Pink Marketplace under the symbol “TRUU”. The prices of our common stock on the OTCQB Venture Marketplace represent quotations between dealers without adjustment for retail markup, markdown, or commission and may not represent actual transactions.

Holders

As of April 17, 2023, there were 224,112,168 shares of our common stock outstanding, and 199 stockholders of record. As of April 17, 2023, there were 130,106 shares of our Series A Preferred outstanding held by 94 stockholders of record.

Transfer Agent

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

Dividend Policy

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

Recent Sales of Unregistered Securities

None.

Issuer Purchases of Equity Securities

None.

Shares authorized for issuance under equity compensation plans

The stockholders previously approved the Charlie’s Holdings Inc. 2019 Omnibus Incentive Plan, as amended (the “Plan”). The Plan allows for the granting of equity awards to eligible individuals over the life of the Plan, including the issuance of up to 26,072,542 shares of the Company’s common stock. As of December 31, 2022, we had available 11,953,605 shares remaining for future awards under the Plan.

The following table summarizes the number of shares of common stock to be issued upon exercise of outstanding options and vesting of restricted stock units under the Plan, the weighted-average exercise price of such stock options, and the number of securities available to be issued under the Plan as of December 31, 2022:

						Number of securities
	Number of securities to					remaining available for
	be issued upon exercise					issuance under equity
	of outstanding options,			Weighted average		compensation plans
	and restricted stock			exercise price of		(excluding securities
	units,			outstanding options		reflected in column (a))
	(a)			(b)		(c)
Equity compensation plans approved by security holders		14,118,937	(1)	$	0.56		11,953,605
Equity compensation plans not approved by security holders		—			N/A		—
Total		14,118,937			—		11,953,605	(2)

(1) The number of outstanding options is 6,002,937 and the number of outstanding restricted stock units is 8,116,000.

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

ITEM 6. SELECTED FINANCIAL DATA

As a “smaller reporting company”, as defined by the rules and regulations of the SEC, we are not required to provide this information.

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

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

Overview

The Company’s objective is to become a leader in three broad product categories: (i) non-combustible nicotine-related products, (ii) alternative alkaloid vapor products, and (iii) hemp-derived vapor and edible 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, as well as in more than 80 countries worldwide. Charlie’s primary international markets include the United Kingdom, Italy, Spain, New Zealand, Australia, and Canada. Through Don Polly, we develop, market and distribute products containing compounds derived from hemp.

Operational Plan

Considering industry-specific hurdles, as well as the potential for future regulatory changes, management has targeted opportunities for growth and has adopted the following operational plan.

Priority 1: In 2022, 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. In conjunction with internal and external research and development resources, we have 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 vapor products in much the same way that they enjoy traditional vapor products. However, 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 the development of a viable commercial product, such a product would 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.

The Company has also begun to develop intellectual property around 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. 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 $7 billion U.S. vapor products market.

Rounding out the Company’s research and development initiatives are Charlie’s efforts to expand and enhance the PINWEEL product line. PINWEEL is Charlie’s alternative cannabis brand that contains only cannabinoids derived from the hemp plant. Since our PINWEEL product line contains only cannabinoids made from 100% hemp extract, we are able to legally manufacture, distribute and sell to consumers in the United States. As a result of the Agriculture Improvement Act (the “Farm Bill”), ratified and signed into law in December 2018, cannabis containing less than 0.3% Delta 9-THC is legally classified as hemp and is thus legal under federal law. Accordingly, with the objective of developing an array of new purpose-driven alternative cannabis products that offer adult consumers an enjoyable alternative to alcohol and traditional cannabis products, the Company continues to develop new PINWEEL vapor products, edibles, and other novel products.

Priority 2: In November 2022, we successfully launched our PINWEEL brand of alternative cannabis products. In 2023, we plan to increase sales and marketing efforts of our PINWEEL product line, including ingestibles and disposable vapor devices. We feel there is a significant upside in the hemp-derived products space, and we have begun to shift our focus in this business to the burgeoning “alternative cannabis” market for products containing live resin blends of hemp-derived cannabinoids. These product categories have grown rapidly, as they offer consumers a range of benefits across varying potencies and product formats. Alternative cannabis products contain only cannabinoids that are derived from the hemp plant, are not subject to the Controlled Substances Act and are legal throughout most of the United States. Further, alternative cannabis products are not currently subject to FDA review.

Priority 3: We will expand and refocus our sales team. Currently, we are increasing the number of independent contractor account executives, as well as refining the skill set of our existing sales team. An expanded sales team will more effectively manage key customer relationships across a larger number of reps, mitigating concentration risks and assuring adequate coverage. The sales team is organized into two groups, each with a specific mandate for targeting customers. One group will focus on direct-to-retail (smoke shops, chain stores, adult beverage/liquor stores, gas stations, and grocery stores) with the goal of acquiring 1,000 new customer accounts in 2023. The second group will focus on satisfying the requirements of mega-distributors (McLane, Coremark, HT Hackney, Eby-Brown) in order to sell into the nation’s largest chain store accounts. Additionally, to broaden our footprint with customers and to minimize order size variability, sales reps will rebalance their product sales mix, placing enhanced focus on alternative cannabis and legacy e-liquid products.

Priority 4: In order to mitigate FDA regulatory risk in the domestic market and to capture what management believes is a significant commercial opportunity, we have dedicated additional resources to efforts focused on growing our market share internationally. Presently, approximately 17% 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. To facilitate this plan, we recently hired an Account Executive who will be dedicated to driving our efforts in international expansion. More specifically, we plan to build-out a dedicated international team, including country managers and marketing coordinators, to market and sell a suite of custom-made products to new and existing international customers.

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Impact of COVID-19

The outbreak of a novel strain of coronavirus (“COVID-19”, or, “Coronavirus”) has had a negative impact on the global economy and the markets in which we operate. Beginning in March 2020, the Company transitioned nearly all employees to a remote working environment for their safety and to protect the integrity of Company operations, which have largely returned to the office. We will continue to monitor the COVID-19 situation in all regions in which we operate and will maintain strict adherence to local health guidelines and mandates. We may need to take further actions that we determine are in the best interests of our employees or are required by federal, state, or local authorities.

Risks and Uncertainties and Ability to Continue as a Going Concern

The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in June 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 submissions; however, there is no assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which could have a significant impact on our sales. On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine.  These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products.  As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement.  The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs, and has resubmitted PMTAs for, and continues to sell, the affected synthetic nicotine products while the administrative appeal process is pending. There can be no guarantee that FDA will grant our administrative appeal, and the FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our pending applications at any time.  More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA’s priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry. In the event the FDA denies our PMTAs, we would be required to remove products and cease selling them.

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.

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Recent Developments

April 2022 Note Financing

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 is 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 April 28, 2024, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note. Principal shall be payable on the 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining principal balance will be paid. Interest shall accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and shall be payable on the same day as installments of principal are payable. The Company may prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty. All outstanding principal and interest are due earlier of April 28, 2024, or a liquidity event.

August 2022 Note Financing – Related Party

On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the "Stump Lender") entered into a loan agreement (the “Loan”) in the principal amount of $300,000. The Loan will be due in full in 120 days or sooner if, before the end of term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan bears an annual interest rate of 10%. The Company also incurred additional $3,000 issuance cost resulting from the payment of the Stump Lender’s legal fees. On December 17, 2022, the Company and Stump Lender entered into a modification to the Loan to extend the maturity date to April 16, 2023 and the Company has paid all accrued interest under the Loan through such date. On April 13, 2023, the Company and Stump Lender entered into a second modification to the Loan to extend the maturity date to August 14, 2023.

PMTA

During the quarter ended September 30, 2020, the FDA's Center for Tobacco Products informed us that our PMTA received a valid submission tracking number, passed the FDA’s filing review phase, and entered the substantive review phase. To date, the Company has invested more than $5.1 million for our PMTA submissions. We engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create our comprehensive PMTA submission. During the quarter ended September 30, 2021, the FDA began issuing Marketing Denial Orders (“MDOs”) for electronic nicotine delivery system (“ENDS”) products that lack evidence to demonstrate that permitting the marketing of such products would be appropriate for the protection of the public health.

On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine.  These regulations make synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products.  As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement.  The Company filed new PMTAs for its synthetic Pacha products, on May 13, 2022, prior to the May 14, 2022, deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept 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, and has resubmitted PMTAs for, and continues to sell, the affected synthetic nicotine products while the administrative appeal process is pending.

As of December 31, 2022, Charlie’s 2020 PMTA remains among the select minority of applications submitted to the FDA for a tobacco-derived nicotine ENDS product that has not received an MDO or Refuse-to-File designation. This fact highlights our progress toward achieving full regulatory compliance and demonstrates the emphasis our Company places on providing customers with a trusted product portfolio.

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Impact of COVID-19

The outbreak of a novel strain of coronavirus (“COVID-19”, or, “Coronavirus”) has had, and continues to have, a negative impact on the global economy and the markets in which we operate. Beginning in March 2020, the Company transitioned nearly all employees to a remote working environment for their safety and to protect the integrity of Company operations. We have updated certain sales, accounting, and administrative processes, and corresponding information technology platforms, in an effort to help facilitate the virtual work environment which still persists for some employees. During the year ended December 31, 2022, we engaged in periodic, informal testing of our business operations, and we do not believe that our financial position, work efficiency, and overall operational integrity have been materially affected. However, we recognize that a certain degree of employee enthusiasm, teamwork, creativity, and support is normally generated by being present at a physical location, and we believe that prolonged remote working may have a negative impact over time on our business, and on employee productivity. Our Huntington Beach, CA warehouse location has returned fully to “on premise” status, while our corporate headquarters in Costa Mesa, CA remains remote for some employees. We will continue to monitor the COVID-19 situation in all regions in which we operate and will maintain strict adherence to local health guidelines and mandates. We may need to take further actions that we determine are in the best interests of our employees or are required by federal, state, or local authorities.

Basis of Presentation

The consolidated financial statements contained within this Annual Report and the disclosure in this Management’s Discussion and Analysis of Financial Condition and Results of Operations with respect to the years ended December 31, 2022 and 2021 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). In the opinion of the Company, all adjustments, including normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the interim period have been included.

Results of Operations for the Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

	For the years ended
	December 31,						Change
	2022			2021			Amount			Percentage
($ in thousands)
Revenues:
Product revenue, net	$	26,424		$	21,496		$	4,928			22.9	%
Total revenues		26,424			21,496			4,928			22.9	%
Operating costs and expenses:
Cost of goods sold - product revenue		16,439			10,423			6,016			57.7	%
General and administrative		8,381			8,750			(369	)		-4.2	%
Sales and marketing		2,605			1,734			871			50.2	%
Research and development		804			24			780			3250.0	%
Total operating costs and expenses		28,229			20,931			7,298			34.9	%
(Loss) income from operations		(1,805	)		565			(2,370	)		-419.5	%
Other income (expense):
Interest expense		(155	)		(34	)		(121	)		355.9	%
Change in fair value of derivative liabilities		270			3,545			(3,275	)		-92.4	%
Gain on debt extinguishment		-			1,060			(1,060	)		-100.0	%
Other income		6			14			(8	)		-57.1	%
Total other income		121			4,585			(4,464	)		-97.4	%
(Loss) income before income taxes		(1,684	)		5,150			(6,834	)		-132.7	%
Income taxes (benefit) provision		(92	)		342			(434	)		-126.9	%
Net (loss) income	$	(1,592	)	$	4,808		$	(6,400	)		-133.1	%

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Revenue

Revenue for the year ended December 31, 2022, increased approximately $4,928,000, or 22.9%, to approximately $26,424,000, as compared to approximately $21,496,000 for the year ended December 31, 2021, due to a $4,030,000 increase in our nicotine-based product sales, and a $898,000 increase in sales of our hemp-derived products. The increase in our nicotine-based vapor product sales is directly related to the launch of our Pacha (formerly Pachamama Disposable) product line which grew significantly during the first half of 2022 with the launch of additional size and flavor offerings. Pacha Disposables became Charlie’s first-ever entrant into the rapidly expanding, disposable e-cigarette market and offer users a variety of premium flavors containing synthetic nicotine (not derived from tobacco) in a compact, discrete format. Ongoing uncertainty surrounding the FDA’s application review timeline, following the May 13, 2022 PMTA submission deadline, as well as the entrant of lower-priced competitors selling direct from China affected buying patterns of disposable nicotine products in domestic vape market during the second half of 2022. Sales growth slowed during the quarter ended December 31, 2022 as customers reduced emphasis on offering a wide product variety and focused on low-cost, high-sales velocity offerings.

During the quarter ended March 31, 2021, we began to streamline our existing hemp-derived wellness product offering and to pursue the developing market for products containing hemp-derived cannabinoids. We view this market segment as having higher growth potential and better alignment with our existing sales channels, and therefore, we will continue to develop and launch additional products in this category.

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs increased approximately $6,016,000 or 57.7%, to approximately $16,439,000, or 62.2% of revenue, for the year ended December 31, 2022, as compared to approximately $10,423,000, or 48.5% of revenue, for the year ended December 31, 2021. This cost, as a percent of revenue, increased due to a higher sales mix consisting of our Pacha Disposable product line, which carries a lower margin per unit relative to our other vapor products. Cost of revenue was also significantly affected by a large provision for inventory obsolescence related to certain of our nicotine and alternative cannabis disposable products. The increased provision for inventory obsolescence was mostly the result of compressed product lifecycles in both the nicotine disposable and alternative cannabis product categories.

General and Administrative Expense

For the year ended December 31, 2022, total general and administrative expense decreased approximately $369,000 to approximately $8,381,000, or 31.7% of revenue, as compared to approximately $8,750,000, or 40.7% of revenue, for the year ended December 31, 2021. This decrease is primarily comprised of reductions of approximately $509,000 of wages and benefits and $391,000 of non-cash stock-based compensation. The decrease in payroll and benefits expense during the year ended December 31, 2022, was primarily due to strategic headcount reduction, salary reductions and cancelled bonuses for Company officers and senior managers, as well as Employee Retention Credits received in conjunction with the Infrastructure Investment and Jobs Act which was enacted in November 2021. The reduction in non-cash stock-based compensation is primarily related to the conclusion of the vesting period for shares of Common Stock awarded to several employees in conjunction with the Share Exchange completed in April 2019 (See Note 3). The decreases were primarily offset by increases of $161,000 in provision for bad debt, $91,000 of merchant processing and bank fees as well as $279,000 in other general and administrative expenses. The increases in provision for bad debt and merchant processing fees were primarily related to higher sales achieved during the year ended December 31, 2022. The increase in other general and administrative costs was primarily related to additional infrastructure and information technology system upgrades as well as higher audit fees and costs related to the calculation of our 2021 income taxes.

Sales and Marketing Expense

For the year ended December 31, 2022, total sales and marketing expense increased to approximately $2,605,000 as compared to approximately $1,734,000 for the year ended December 31, 2021, which was primarily due to a shift in spending on product sales support materials and digital marketing campaigns related to the launch of our new alternative cannabis product lines. Our participation in tradeshows increased substantially during the year as we continue to believe it is the best method for directly reaching consumers and distributors of our products.

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Research and Development Expense

For the year ended December 31, 2022, total research and development expense increased approximately $780,000, to $804,000 as compared to approximately $24,000 for the year ended December 31, 2021. During the year ended December 31, 2022, we (i) filed new PMTAs for our synthetic nicotine Pacha products, (ii) invested in “age-gating technology” research and development, and (iii) invested in the development of new novel products which resulted in higher research and development expenses relative to the year ended December 31, 2021.

Income (Loss) from Operations

We generated loss from operations of approximately $1,805,000 for the year ended December 31, 2022, as compared to income from operations of approximately $565,000 for the year ended December 31, 2021. Net income (loss) is determined by adjusting income (loss) from operations by the following items:

● Change in fair value of derivative liabilities. For the years ended December 31, 2022 and 2021, the gain in fair value of derivative liabilities was approximately $270,000 and $3,545,000, respectively. The derivative liability is associated with the issuance of the Investor Warrants and the Placement Agent Warrants (see Note 3) in connection with the Share Exchange. The gain for the year ended December 31, 2022, reflects the effect of the decrease in stock price as of December 31, 2022 compared to December 31, 2021. Due to the limited supply of shares currently freely trading, our stock price may experience volatility and therefore, considerable fluctuations in the value of our warrant derivative liability may occur in the future. We had warrants to purchase approximately 40,424,000 shares of common stock outstanding as of December 31, 2022.

● Interest Expense. For the years ended December 31, 2022 and 2021, we recorded interest expense related to notes payable of $155,000 and $34,000, respectively.

● Gain on debt extinguishment. For the years ended December 31, 2022, and 2021 we recorded a gain on debt extinguishment of $0 and $1,060,000, respectively, related to forgiveness of Paycheck Protection Program loans extended to Charlie’s and Don Polly.

● Other Income. For the years ended December 31, 2022 and 2021, we recorded other income related to interest and sublease income of $6,000 and $14,000, respectively.

Income Taxes (Benefit) Provision

The Company’s income tax benefit was $92,000, or 5.5% of income before income taxes, for the year ended December 31, 2022. The Company’s income tax expense was $342,000 for the year ended December 31, 2021.

Net Income (Loss)

For the years ended December 31, 2022, and 2021, we had a net loss of $1,592,000 and net income of $4,808,000, respectively.

Effects of Inflation

Inflation has not had a material impact on our business.

Liquidity and Capital Resources

As of December 31, 2022, we had working capital of approximately $1,067,000, which consisted of current assets of approximately $5,850,000 and current liabilities of approximately $4,783,000, as compared to working capital of approximately $2,460,000 at December 31, 2021. The current liabilities include approximately $2,333,000 of accounts payable and accrued expenses, notes payable of $1,000,000, note payable from a related party of $300,000, approximately $148,000 of deferred revenue associated with product shipped but not yet received by customers, approximately $373,000 of lease liabilities, and $629,000 of derivative liability associated with the Investor Warrants and Placement Agent Warrants (the derivative liability of $629,000 is included in determining the working capital of $1,067,000 but is not expected to use any cash to ultimately satisfy the liability).

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 is 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 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 (see Note 8). The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing.

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On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the "Stump Lender") entered into a loan agreement (the “Loan”) in the principal amount of $300,000. The Loan will be due in full in 120 days or sooner if, before the end of term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan bears an annual interest rate of 10%. The Company also incurred additional $3,000 issuance cost resulting from the payment of the Stump Lender’s legal fees. On December 17, 2022, the Company and Stump Lender entered into a modification to the Loan to extend the maturity date to April 16, 2023 and the Company has paid all accrued interest under the Loan through such date. On April 13, 2023, the Company and Stump Lender entered into a second modification to the Loan to extend the maturity date to August 14, 2023.

Our cash and cash equivalents balance at December 31, 2022 was approximately $257,000.  

For the year ended December 31, 2022, net cash used in operating activities was approximately $1,720,000, resulting from a net loss of $1,592,000 and a change in operating assets and liabilities of $996,000, offset by net non-cash activity of $868,000. For the year ended December 31, 2021, net cash used in operating activities was approximately $1,347,000, resulting from a net income of $4,808,000, offset by a $3,545,000 of change in fair value of derivative liabilities, $1,060,000 from debt extinguishment, and $2,866,000 changes in our operating assets and liabilities.

For the year ended December 31, 2022, we used cash for investment activities of approximately $189,000 as compared to $110,000 for the same period in 2021. The cash used for investment activities is primarily for the on-going development and configuration of enterprise resource planning software as well as the disposal of fixed assets related to the permanent closure of our Denver, Colorado location.

For the year ended December 31, 2022, we generated approximately $1,300,000 cash from financing activities related to the issuance of a promissory note to a large shareholder and a short-term loan from our chief operating officer and director, Ryan Stump, each as discussed above. For the year ended December 31, 2021 we generated approximately $3,184,000 cash from financing activities from the Private Placement (as defined in Note 10 of Item 1, Part 1 of this Report) offset by the repayment of the Red Beard Note (as defined in Note 8 of Item 1, Part 1 of this Report). We also paid cash dividends of $883,000 during the nine months ended September 30, 2021 to our preferred stockholders. 

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Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management’s plan of operation

Our financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States. Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA. There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application. For the year ended December 31, 2022, the Company generated a loss from operations of approximately $1,805,000, and a consolidated net loss of approximately $1,592,000 and used cash in operations of approximately $1,720,000. The Company had stockholders’ equity of $1,700,000 at December 31, 2022. During the year ended December 31, 2022, the Company’s working capital requirements continued to evolve as current assets decreased to $5,850,000 from $7,994,000 as of December 31, 2021 and currently liabilities decreased to $4,783,000 from $5,534,000 as of December 31, 2021. Considering these facts, the issuance of one or several MDOs from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and the removal of certain products for sale. These regulatory risks, as well as other industry-specific challenges and our low working capital and cash position, remain factors that raise substantial doubt about the Company’s ability to continue as a going concern.

Our plans and growth depend on our ability to increase revenues, procure cost-effective financing, and continue our business development efforts, including the expenditure of approximately $5,100,000 to date, 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 25% for officers and certain managers and a reduction in headcount for certain departments. During 2023, we also plan to launch additional products that are not subject to FDA review or covered under the Agriculture Improvement Act (the “Farm Bill”). During 2023, the Company intends to allocate further resources and new personnel to support research and development initiatives in order to support existing, or subsequent PMTAs. The Company may require additional financing in the future to support subsequent PMTA filings, and/or in the event the FDA requests additional testing for one, or several, of the Company’s prior PMTA submissions. There can be no assurance that additional financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and, in the Company’s best interests. The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations. If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

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

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

The accounting policies identified as critical are as follows:

Revenue Recognition

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

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

Accounts receivable is recorded at the invoiced amount and does not bear interest. We determine the allowance 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, 2022, and 2021, the allowance for bad debt totaled $158,000 and $109,000, respectively.

Inventories

Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2022, and 2021, the reserve for excess and obsolete inventories totaled $733,000 and $156,000, respectively.

Stock-Based Compensation

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

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Income Taxes

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required for smaller reporting companies.

ITEM 8. FINANCIAL STATEMENTS

The audited consolidated financial statements of Charlie’s Holdings, Inc., including the notes thereto, together with the report thereon of Baker Tilly LLP, our independent registered public accounting firm (PCAOB ID: 23), are included in this Annual Report on Form 10-K as a separate section beginning on page F-1.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

 (a) Evaluation of Disclosure Controls and Procedures.

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

Based on our evaluation, our President, the principal executive officer, and Chief Financial Officer concluded that, as of December 31, 2022, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our President, the principal executive officer, and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

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

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

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Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision of our principal executive and financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, our principal executive and financial officer concluded that our internal control over financial reporting was effective as of December 31, 2022.

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

(c) Changes in internal control over financial reporting.

As of September 30, 2022, we determined a material weakness existed in our process for recording and reviewing significant contracts. Specifically, we determined design deficiencies existed in the reconciliation and review processes for leases, as well as within the configuration of the financial close-management software used in the review process. During the quarter ended December 31, 2022, the Company began remediating the material weaknesses disclosed in the Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2022. These remediation measures included instituting appropriate levels of review in the reconciliation process and modifying the configuration of corresponding controls in our close-management software system. During the quarter ended December 31, 2022, the Company monitored these controls and tested their effectiveness. We determined that the design of internal control over financial statement processes is effective in relation to identified inherent risks for all significant processes, based on review of controls in whole, and testing of each control individually for its effectiveness in meeting control objectives. As a result, we have determined that there were no material weaknesses of internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15 of the Exchange Act that occurred during the period ended December 31, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTION

Not applicable.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information concerning our executive officers, directors and corporate governance is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2023 Annual Meeting of Stockholders.

Set forth below is information regarding our directors, executive officers, and key personnel as of March 1, 2023:

Name	Age	Position
Henry Sicignano	55	President (Principal Executive Officer)
Matthew P. Montesano	37	Chief Financial Officer
Ryan Stump	34	Chief Operating Officer and Director
Adam Mirkovich	37	Chief Information Officer
Scot Cohen	53	Director
Jeffrey Fox	59	Director
Edward Carmines	68	Director

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

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

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

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

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

Adam Mirkovich, Chief Information Officer. Mr. Mirkovich was appointed as the Company’s Chief Information Officer on May 20, 2019. Mr. Mirkovich has over a decade of experience managing supply chains for consumer products. Mr. Mirkovich has served as an independent management consultant specializing in building and optimizing value chains for startups and growth stage companies in the beverage, nicotine vape, and nutritional supplements industries since 2013. Prior to joining the Company, Mr. Mirkovich served as the Chief Operating Officer of Orchid Ventures, Inc. (CSE: ORCD), a multi-state premium cannabis vape company, from September 2018 to April 2019. From December 2014 to February 2016, Mr. Mirkovich served as the Director of Supply Chain and Operations at Space Jam Juice, LLC, a distributor of premium vapor products. From November 2010 to April 2013, Mr. Mirkovich served as the Product Lifecycle Management Program Manager for Niagara Bottling, LLC, a leading bottled water manufacturer. While there, he led the product revision, introduction, and discontinuance practices for customers’ private labeled water, flavored, and carbonated beverages. Prior to that, Mr. Mirkovich served as a member of the Supply Chain Logistics team at Niagara Bottling, providing strategic support of company expansion activities and tactical support of purchasing, production planning, and multi-region logistics in North American operations. Mr. Mirkovich earned a Bachelor of Science degree in Business Administration and Economics from Chapman University.

Scot Cohen, Director. Mr. Cohen was appointed to the Board in March 2013 and is the Founder and Managing Partner of V3 Capital Partners, a private investment firm focused on early-stage companies primarily in the consumer products industry, and Co-Manager of Red Fortune Fund, a private equity fund based in Hong Kong. Mr. Cohen also is the Founder of Petro River Oil, LLC and Chairman of Petro River Oil Corp. (OTCBB: PTRC), a publicly traded oil and gas producer with assets in Kansas and Oklahoma, and Petro Spring, a global oil and gas technology solutions provider. Prior to creating V3 Capital Partners, Mr. Cohen was the Founder and Managing Partner at Iroquois Capital Opportunity Fund, a special situations private equity investment fund, and a Co-Founder of Iroquois Capital, a hedge fund with investments in small and micro-cap private and public companies. Mr. Cohen currently serves as a director on the Board of Directors of Wrap Technologies, Inc. (NASDAQ: WRTC), and is active in philanthropic activities with numerous charities including the Jewish Enrichment Council. Mr. Cohen received a Bachelor of Science degree from Ohio University in 1991.

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

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

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

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

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

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

Code of Ethics

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

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ITEM 11. EXECUTIVE COMPENSATION

Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2023 Annual Meeting of Stockholders 

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

Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders

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

Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

Exhibit No.	Description
3.1	Amended and Restated Bylaws of Charlie's Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on September 11, 2019.
3.2	Amended and Restated Articles of Incorporation of Charlie’s Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed July 2, 2019
3.2.1	Certificate of Change for Charlie’s Holdings, Inc., effective as of June 14, 2021, incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on June 16, 2021.
4.1	Certificate of Designations, Preferences and Rights of the Series A Convertible Preferred Stock, dated April 25, 2019, incorporated by reference to Exhibit 3.7 to the Current Report on Form 8-K, filed April 30, 2019.
4.2	Form of Investor Warrant, dated April 26, 2019, incorporated by reference to Exhibit 3.8 to the Current Report on Form 8-K, filed April 30, 2019.
4.3	Description of Securities Registered Pursuant to Section 12 (filed herewith)
4.4	CERTIFICATE OF AMENDMENT Dated April 4, 2023 TO THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF THE SERIES A CONVERTIBLE PREFERRED STOCK dated April 25, 2019
10.1	Form of Exchange Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed April 30, 2019.
10.2	Form of Registration Rights Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed April 30, 2019.
10.3	Subscription Agreement, dated April 26, 2019, incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K, filed April 30, 2019.
10.4	Employment Agreement by and between True Drinks Holdings, Inc. and Ryan Stump, dated April 26, 2019, incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K, filed April 30, 2019.
10.5	License Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 11, 2019.
10.6	Services Agreement by and between the Company and Don Polly, LLC, dated June 5, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed June 11, 2019.
10.7	Commercial Lease Agreement, by and between Charlie’s Chalk Dust, LLC and Brandon Stump, Ryan Stump and Keith Stump, dated November 19, 2019, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed November 22, 2019.
10.8	Employment Agreement, dated April 1, 2021, by and between Charlie's Holdings, Inc. and Henry Sicignano, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed April 6, 2021.
10.9	2019 Omnibus Equity Incentive Plan, as amended, incorporated by reference to Appendix B to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on May 28, 2019
10.10	Amendment to 2019 Omnibus Equity Incentive Plan, incorporated by reference to the Definitive Information Statement on Schedule 14C filed with the Securities and Exchange Commission on February 4, 2022
10.11	Promissory Note with Michael King dated April 6, 2022 (filed herewith)
10.11.1	Modification Agreement dated September 29, 2022 related to Promissory Note with Michael King dated April 6, 2022 (filed herewith)
10.11.2	Modification Agreement dated March 28, 2022 related to Promissory Note with Michael King dated April 6, 2022 (filed herewith)
10.12	Loan Agreement with Ryan Stump dated August 17, 2022 (filed herewith)
10.12.1	Amendment dated December 17, 2022 to Loan Agreement with Ryan Stump dated August 17, 2022 (filed herewith)
10.12.2	Amendment dated April 13, 2023 to Loan Agreement with Ryan Stump dated August 17, 2022 (filed herewith)
14.1	Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference.
14.2	Board Charter filed with Form 10-K on March 31, 2011 and incorporated herein by reference.
21.1	Subsidiaries of Charlie's Holdings, Inc., filed herewith.
23.1	Consent of Baker Tilly US filed herewith.
31.1	Certification of Principal Executive Officer as Required by Rule 13a-14(a)/15d-14, filed herewith.
31.2	Certification of Principal Financial Officer as Required by Rule 13a-14(a)/15d-14, filed herewith.
32.1	Certification of Principal Executive Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.
32.2	Certification of Principal Financial Officer as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

ITEM 16. FORM 10-K SUMMARY

None.

-43-

SIGNATURES

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

Date: April 17, 2023	CHARLIE’S HOLDINGS, INC.
	By:	/s/ Henry Sicignano III
		Henry Sicignano III President (Principal Executive Officer)
		/s/ Matthew P. Montesano
		Matthew P. Montesano Chief Financial Officer (Principal Financial and Accounting Officer)

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

Signature	Title	Date
/s/ Henry Sicignano III Henry Sicignano III	President (Principal Executive Officer)	April 17, 2023
/s/ Matthew P. Montesano Matthew P. Montesano	Chief Financial Officer (Principal Financial and Accounting Officer)	April 17, 2023
/s/ Ryan Stump Ryan Stump	Chief Operating Officer and Director	April 17, 2023
/s/ Scot Cohen Scot Cohen	Director	April 17, 2023
/s/ Jeffrey Fox Jeffrey Fox	Director	April 17, 2023
/s/ Edward Carmines Edward Carmines	Director	April 17, 2023

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the board of directors of Charlie’s Holdings, Inc:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Charlie’s Holdings, Inc. and its subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, changes in stockholders' equity, and cash flows, for each of the years then ended, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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

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

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

Going Concern Uncertainty

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has continued to experience financial and regulatory issues. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

F-1

Critical Audit Matter

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

Allowance for Excess and Obsolete Inventory

Critical Audit Matter Description

As described in Note 2 to the financial statements, inventories primarily consist of finished goods are stated at the lower of cost (determined by the average cost method) or net realizable value. Adjustments are made to inventory for any excess or obsolete inventories or when the net realizable value of inventories is less than the carrying value. The Company's inventory reserves are primarily based on historical turnover and projected usage of its various inventory products. We identified inventory valuation as a critical audit matter. The inventory reserve at December 31, 2022 was approximately $733,000, while net inventories totaled approximately $2,900,000 at December 31, 2022.

We identified management’s estimation of the reserve for excess and obsolete inventory as a critical audit matter, because of the significant judgments made by management in estimating projected usage and market conditions which are used to arrive at the net realizable value. This required a high degree of auditor judgment and increased auditor effort in auditing such assumptions.

How We Addressed the Matter in Our Audit

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

■ Obtaining an understanding of management’s process for estimating the reserve for excess and obsolete inventory.

■ Making inquiries related to management's review and evaluating the appropriateness of key assumptions and inputs utilized in the estimates.

■ Obtaining management's analysis of excess and obsolete inventories, recalculating inputs into the analysis, and testing underlying data for completeness and accuracy. This included, among other inputs, historical sales data and inventory turnover calculations by item.

■ Selecting a sample of inventory product on-hand and evaluating the appropriateness of reserve percentages applied considering historical sales by product, subsequent information, evidence obtained in other areas of the audit, and considering trends within the industry that could impact the movement of products sold by the Company.

■ Performing retrospective review of prior year reserve estimates and assumptions by evaluating current year inventory write-offs.

/s/ Baker Tilly US LLP

We have served as the Company's auditor since 2018.

Irvine, California

April 17, 2023

F-2

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	December 31,			December 31,
	2022			2021
ASSETS
Current assets:
Cash	$	257		$	866
Accounts receivable, net		1,161			1,368
Inventories, net		3,652			5,005
Prepaid expenses and other current assets		780			755
Total current assets		5,850			7,994
Non-current assets:
Property, plant and equipment, net		311			431
Right-of-use asset, net		799			755
Other assets		101			68
Total non-current assets		1,211			1,254
TOTAL ASSETS	$	7,061		$	9,248
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$	2,333		$	4,068
Note payable		1,000			-
Note payable, net - related party		300			-
Derivative liability		629			899
Lease liabilities		373			329
Deferred revenue		148			238
Total current liabilities		4,783			5,534
Non-current liabilities:
Notes payable, net of current portion		150			150
Lease liabilities, net of current portion		428			433
Total non-current liabilities		578			583
Total liabilities		5,361			6,117
COMMITMENTS AND CONTINGENCIES (see Note 12)
Stockholders' equity (deficit):
Convertible preferred stock ($0.001 par value); 1,800,000 shares authorized
Series A, 300,000 shares designated, 133,423 and 141,873 shares issued and outstanding as of December 31, 2022 2021, respectively		-			-
Series B, 1,500,000 shares designated, 0 shares issued and outstanding as of December 31, 2022 and 2021, respectively		-			-
Common stock ($0.001 par value); 500,000,000 shares authorized; 219,163,631 and 210,890,930 shares issued and outstanding as of December 31, 2022 and 2021, respectively		219			211
Additional paid-in capital		7,928			7,775
Accumulated deficit		(6,447	)		(4,855	)
Total stockholders' equity		1,700			3,131
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	7,061		$	9,248

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

F-3

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

	For the years ended
	December 31,
	2022			2021
Revenues:
Product revenue, net	$	26,424		$	21,496
Total revenues		26,424			21,496
Operating costs and expenses:
Cost of goods sold - product revenue		16,439			10,423
General and administrative		8,381			8,750
Sales and marketing		2,605			1,734
Research and development		804			24
Total operating costs and expenses		28,229			20,931
Income (loss) from operations		(1,805	)		565
Other income (expense):
Interest expense		(155	)		(34	)
Change in fair value of derivative liabilities		270			3,545
Gain on debt extinguishment		-			1,060
Other income		6			14
Total other income		121			4,585
(Loss) income before income taxes		(1,684	)		5,150
Income taxes (benefit) provision		(92	)		342
Net (loss) income	$	(1,592	)	$	4,808
Net earnings (loss) per share
Basic	$	(0.01	)	$	0.02
Diluted	$	(0.01	)	$	0.01
Weighted average number of common shares outstanding
Basic		212,269,453			203,589,531
Diluted		212,269,453			237,686,875

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

F-4

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

	Series A Convertible Preferred Stock					Common Stock				Additional Paid-in			Accumulated			Total Stockholders'
	Shares			Par value		Shares		Par value		Capital			Deficit			Equity
Balance at January 1, 2021		204		$	-		189,907	$	190	$	3,477		$	(9,663	)	$	(5,996	)
Issuance of common stock to related parties for cash		-			-		3,517		3		2,997			-			3,000
Conversion of Series A convertible preferred stock		(62	)		-		13,977		14		(14	)		-			-
Issuance of common stock for dividend payment		-			-		1,736		2		768			-			770
Accrue dividends payable on Series A convertible preferred stock		-			-		-		-		(3	)		-			(3	)
Stock compensation		-			-		1,750		2		550			-			552
Fraction shares adjustment due to reverse split		-			-		3		-		-			-			-
Net income		-			-		-		-		-			4,808			4,808
Balance at December 31, 2021		142			-		210,890		211		7,775			(4,855	)		3,131
Conversion of Series A convertible preferred stock		(9	)		-		1,907		2		(2	)		-			-
Stock compensation		-			-		6,366		6		155			-			161
Net loss		-			-		-		-		-			(1,592	)		(1,592	)
Balance at December 31, 2022		133		$	-		219,163	$	219	$	7,928		$	(6,447	)	$	1,700

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

F-5

CHARLIE’S HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	For the years ended
	December 31,
	2022			2021
Cash Flows from Operating Activities:
Net income	$	(1,592	)	$	4,808
Reconciliation of net income to net cash used in operating activities:
Allowance for doubtful accounts		269			109
Depreciation and amortization		296			210
Accretion of debt discount		3			-
Loss on disposal of fixed assets		13			-
Change in fair value of derivative liabilities		(270	)		(3,545	)
Amortization of operating lease right-of-use asset		396			445
Stock based compensation		161			552
Gain from debt extinguishment		-			(1,060	)
Subtotal of non-cash charges		868			(3,289	)
Changes in operating assets and liabilities:
Accounts receivable		(62	)		(219	)
Inventories		1,353			(3,412	)
Prepaid expenses and other current assets		20			(305	)
Other assets		(33	)		3
Accounts payable and accrued expenses		(1,783	)		1,553
Deferred revenue		(90	)		(30	)
Lease liabilities		(401	)		(456	)
Net cash used in operating activities		(1,720	)		(1,347	)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment		(189	)		(110	)
Net cash used in investing activities		(189	)		(110	)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock to related parties		-			3,000
Proceeds from issuance of notes payable		1,000			184
Proceeds from issuance of note payable to related party		300			-
Repayment of notes payable		-			(1,400	)
Dividend payment		-			(883	)
Net cash provided by financing activities		1,300			901
Net decrease in cash		(609	)		(556	)
Cash, beginning of the year		866			1,422
Cash, end of the year	$	257		$	866
Supplemental disclosure of cash flow information
Cash paid for interest	$	90		$	150
Cash paid for interest to related party	$	10		$	-
Cash paid for income taxes	$	106		$	-
Supplemental disclosure of cash flow information
Conversion of Series A convertible preferred stock	$	2		$	14
Issuance of common stock for dividend payment	$	-		$	770
Recognize minimum accrued interest	$	45		$	-

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

F-6

CHARLIE’S HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries and consolidated variable interest entity (collectively, the “Company”, “we”), currently formulates, markets and distributes premium, non-combustible nicotine-related products, alternative alkaloid vapor products, and hemp-derived vapor and edible 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 more than 80 countries worldwide. The Company’s primary international markets include the United Kingdom, Italy, Spain, New Zealand, Australia, and Canada.

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 products containing cannabinoids derived from hemp.

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

Reverse Stock Split

The Company’s Board of Directors approved a reverse stock split of the Company’s authorized, issued and outstanding shares of Common Stock, par value $0.001 per share, at a ratio of 1-for-100 (the “Reverse Split”). The Reverse Split was effective as of June 16, 2021 (the “Effective Date”). All share and per share amounts in the Form 10-K have been retroactively adjusted to account for the reverse stock split.

Basis of Presentation

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

Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management’s plan of operation

The accompanying 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 obtain approval from the United States Food and Drug Administration ("FDA") to continue selling and marketing certain of products used for the vaporization of nicotine in the United States. Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA. There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application. For the year ended December 31, 2022, the Company generated a loss from operations of approximately $1,805,000, and a consolidated net loss of approximately $1,592,000 and used cash in operations of approximately $1,720,000. The Company had stockholders’ equity of $1,700,000 at December 31, 2022. During the year ended December 31, 2022, the Company’s working capital requirements continued to evolve as current assets decreased to $5,850,000 from $7,994,000 as of December 31, 2021 and currently liabilities decreased to $4,783,000 from $5,534,000 as of December 31, 2021. Considering these facts, the issuance of one or several MDOs from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and potentially require us to remove products from circulation. These regulatory risks, as well as other industry-specific challenges, our low working capital and cash position remain factors that raise substantial doubt about the Company’s ability to continue as a going concern.

F-7

Management's plans depend on its ability to increase revenues, procure cost-effective financing, and continue its business development efforts, including the expenditure of approximately $5.1 million to date, to support the Pre-Market Tobacco Application (“PMTA”) process for the Company’s submissions to the FDA. The Company has undergone cost-cutting measures including salary reductions of up to 25% for officers and certain managers and a reduction in headcount for certain departments. During 2023, we also plan to launch additional products that are not subject to FDA review or covered under the Agriculture Improvement Act (the “Farm Bill”). The Company may require additional financing in the future to support 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.

Risks and Uncertainties

The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in June 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 submissions; however, there is no assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which could have a significant impact on our sales. On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs, and has resubmitted PMTAs for, and continues to sell, the affected synthetic nicotine products while the administrative appeal process is pending. There can be no guarantee that FDA will grant our administrative appeal, and the FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our pending applications at any time. More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA’s priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry.

In addition, the impact from COVID- has affected our supply chain, and if disruptions from the COVID- outbreak persist and are prolonged, it will continue to have an adverse impact on our business.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Use of Estimates

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

F-8

Fair Value of Financial Instruments

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

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

Revenue Recognition

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

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

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

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. We determine the allowance for doubtful accounts by regularly evaluating historical customer information and individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and establish an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2022 and 2021, the allowance for bad debt totaled $158,000 and $109,000, respectively.

F-9

Inventories

Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2022 and 2021, the reserve for excess and obsolete inventories totaled $733,000 and $156,000, respectively.

Plant, Property and Equipment

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

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

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

Leases

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

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

Stock-Based Compensation

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

Income Taxes

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

F-10

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

Research and Development

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

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

The following table disaggregates revenue from our single operating segment by geographic market and customer type for the periods ending December 31, 2022 and 2021, respectively:

	December 31, 2022			December 31, 2021
Geographic Market
International		16	%		17	%
United States		84	%		83	%
Customer Type
Retailer		30	%		38	%
Distribution		70	%		62	%

Recently Issued Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments

In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. On January 1, 2021, the Company adopted this standard without any material impact on its consolidated financial statements and related disclosures.

F-11

Debt – Debt with conversion and Other Options

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for the Company on December 1, 2022, Early adoption is permitted, but no earlier than December 1, 2021. The Company elected to early adopt this guidance on January 1, 2022 with no impact on its consolidated financial statements and related disclosures.

Earnings per Share

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. On October 1, 2022, the Company adopted this standard with no impact on its consolidated financial statements and related disclosures.

NOTE 3 – FAIR VALUE MEASUREMENTS

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

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

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

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

F-12

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2022 and 2021 (amounts in thousands):

	Fair Value at December 31, 2022
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability – Warrants		629		-		-		629
Total liabilities	$	629	$	-	$	-	$	629

	Fair Value at December 31, 2021
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability – Warrants		899		-		-		899
Total liabilities	$	899	$	-	$	-	$	899

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2022 and 2021.

The following table presents changes in Level 3 liabilities measured at fair value for the years ended December 31, 2022 and 2021. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (amounts in thousands).   

	Derivative liability - Warrants
Balance at January 1, 2021		4,444
Change in fair value		(3,545	)
Balance at December 31, 2021		899
Change in fair value		(270	)
Balance at December 31, 2022	$	629

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in the Monte Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of December 31, 2022 and 2021 is as follows:

Warrant Liability
	December 31,			December 31,
	2022			2021
Exercise price	$	0.4431		$	0.4431
Contractual term (years)		1.32			2.32
Volatility (annual)		100.0	%		90.0	%
Risk-free rate		4.6	%		0.8	%
Dividend yield (per share)		0	%		0	%

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

F-13

NOTE 4 – PROPERTY AND EQUIPMENT

Property and Equipment detail as of December 31, 2022, and 2021 are as follows (amounts in thousands):

PP&E
	December 31,			December 31,
	2022			2021			Estimated Useful Life (in years)
Machinery and equipment	$	41		$	42		5
Trade show booth		202			171		5
Office equipment		539			511		5
Leasehold improvements		254			380		Lesser of lease term or estimated useful life
		1,036			1,104
Accumulated depreciation		(725	)		(673	)
	$	311		$	431

Depreciation and amortization expense totaled $296,000 and $210,000, respectively, during the years ended December 31, 2022 and 2021.

NOTE 5 – CONCENTRATIONS

Vendors

The Company’s concentration of purchases are as follows:

	For the years ended
	December 31,
	2022			2021
Vendor A		40	%		42	%
Vendor B		36	%		31	%

During the year ended December 31, 2022, purchases from two vendors represented 76% of total inventory purchases. During the year ended December 31, 2021, purchases from the same two vendors represented 73% of total inventory purchases.

As of December 31, 2022, and 2021, amounts owed to these vendors totaled $200,000 and $1,494,000 respectively, which are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

F-14

Accounts Receivable

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

	For the years ended
	December 31,
	2022			2021
Customer A		15	%		27	%
Customer B		11	%		-

Two customers made up more than 10% of net accounts receivable at December 31, 2022 and 2021. Customer A owed the Company a total of $184,000, representing 15% of net receivables at December 31, 2022. Customer B owed the Company a total of $136,000, representing 11% of net receivables at December 31, 2022. Customer A owed the Company a total of $454,000, representing 27% of net receivables at December 31, 2021. No customer exceeded 10% of total net sales for the years ended December 31, 2022 and 2021, respectively.

NOTE 6 – DON POLLY, LLC.

Don Polly, LLC is a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, a former and current executive officer of the Company, respectively, and a consolidated variable interest for which the Company is the primary beneficiary. Don Polly formulates, sells and distributes the Company’s hemp-derived 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 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, we 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 net income, or incurs 100% of the net loss of the VIE. There are no non-controlling interests recorded.

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of December 31, 2022, and 2021 are as follows (amounts in thousands):

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
	December 31,		December 31,
	2022		2021
Accounts payable	$	1,222	$	2,476
Accrued compensation		631		902
Accrued income taxes		137		342
Other accrued expenses		343		348
	$	2,333	$	4,068

F-15

NOTE 8 – NOTES PAYABLE

April 2022 Note Financing

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 is 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 April 28, 2024, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note. Principal shall be payable on the 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining principal balance will be paid. Interest shall accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and shall be payable on the same day as installments of principal are payable. The Company may prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty. All outstanding principal and interest are due earlier of April 28, 2024, or a liquidity event. The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing.

August 2022 Note Financing – Related Party

On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the "Stump Lender") entered into a loan agreement (the “Loan”) in the principal amount of $300,000. The Loan will be due in full in 120 days or sooner if, before the end of term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan bears an annual interest rate of 10%. The Company also incurred additional $3,000 issuance cost resulting from the payment of the Stump Lender’s legal fees. On December 17, 2022, the Company and Stump Lender entered into a modification to the Loan to extend the maturity date to April 16, 2023 and the Company has paid all accrued interest under the Loan through such date. On April 13, 2023, the Company and Stump Lender entered into a second modification to the Loan to extend the maturity date to August 14, 2023.

Economic Injury Disaster Loan

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

F-16

The following summarizes the Company’s notes payable maturities as of December 31, 2022 (amounts in thousands):

Year Ending December 31, 2023		1,300
Year Ending December 31, 2024		-
Year Ending December 31, 2025		-
Year Ending December 31, 2026
Year Ending December 31, 2027
Thereafter		150
Total	$	1,450

NOTE 9 – EARNINGS (LOSS) PER SHARE BASIC AND FULLY DILUTED

Basic (loss) earnings per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the reporting period. Diluted (loss) earnings per common share is computed similar to basic (loss) earnings 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.

For the years ended December 31, 2022, and 2021, net (loss) income is adjusted for gain (loss) from changes in the fair value of warrant liabilities.

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

	For the years ended
	December 31,
	2022			2021
Net (loss) income - basic	$	(1,592	)	$	4,808
Reversal of gain due to change in fair value of warrant liability		-			(3,545	)
Net (loss) income - diluted	$	(1,592	)	$	1,263
Weighted average shares outstanding - basic		212,269,453			203,589,531
Diluted stock options		-			168,309
Diluted warrants		-			1,912,544
Diluted preferred shares		-			32,016,491
Weighted average shares outstanding - diluted		212,269,453			237,686,875
Basic (loss) earnings per share	$	(0.01	)	$	0.02
Diluted (loss) earnings per share	$	(0.01	)	$	0.01

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

	For the years ended
	December 31,
	2022		2021
Options		6,003		6,955
Warrants		40,338		38,425
Total		46,341		45,380

F-17

NOTE 10 – STOCKHOLDERS’ EQUITY

Series A Preferred Share Dividend & Share Waiver

On April 25, 2020, the Company was required to pay a one-time dividend equal to eight percent (8%) of the stated value of its Series A Preferred, equal to $1,650,000 (“Dividend Amount”), which Dividend Amount was required to be paid in cash on or before April 25, 2020.

On August 13, 2020, the Company received a formal notice of default from a holder of its Series A Preferred requesting full payment of dividends due and payable with respect to the Series A Preferred held by such holder on or before August 23, 2020 (“Dividend Default”).

On April 21, 2021, the Company issued a waiver and exchange agreement (“Waiver Agreement”) to shareholders of its Series A Preferred shares (“Stock Payees”) requesting such Stock Payee's respective amount of the dividend payment (each individual Stock Payee's respective amount the "Stock Payee Indebtedness") to be paid in the form of shares of Common Stock (the "Stock Payment") and agreeing to consummate an exchange of such Stock Payee's right to the Stock Payee Indebtedness in cash for shares of Common Stock (the "Exchange"), pursuant to which the entire Stock Payee Indebtedness shall be exchanged for that number of shares of Common Stock (the “Shares”) equal to the total Stock Payee Indebtedness divided by $0.44313.

On May 25, 2021, the Company entered into a Dividend Waiver and Exchange Agreement (the “Exchange Agreement”), between the Company and the holders (the “Series A Holders”) of its Series A Convertible Preferred Stock, par value $0.001 (“Series A Preferred”), pursuant to which the Company paid to the Series A Holders total consideration of approximately $1,650,000 (the “Dividend Amount”), which Dividend Amount was paid in the form of 1,736,501 shares of the Company’s common stock, par value $0.001 (“Common Stock”), valued at $0.44313 per share (the “Shares”), and approximately $880,000 in cash.

During the year ended December 31, 2021, the Company incurred an additional $3,000 dividend payment in order to fully satisfy the Series A Preferred dividend.

As of December 31, 2021, all dividend liability has been satisfied, which is reflected on the Company’s consolidated balance sheet.

Conversion of Series A Preferred Shares

For the year ended December 31 2022, the Company issued approximately 1,907,000 shares of Common Stock upon conversion of 8,450 shares of Series A Preferred. For the year ended December 31, 2021, the Company issued approximately 13,977,000 shares of Common Stock upon conversion of 61,937 shares of Series A Preferred.

March 2021 Private Placement

On March 19, 2021, the Company entered into Securities Purchase Agreements by and between the Company and certain family trusts in which Mr. Brandon Stump and Mr. Ryan Stump, the Company's former Chief Executive Officer and Chief Operating Officer, respectfully, are trustees and beneficiaries (the "Purchase Agreements"), for the private placement of an aggregate of 3,517,000 shares of its common stock, par value $0.001 ("Common Stock"), at a purchase price per share of $0.853 (the "Private Placement"), which Private Placement was consummated on March 22, 2021. The Private Placement resulted in gross proceeds to the Company of approximately $3.0 million. The Private Placement was undertaken pursuant to Rule 506 promulgated under the Securities Act of 1933, as amended, and was consummated in a transaction approved by the Company's independent directors in accordance with Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, as amended.

NOTE 11 – 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 “2019 Plan Amendment”). Furthermore, the Company received written consents approving the 2019 Plan Amendment from holders of approximately 50.3% of our outstanding voting securities. In accordance with Rule 14c of the Exchange Act, our Board of Directors’ authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders.

F-18

Non-Qualified Stock Options

The following table summarizes stock option activities during the year ended December 31, 2022 and 2021 (all option amounts are in thousands):

Options
	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at January 1, 2021		7,503		$	0.54		8.5	$	-
Options granted		80			0.44		10.0		-
Options forfeited/expired		(460	)		0.44		-		-
Outstanding at December 31, 2021		7,123			0.54		7.5	$	-
Options forfeited/expired		(1,120	)		0.44		-		-
Outstanding at December 31, 2022		6,003		$	0.56		6.4	$	-
Options vested and exercisable at December 31, 2022		5,986		$	0.56		6.4	$	-

During the year ended December 31, 2022, no options were granted and 1,120,000 were forfeited under the 2019 Plan. During the year ended December 31, 2021, 80,000 options were granted and 460,000 were forfeited under the 2019 Plan. During the year ended December 31, 2021, the fair value of options granted on the issuance date totaled approximately $12,000 based on the following weighted average assumptions:

	For the years ended
	December 31,
	2021
Exercise price	$	0.4431
Contractual term (years)		6.00
Volatility (annual)		85.0	%
Risk-free rate		0.9	%
Dividend yield (per share)		0	%

As of December 31, 2022, there was approximately $340 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the 2019 Plan. That cost is expected to be recognized by December 31, 2023. For the year ended December 31, 2022, and 2021, the Company recorded compensation expense of $11,000 and $151,000, respectively, related to the issuance of stock options.

F-19

Common Stock Awards

Prior to the Share Exchange, Charlie’s employees held Member units, which were automatically converted into 71,000 shares of common stock and 69,815 shares of Series B Preferred (or 6.98 million shares of common stock equivalents) due to the effect of the Share Exchange. The 7.1 million shares of common stock vested over a two-year period. The fair value of a share of common stock was $0.32 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recognized the remaining stock-based compensation of approximately $376,000 during the year ended December 31, 2021.

Restricted Stock Awards

The following table summarizes restricted stock awards activities during the years ended December 31, 2022 and 2021 (all share amounts are in thousands).

	Number of Shares			Weighted Average Grant Date Fair Value per Share
Nonvested at January 1, 2021		-		$	-
Restricted stock granted		1,750			0.044
Nonvested at December 31, 2021		1,750			0.044
Restricted stock granted		7,142			0.041
Vested		(1,500	)		-
Forfeited		(776	)		-
Nonvested at December 31, 2022		6,616		$	0.041

During the year ended December 31, 2022, the Company granted approximately 7,142,000 restricted shares (subject to forfeiture) (“RSAs”) to employees, officers and directors 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 RSAs had a grant date fair value of approximately $290,000.

On April 1, 2021, the Board of Directors of the Company entered into an Employment Agreement (the "Agreement") with Henry Sicignano III, MBA, pursuant to which the Company appointed Mr. Sicignano to serve as President of the Company. Pursuant to the Agreement, Mr. Sicignano will serve as President for an initial period of two years, renewable on an annual basis unless earlier terminated by the Company or Mr. Sicignano. Mr. Sicignano was awarded 1,500,000 restricted shares (subject to forfeiture) of the Company. Mr. Sicignano will have all the rights of a shareholder of the Company with respect to voting the 1,500,000 restricted shares awarded under this grant and share adjustments, receipt of dividends (if any) and distributions (if any) on such shares. Restricted Shares, in the amount of 750,000, were no longer subject to forfeiture as of April 1, 2022, with the remaining 750,000 shares still subject to forfeiture until April 1, 2023. Restricted Shares are also subject to additional forfeiture-release features set forth in Addendum A to the Employment Agreement of Henry Sicignano, III, included in the Company’s 8-K filed April 6, 2021. The grant date fair value of the 1,500,000 restricted shares was approximately $65,000.

F-20

On November 1, 2021 (“Grant Date”) the Company granted to Jeff Fox, an Independent Director, 250,000 shares of Common Stock of the Company (“Fox Shares”) pursuant to the 2019 Plan. The grant of the Fox Shares was made in consideration for services rendered by Mr. Fox to the Company. Mr. Fox will have all the rights of a shareholder of the Company with respect to voting the 250,000 restricted shares awarded under this grant and share adjustments, receipt of dividends (if any) and distributions (if any) on such shares. Fox Shares will be subject to forfeiture in 125,000 share increments until the first to occur of the following: (i) each anniversary of the Grant Date; (ii) the event of a change in control of the Company; or (iii) the death, disability, or retirement of Mr. Fox. The fair value of the 250,000 restricted shares was approximately $12,775.

As of December 31, 2022, there was approximately $165,000 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 2.5 years. The Company recorded total stock-based compensation of approximately $150,000 and $26,000 during the years ended December 31, 2022 and 2021 related to the RSAs, respectively.

NOTE 12 - 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 expires in 2024, its warehouse in Santa Ana, California, which was renewed in May 2022 and expires May 2025, its office and warehouse in Denver, Colorado, which expired in May 2022, and its warehouse space in Huntington Beach, California, which was renewed in June 2022. On April 29, 2022, the Company entered into a commercial lease agreement for the Company’s sales and marketing operations in Williamsville, New York (“Williamsville Lease”) with Henry Sicignano Jr., a relative of the Company’s President, Henry Sicignano III. The Williamsville Lease, which became effective on May 1, 2022, has a term of one year and a base rent of $1,650 per month. The Williamsville Lease is considered a modified gross lease and therefore the Company will also be responsible for additional monthly expenses including gas, electricity, and internet. The Williamsville Lease was evaluated and approved by the Company’s Board of Directors.

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

The Company excludes short-term leases having initial terms of 12 months or less from Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company entered into a commercial lease for the Company’s corporate headquarters (the “Lease”) in Costa Mesa, California with Brandon Stump, the Company’s former Chief Executive Officer, Ryan Stump, the Company’s Chief Operating Officer, and Keith Stump, a former member of the Company’s Board of Directors. The Stumps purchased the property that is the subject of the Lease in July 2019. The Lease, which was effective as of September 1, 2019, on a month-to-month basis, was then formalized on November 1, 2019 to have a term of five years and a base rent rate of $22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease. The terms of the Lease were negotiated and approved by the independent members of the Board, and executed by Mr. David Allen, the Company’s former Chief Financial Officer, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. The total amount paid to related parties for the years ended December 31, 2022 and 2021 was $293,536 and $278,040, respectively.

Effective June 1, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025. The renewal was not reflected in the Company’s June 30, 2022 interim financial statements, but was corrected during the quarter ended September 30, 2022. Had it been properly recorded during the quarter ended June 30, 2022, the effect on the Company’s financial statements would have included an additional $429,000 in right-of-use assets, $430,000 in lease liabilities as well as an additional $1,000 in rent expense. The Company performed a thorough assessment to determine the significance of the prior period error and concluded that it was neither quantitatively or qualitatively material to the Company’s financial position, results of operations or cash flows for the quarters ended June 30, 2022 and September 30, 2022.

At December 31, 2022, the Company had operating lease liabilities of approximately $801,000 and right of use assets of approximately $799,000, which were included in the consolidated balance sheet.

F-21

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

	For the years ended
	December 31,
	2022		2021
Operating leases
Operating lease cost	$	480	$	566
Variable lease cost		-		-
Operating lease expense		480		566
Short-term lease rent expense		13		-
Total rent expense	$	493	$	566

	For the years ended
	December 31,
	2022			2021
Operating cash flows from operating leases	$	484		$	456
Right-of-use assets exchanged for operating lease liabilities	$	440		$	-
Weighted-average remaining lease term – operating leases (in years)		2.06			2.38
Weighted-average discount rate – operating leases		12.0	%		12.0	%

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

Year Ending December 31, 2023		449
Year Ending December 31, 2024		385
Year Ending December 31, 2025		75
Total		909
Less present value discount		(108	)
Operating lease liabilities as of December 31, 2022	$	801

Legal proceedings

From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. There are not material pending or threatened legal proceedings at this time.

F-22

NOTE 13- INCOME TAXES

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

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

	As of December 31,
	2022			2021
Current
US Federal	$	(89	)	$	110
US State		(3	)		232
Total current (benefit) provision		(92	)		342
Deferred
US Federal		-			-
US State		-			-
Total deferred (benefit) provision		-			-
Total (benefit) provision for income taxes	$	(92	)	$	342

The tax effects of temporary differences and tax loss carryovers that give rise to significant portions of deferred tax assets and liabilities at December 31, 2022 and 2021 are comprised of the following (in thousands):

	As of December 31,
	2022			2021
Deferred tax assets:
Bad debt	$	50		$	47
Inventory		190			43
Accrued expenses		128			222
Lease liability		218			208
Research and development credits		141			-
Stock compensation		156			255
Net operating loss carryovers		1,642			1,224
Other		7			9
Derivatives		39			56
Total deferred income tax assets		2,571			2,064
Deferred income tax liabilities:
ROU assets		(217	)		(206	)
Fixed assets		(27	)		(18	)
Total deferred income tax liabilities		(244	)		(224	)
Net deferred income tax assets					1,840
Valuation allowance		(2,327	)		(1,840	)
Deferred tax asset, net of allowance	$	-		$	-

The Company recognizes Federal, and state deferred tax assets or liabilities based on the Company's estimate of future tax effects attributable to temporary differences and carryovers. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. As of December 31, 2022, as a result of a three-year cumulative loss and lack of sufficient positive evidence, we concluded that a full valuation allowance was necessary to offset our deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized.

F-23

At December 31, 2022, the Company had federal and state net operating loss carryovers for income tax purposes of approximately $5,704,000 and $7,458,000, respectively. The Federal net operating losses can be carried forward indefinitely but are limited to offsetting only 80% of taxable income each year. The state net operating losses expire at various dates through 2042, if not utilized beforehand.

At December 31, 2022, the Company had federal research and development credit carryovers of approximately $218,000. The federal research credits expire by 2040 if not utilized beforehand.

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

A reconciliation of the statutory income tax rates and the Company's effective tax rate for the years ended December 31, 2022 and December 31, 2021, are as follows:

	Year ended December 31, 2022			Year ended December 31, 2021
Statutory federal income tax rate		21.0	%		21.0	%
Non-taxed loss from VIE		0.0	%		0.0	%
Research credits		13.5	%		0.0	%
State taxes, net of federal tax benefit		5.3	%		3.3	%
Stock compensation		(4.5	)%		10.1	%
Permanent Items		0.1	%		(4.3	)%
Section 382 NOL Adjustments		0.0	%		3.1	%
Derivatives		2.6	%		(11.1	)%
Return to provision adjustments		0.1	%		(2.2	)%
Other		(3.9	)%		(1.3	)%
Change in valuation allowance		(28.8	)%		(12.0	)%
Total effective tax rate		5.4	%		6.6	%

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2022 and December 31, 2021 (in thousands):

	Year ended December 31, 2022		Year ended December 31, 2021
Gross unrecognized tax benefits at the beginning of the year	$	32	$	-
Increases related to current year positions		-		-
Increases related to prior year positions		77		32
Decreases related to prior year positions		-		-
Expiration of unrecognized tax benefits		-		-
Gross unrecognized tax benefits at the end of the year	$	109	$	32

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

The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2022 and December 31, 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

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

F-24

NOTE 14- SUBSEQUENT EVENTS

The Company evaluated subsequent events for their potential impact on the consolidated condensed financial statements and disclosures through the date the consolidated condensed financial statements were available to be issued and determined that, except as set forth below, no subsequent events occurred that were reasonably expected to impact the consolidated condensed financial statements presented herein.

Future Receivables Sale Agreement

On January 19, 2023 the Company entered into a future receivables sale agreement (“Receivables Financing” or “Receivables Financing Agreement”) with Austin Business Finance (“Austin Purchaser”) by which Austin Purchaser purchases from the Company, its future accounts and contract rights arising from the sale of goods or rendition of services to the Company’s customers. The purchase price, as defined by the Receivables Financing Agreement, was $650,000 which was paid to the Company on January 19, 2023, net of a 3% origination fee. The Receivables Financing Agreement requires twenty six equal payments of $29,500 to be paid weekly for a total repayment of $760,500 over the term of the agreement. The Company is eligible for an early repayment discount if the balance paid prior to the July 21, 2023 termination date.

Preferred A Shareholders Consent

The Board of Directors and the holders of a majority of our Series A Preferred approved an amendment (the “Amendment”) to the Company’s Certificate of Designations, Preferences, and Rights of the outstanding shares of Series A Convertible Preferred Stock (the “Certificate of Designations”). The Amendment (i) adds the New York Stock Exchange and the NYSE American markets to the list of national security exchanges that would satisfy the condition in Section 4(b)(i) of the Certificate of Designations which, upon a listing on such exchanges, causes an automatic conversion of the Series A Convertible Preferred Stock into shares of common stock and (ii) increases the amount of Permitted Indebtedness (as defined in the Certificate of Designations) from $2.5 million to an amount not to exceed $6.0 million. The Amendment was effectuated through the filing of the Certificate of Amendment with the Secretary of the State of Nevada on March 29, 2023 and effective on such date.

EX-4.3

Exhibit 4.3

DESCRIPTION OF THE REGISTRANT’S SECURITIES

REGISTERED PURSUANT TO SECTION 12 OF THE

SECURITIES EXCHANGE ACT OF 1934

As of December 31, 2022, Charlies Holdings, Inc. (“we” or “our”) had one class of securities, our common stock, par value $0.001 per share, registered under Section 12 of the Securities Exchange Act of 1934, as amended. The following description of our common stock is a summary and is subject to, and is qualified in its entirety by reference to, the provisions of our Amended and Restated Certificate of Incorporation and our Amended and Restated Bylaws, copies of which are incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 2022.

Our authorized capital stock consists of 500,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par value per share. As of December 31, 2022, 219,163,631 shares of common stock were issued and outstanding and 133,423 shares of Series A Convertible Preferred Stock were issued and outstanding.

Our common stock is traded on the OTCQB Venture Marketplace under the symbol “CHUC”. Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the Company’s stockholders. Holders of common stock are entitled to receive, ratably, any dividends that may be declared by our Board of Directors out of legally available funds, subject to any preferential dividend rights of any outstanding preferred stock. Upon the liquidation, dissolution or winding up of the Company, holders of our common stock are entitled to receive, ratably, the Company’s net assets available after the payment of all debts and other liabilities, and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are also subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock which the Company may designate and issue in the future without further stockholder approval.

EX-10.11

Exhibit 10.11

PROMISSORY NOTE

$1,000,000.00                                                                                           April 6, 2022

THIS PROMISSORY NOTE (this "Note") is a duly authorized and validly issued joint and several promissory note of Charlie's Holdings, Inc., a Nevada corporation (the “Company”), with a principal place of business located at 1007 Brioso Drive, Costa Mesa CA 92627.

FOR VALUE RECEIVED, the Company hereby promises to pay to the order of Michael D. King, an individual ("Lender"), or its successors and assigns (together with Lender, the “Holder”), the principal sum of One Million Dollars ($1,000,000.00) (the “Principal Amount”), together with interest thereon and other amounts payable hereunder at the times and on the dates set forth herein and in any event no later than the Maturity Date.

Capitalized terms used herein without definition have the meanings set forth on Exhibit A hereto, which is incorporated herein by this reference as though set forth herein in full. This Note is subject to the following additional provisions:

Section 1.    Advance of Funds: Conditions to Advance.

(a)    On or substantially concurrently with the Effective Date, the Holder shall advance to the Company by wire of immediately available funds the Principal Amount less any amounts that may be deducted therefrom by agreement between the Holder and the Company or otherwise pursuant to the terms of this Note. The entire Principal Amount shall be deemed to have been advanced on the Effective Date.

(b)    Prior to the Holder having the obligation of making the foregoing advance, the following shall have occurred to the satisfaction of the Holder in its sole discretion (such date being the "Effective Date"): (i) this Note shall have been duly executed and delivered by the Company to the Holder; and (ii) if requested by the Holder, the Company shall have delivered to the Holder true and correct copies of the Company’s organizational documents, resolutions approving the transactions contemplated hereby and under the other Transaction Documents, and current good standing certificates from each jurisdiction requested by the Holder.

Section 2.    Payment of Principal and Interest.

(a)    Payment of Principal. The Principal Amount shall be due and payable in full by the Company to the Holder on the Maturity Date or, if earlier, upon acceleration of this Note in accordance with the terms hereof. Any amount of principal repaid hereunder may not be reborrowed.

(b)    Payment of Interest. From the Effective Date until paid in full, interest on the aggregate outstanding Principal Amount shall accrue at a rate equal to 18% per annum, provided, however, in no event shall the interest paid under the terms of this Note be less than $90,000 (the "Guaranteed Minimum Interest"), which amount shall be the minimum amount due and owing regardless of the duration of the loan evidenced by this Note. The Guaranteed Minimum Interest shall accrue and be fully earned upon the advance by Holder of the loan evidenced by this Note on or substantially concurrently with the Effective Date. The Guaranteed Minimum Interest and any additional accrued interest shall be due and payable by the Company to the Holder on the Maturity Date or, if earlier, upon acceleration of this Note in accordance with the terms hereof. Upon and after the occurrence of an Event of Default (as defined below), then the principal and unpaid interest and unpaid other amounts under this Note shall, at the election of the Holder in its sole and absolute discretion, bear interest at the lesser of a rate equal to 18% per annum or the Maximum Rate (as defined below) (the "Default Rate"). Such interest shall accrue daily commencing on occurrence of such Event of Default until payment in full of the Principal Amount, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made.

(c)    Prepayment. The Company may prepay all or any portion of the Principal Amount, together with all accrued but unpaid interest thereon.

(d)    Payments. Notwithstanding anything to the contrary contained herein or in any other Transaction Document, all payments made by the Company shall be applied to principal, interest, fees and other charges due the Holder hereunder in such order of priority as the Holder shall elect.

(e)    Use of Proceeds. The proceeds of this Note shall be used by the Company for working capital and for general corporate purposes.

Section 3.    Representations and Warranties. The Company hereby represents and warrants to the Holder as follows:

(a)    The Company has been duly formed, is validly existing and is in good standing under the laws of its jurisdiction of formation, is in good standing or duly qualified as a foreign corporation in all jurisdictions where the conduct of its business so requires and where the failure to so qualify could reasonably be expected to have a Material Adverse Effect, and has all requisite power and authority to execute, deliver and perform its obligations under this Note and all other Transaction Documents to which it is a party. Each of this Note and all other Transaction Documents have been duly authorized, executed and delivered by the Company and constitute its legal, valid and binding obligation, enforceable against it in accordance with the terms hereof and thereof except as limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance, or other laws of general application relating to or affecting the enforcement of creditors’ rights generally. The execution, delivery and performance by the Company of this Note and all other Transaction Documents to which it is a party, and the incurrence by it of obligations hereunder and thereunder, do not (i) contravene or conflict with the Company’s certificate of formation, operating agreement or similar governing documents or any law applicable to the Company or other instrument binding on or otherwise affecting the Company, or (ii) give rise to any lien, security interest or other charge or encumbrance (other than in favor of the Holder) upon any of the Company’s properties. No consent or approval of or notice to or filing with any governmental authority or other third party is or will be required on the part of the Company as a condition to the validity or enforceability of this Note or the other Transaction Documents, other than such consents which have been obtained and are in full force and effect, true and complete copies of which have been previously provided to the Holder.

(b)    The Company is in compliance in all material respects with all laws and regulatory requirements to which it or its properties are subject. There is no litigation pending or, to the knowledge of the Company, threatened against the Company. The Company’s principal place of business is at the address set forth at the beginning of this Note. The Company has paid all federal, foreign, state and local taxes required to be paid by it on or prior to the date they were due. All documents, instruments and other written material heretofore or hereafter furnished to the Holder pursuant to the terms of any Transaction Document contain no misstatements of a material fact and do not fail to disclose any material fact and the Company has not failed to disclose to the Holder any material information.

(c)    All financial statements of the Company delivered to Holder, if any, fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. None of such financial reports, as of their date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

Section 4.    Covenants. As long as any portion of this Note remains outstanding, the Company agrees as follows:

(a)    the Company shall comply with its obligations under this Note and the other Transaction Documents;

(b)    the Company shall comply with all applicable laws and duly observe and conform in all material respects to all valid requirements of governmental authorities relating to the conduct of its business or to its properties or assets;

(c)    the Company shall not declare or pay any dividends or make any distributions to any holder(s) of equity interests or other equity security of the Company, or purchase or otherwise acquire for value, directly or indirectly, any equity interests or other equity security of the Company;

(d)    the Company will promptly repay the outstanding balance of the Principal Amount, plus any accrued interest upon the consummation of (i) a merger or consolidation with any other Person (regardless of which Person is the surviving entity); (ii) the sale or dispose of substantially all of its assets other than in the ordinary course of business and for fair equivalent value, or (iii) in any material manner alter its organizational structure or effect a change of entity, without first receiving the prior written consent of the Holder;

(e)    the Company shall promptly pay and discharge, or cause to be paid and discharged, when due and payable, all lawful taxes, assessments and governmental charges or levies imposed upon the income, profits, property or business of the Company; provided, however, that any such tax, assessment, charge or levy need not be paid if the validity thereof shall currently be contested in good faith by appropriate proceedings and if the Company shall have set aside on its books adequate reserves with respect thereto, and provided, further, that the Company will pay all such taxes, assessments, charges or levies forthwith upon the commencement of proceedings to foreclose any Lien which may have attached as security therefor;

(f)    the Company shall maintain in full force and effect its corporate existence, rights and franchises and all licenses and other rights to use property owned or possessed by it and reasonably deemed to be necessary to the conduct of its business;

(g)    the Company shall keep its properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all necessary and proper repairs, renewals, replacements, additions and improvements thereto; and the Company shall at all times comply with each provision of all leases to which it is a party or under which it occupies property;

(h)    the Company shall maintain with financially sound and reputable insurance companies not affiliates of the Company, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons and providing for not less than 30 days’ prior notice to the Holder of termination, lapse or cancellation of such insurance; and

(i)    the Company shall deliver to the Holder or provide access to the Holder, (i) promptly upon the Holder’s request, such books, records, financial statements, tax returns, investment statements, lists of property and accounts, budgets, forecasts or reports as to the Company as the Holder may request, and (ii) immediately upon knowledge of the same, notice of the occurrence of any Event of Default.

Section 5.    Events of Default.

(a)“    Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

i.    any default in the payment of (A) the principal amount of this Note or (B) interest or other amounts owing to the Holder on this Note, as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise);

ii.    the Company shall fail to observe or perform any other covenant or agreement contained in this Note or any other Transaction Document;

iii.    a default or event of default shall occur under any of the Transaction Documents, or the failure or invalidity of any of the Transaction Documents;

iv.    any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder shall be untrue or incorrect in any respect as of the date when made or deemed made;

v.    the Company shall be subject to a Bankruptcy Event;

vi.    the Company shall default on any other obligations under any promissory note, mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement, whether such indebtedness now exists or shall hereafter be created;

vii.    any monetary judgment, writ or similar final process in excess of $100,000 shall be entered or filed against the Company or its property or other assets, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 10 calendar days; or

viii.    a Material Adverse Effect occurs.

(b)    Remedies Upon Event of Default. If any Event of Default occurs, the entire unpaid principal amount of this Note plus all accrued interest and other amounts owing under this Note through the date of acceleration, shall become, at the Holder’s election in its sole and absolute discretion, immediately due and payable upon written notice to the Company, except that, with respect to a default under Section 5(a)(v) above, no such notice shall be required and such acceleration shall be automatic and immediate. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand or protest of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law and the Transaction Documents. Such acceleration may be rescinded and annulled by the Holder at any time prior to payment hereunder and the Holder shall have all rights as the holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 5(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 6.    Miscellaneous.

(a)    Notices. Any and all notices or other communications or deliveries to be provided by the Holder to the Company hereunder shall be delivered to the address of the Company set forth in the first paragraph of this Note. Notices to the Holder shall be delivered to its address at 4995 Rockhaven Drive, Clarence, NY 14032 or such other address as may be designated by the Holder from time to time.

(b)    Absolute Obligation. No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct and unconditional debt obligation of the Company. All payments to be made by the Company hereunder and under the other Transaction Documents shall be made, in lawful money of the United States of America, and without condition or deduction for any counterclaim, defense, recoupment or setoff.

(c)    Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, then the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed.

(d)    Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note or any other Transaction Document shall be governed by and construed and enforced in accordance with the internal laws of the State of California, without regard to the principles of conflict of laws thereof. The Company hereby agrees that it will commence any and all legal proceedings under, with respect to or related to any of the Transaction Documents (whether brought against a party hereto or its respective affiliates, directors, officers, members, employees or agents) only in the state and federal courts sitting in the County of Orange, State of California (the “California Courts”). The Company hereby irrevocably submits to the nonexclusive jurisdiction of the California Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such California Court, or that such California Court is an improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE, THE OTHER TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. If either party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other reasonable costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding. Nothing in this Note or any other Transaction Document shall affect any right that the Holder may otherwise have to bring any action or proceeding relating to this Note or any other Transaction Document against the Company or its properties in the courts of any jurisdiction.

(e)    Costs and Expenses. Each of the Parties shall be responsible for, and shall pay, each of its own costs and expenses, including the fees and expenses of any attorneys, accountants and other experts retained by the Parties, which are expended or incurred by the Parties in connection with the preparation, negotiation or modification of this Note or any other Transaction Document, or any actions taken by the Holder in negotiating any amendment, waiver, consent or release of or under this Note or any other Transaction Document.

(f)    Waiver. Any waiver by the Holder of a breach of any provision of this Note or any other Transaction Document shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note or any other Transaction Document. The failure of the Holder to insist upon strict adherence to any term of this Note or any other Transaction Document on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note or such Transaction Document, as applicable. Any waiver by the Holder must be in writing.

(g)    Severability. If any provision of this Note or any other Transaction Document is invalid, illegal or unenforceable, the balance of this Note or other Transaction Document, as applicable, shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances.

(h)    Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

(i)    Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

(j)    Usury.

i.    To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any claim, action or proceeding that may be brought by the Holder in order to enforce any right or remedy under any Transaction Document; provided that, notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (taking into account any usury exception or exemption available to the Holder, the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Holder with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Holder’s election.

ii.    Without limiting the generality of; the foregoing, it is the intent of Holder and Company that the loan evidenced by this Note comply with the usury exemption set forth in California Corporations Code § 25118(b). In accordance with such Section, Company hereby represents and warrants to Holder the following:

(1) Holder and Company, or any of their respective officers, directors, members, managers or other controlling persons, have a preexisting personal or business relationship.

(2) Holder and Company, by reason of their own business and financial experience or that of their professional advisers, have the capacity to protect their own interests in connection with the transaction.

(k)    Indemnification. The Company will indemnify and hold the Holder harmless from any loss, liability, damages, judgments, and costs of any kind (“Liabilities”) relating to or arising directly or indirectly out of (i) this Note or any other Transaction Document, (ii) any credit extended or committed by the Holder to the Company hereunder, and (iii) any litigation or proceeding related to or arising out of this Note, any such Transaction, Document, or any such credit; provided, however that the Company shall have no obligation to indemnify the Holder for any Liabilities that have arisen as a result of the Holder’s negligence or willful misconduct as determined by a final non-appealable judgment of a court of competent jurisdiction. This indemnity includes but is not limited to attorneys’ fees and expenses. This indemnity extends to the Holder, its affiliates, partners, directors, officers, employees, agents, successors, attorneys, and assigns. This indemnity will survive repayment of the Company’s obligations to the Holder. All sums due to the Holder hereunder shall be due and payable immediately without demand and shall bear interest at the same rate as then applicable to the Principal Amount.

(l)    Successors and Assigns; Assignments and Participations. This Note shall be binding upon and inure to the benefit of the Company and the Holder and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Note or any other Transaction Document without the express written consent of the Holder.

(m)    Counterparts; Electronic Execution. This Note may be executed in any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together, shall constitute but one and the same Note. Delivery of an executed counterpart of this Note by telefacsimile or other electronic method of transmission (including without limitation a PDF attachment) shall be equally as effective as delivery of an original executed counterpart of this Note. The foregoing shall apply to each other Transaction Document mutatis mutandis.

[Signature Page Follows]

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by its duly authorized officer as of the date first above indicated.

"Company"

CHARLIE'S HOLDINGS, INC.,

a Nevada corporation

By:

Name:

Title:

AGREED AND ACKNOWLEDGED:

Michael D. King

EXHIBIT A
(Certain Defined Terms)

“Bankruptcy Event” means any of the following events: (a) the Company commences a case or other proceeding under any Debtor Relief Laws; (b) there is commenced against the Company any case or proceeding under Debtor Relief Laws that is not dismissed within 30 calendar days after commencement; (c) the Company is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered; (d) the Company suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 30 calendar days after such appointment; (e) the Company makes a general assignment for the benefit of creditors; (f) the Company calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or (g) the Company, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the laws of, or are in fact closed in, Orange County, California.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

"Liquidity Event" means any of the following, in each case with respect to either Company (or both) or any of their respective subsidiaries and/or affiliates: (a) the raising of any additional capital by any Company, whether in the form of debt, equity or otherwise, in which Company receives aggregate net cash proceeds therefrom of at least $1,000,000, (b) any merger or consolidation in which any Company is a constituent party, or (c) the sale, transfer, pledge or other disposition of a majority of the equity interests of any Company and/or any of their respective subsidiaries and/or affiliates, or (d) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Company or any subsidiary or affiliate of the Company of all or substantially all the assets of the Company and its subsidiaries and/or affiliates.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Company; (b) a material impairment of the rights and remedies of the Holder under any Transaction Document or of the ability of Company to perform its obligations under any Transaction Document; (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Company of any Transaction Document; or (d) the issuance by any third party lender to the Company of a notice of default on indebtedness in excess of One Hundred Thousand Dollars ($100,000.00).

A-1

"Maturity Date" means the earlier to occur of (a) a Liquidity Event or (b) September 28, 2022.

“Note” means this Promissory Note, as amended, restated, supplemented, extended or otherwise modified from time to time.

“Person” means any individual, firm, corporation, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company, governmental authority or other entity of any kind.

“Transaction Documents” means this Note, and each other instrument, document or agreement now or hereafter executed by the Company in favor of the Holder in connection with this Note, in each case as amended, restated, supplemented, extended or otherwise modified from time to time.

A-2

EX-10.111

Exhibit 10.111

FIRST MODIFICATION TO PROMISSORY NOTE

THIS FIRST MODIFICATION TO PROMISSORY NOTE (this “Modification”) dated April 6, 2022 is entered into by and between Charlie’s Holdings, Inc., a Nevada corporation (the “Company”), and Michael D. King, an individual (“Lender”).

RECITALS

WHEREAS, the Company is currently indebted to Lender pursuant to the terms and conditions of that certain Promissory Note in the stated amount of $1,000,000.00, executed by the Company and payable to the Lender, dated April 6, 2022 (the "Note").

WHEREAS, the Company and the Lender have agreed to extend the maturity date of the Note by six months from September 28, 2022 to March 28, 2023 contingent upon the payment by the Company of all interest accrued under the Note to date.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Note shall be modified as follows:

1.         The definition of “Maturity Date” on Exhibit A of the Note shall be amended and restated as follows:

“Maturity Date” means the earlier to occur of (a) a Liquidity Event or (b) March 28, 2023.

2.         The effectiveness of this Modification shall contingent on the payment by the Company to Lender of all interest accrued under the Note to date. The parties agree that the Company shall be required to pay to the Lender the Guaranteed Interest amount for the new term.

3.         Except as expressly set forth herein, all terms and conditions of the Note remain in full force and effect, without waiver or modification. This Modification and the Note shall be read together, as one document.

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Modification to be effective as of the effective date set forth herein.

EX-10.112

Exhibit 10.112

SECOND MODIFICATION TO PROMISSORY NOTE

THIS SECOND MODIFICATION TO PROMISSORY NOTE (this “Modification”) dated March 28, 2023 is entered into by and between Charlie’s Holdings, Inc., a Nevada corporation (the “Company”), and Michael D. King, an individual (“Lender”).

RECITALS

WHEREAS, the Company is currently indebted to Lender pursuant to the terms and conditions of that certain Promissory Note in the stated amount of $1,000,000.00, executed by the Company and payable to the Lender, dated April 6, 2022, as modified by that certain First Modification to Promissory Note dated September 28, 2022 (as further modified or amended from time to time, the "Note").

WHEREAS, the Company and the Lender have agreed to extend the maturity date of the Note from March 28, 2023 to March 28, 2024 contingent upon the payment by the Company of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note.

NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree that the Note shall be modified as follows:

1.         Sections 2(a), 2(b) and 2(c) of the Note are hereby amended and restated in their entirety to read as follows:

“Section 2.                  Payment of Principal and Interest.

(a) Payment of Principal. Principal shall be payable on the 28^th day of each month in installments as set forth on Schedule 1 attached hereto and incorporated herein by this reference, commencing April 28, 2023, and continuing up to and including February 28, 2024. Any remaining unpaid Principal Amount shall be due and payable in full by the Company to the Holder on the Maturity Date or, if earlier, upon acceleration of this Note in accordance with the terms hereof. Any amount of principal repaid hereunder may not be reborrowed.

(b) Payment of Interest. 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 under this Note as set forth on Schedule 1 attached hereto and incorporated herein by this reference, commencing April 28, 2023. Upon and after the occurrence of an Event of Default (as defined below), then the principal and unpaid interest and unpaid other amounts under this Note shall, at the election of the Holder in its sole and absolute discretion, bear interest at the lesser of a rate equal to 24% per annum or the Maximum Rate (as defined below) (the "Default Rate"). Such interest shall accrue daily commencing on occurrence of such Event of Default until payment in full of the Principal Amount, together with all accrued and unpaid interest and other amounts which may become due hereunder, has been made.

(c)         Prepayment. 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.

2.         Section 5(a)(i) of the Note is hereby amended and restated in its entirety to read as follows:

“i.         Failure to pay within seven (7) calendar days as and when the same shall become due and payable (whether on the Maturity Date or by acceleration or otherwise) (A) the principal amount of this Note or (B) interest or other amounts owing to the Holder on this Note;”

3.         The definition of “Maturity Date” on Exhibit A of the Note shall be amended and restated as follows:

“Maturity Date” means the earlier to occur of (a) a Liquidity Event or (b) March 28, 2024.

4.         The Note is hereby amended to add the attached Schedule 1 as “Schedule 1” to the Note.

5.         The effectiveness of this Modification shall be contingent on the payment by the Company to Lender of all interest accrued under the Note through March 28, 2023, which the parties agree is $90,000.

6.         Except as expressly set forth herein, all terms and conditions of the Note remain in full force and effect, without waiver or modification. This Modification and the Note shall be read together, as one document.

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Modification to be effective as of the effective date set forth herein.

Michael D. King	Charlie’s Holdings, Inc., a Nevada corporation
	By:
	Name:
	Title:

SCHEDULE A

EX-10.12

Exhibit 10.12

EXHIBIT A

EX-10.121

Exhibit 10.121

TO: Charlie’s Holdings, Inc. Board of Directors

FROM: Ryan Stump, Director and Chief Operating Officer

DATE: December 17, 2022

RE: CHUC Loan Amendment

On August 19, 2022 Charlie’s Board of Directors approved a related party loan of $300,000 from Ryan Stump to Charlie’s Holdings, Inc. Prior to the note’s due date of December 17, 2022, I approved a 120 day extension under the existing terms and conditions outlined below. Interest is still to be paid monthly at $2,500 per month (10% annualized). The new due date for the note is on or before April 16, 2023.

In consideration of the Company’s desire to expedite the introduction of the Pinweel family brand of products, I propose that I assist the Company in financing the project by lending the needed capital under the following terms and conditions:

● Lend three hundred thousand dollars ($300,000) to the Company.

● The Note will be due and payable in full in one hundred and twenty (120) days or sooner if, before the end of the term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds.

● Interest to be paid monthly at a 10% annualized rate (i.e. $2,500 per month).

● To cover my own legal expenses, an additional loan origination fee of $3,000.00 will be paid by the Company upon receipt of the loan.

● The loan will be secured by the Company’s inventory.

● The Company will provide Ryan Stump with documentation showing use of proceeds for Pinweel branded projects

EX-10.122

Exhibit 10.122

TO: Charlie’s Holdings, Inc. Board of Directors

FROM: Ryan Stump, Director and Chief Operating Officer

DATE: April 13, 2023

RE: CHUC Loan Amendment

On August 19, 2022 Charlie’s Board of Directors approved a related party loan of $300,000 from Ryan Stump to Charlie’s Holdings, Inc. Prior to the note’s due date of April 16, 2023, I approved a 120 day extension under the existing terms and conditions outlined below. Interest is still to be paid monthly at $2,500 per month (10% annualized). The new due date for the note is on or before August 14, 2023.

In consideration of the Company’s desire to expedite the introduction of the Pinweel family brand of products, I propose that I assist the Company in financing the project by lending the needed capital under the following terms and conditions:

● Lend three hundred thousand dollars ($300,000) to the Company.

● The Note will be due and payable in full in one hundred and twenty (120) days or sooner if, before the end of the term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds.

● Interest to be paid monthly at a 10% annualized rate (i.e. $2,500 per month).

● To cover my own legal expenses, an additional loan origination fee of $3,000.00 will be paid by the Company upon receipt of the loan.

● The loan will be secured by the Company’s inventory.

● The Company will provide Ryan Stump with documentation showing use of proceeds for Pinweel branded projects

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF THE REGISTRANT

Name	State or Other Jurisdiction of Incorporation
Charlie’s Chalk Dust, LLC	California

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements (No. 333-252187 and 333-268968) on Forms S‑8 of Charlie's Holdings, Inc. of our report dated April 17, 2023, relating to the consolidated financial statements, appearing in the Annual Report on Form 10‑K of Charlie’s Holdings, Inc. for the year ended December 31, 2022.

/s/ BAKER TILLY US, LLP

Irvine, California

April 17, 2023 

EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A)

I, Henry Sicignano, III, certify that:

1. I have reviewed this report on Form 10-K of Charlie’s Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 17, 2023	/s/ Henry Sicignano III
	Henry Sicignano III  President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER PURSUANT TO EXCHANGE ACT RULE 13A-14(A)

I, Matthew P. Montesano, certify that:

1. I have reviewed this report on Form 10-K of Charlie’s Holdings, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: April 17, 2023	/s/ Matthew P. Montesano
	Matthew P. Montesano   Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. Sec.1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report of Charlie’s Holdings, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2022 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, Henry Sicignano, Chief Executive Officer and President, certifies, to his best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: April 17, 2023	/s/ Henry Sicignano III
	Henry Sicignano III  President (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. Sec.1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Annual Report of Charlie’s Holdings, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2022 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, Matthew P. Montesano, Principal Executive and Principal Financial and Accounting Officer of the Company, certifies, to his best knowledge and belief, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: April 17, 2023	/s/ Matthew P. Montesano
	Matthew P. Montesano   Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2022	Apr. 17, 2023	Jun. 30, 2022
Document Information [Line Items]
Document Type	10-K
Document Annual Report	true
Document Period End Date	Dec. 31, 2022
Document Transition Report	false
Entity File Number	001-32420
Entity Registrant Name	CHARLIE’S HOLDINGS, INC.
Entity Incorporation, State or Country Code	NV
Entity Tax Identification Number	84-1575085
Entity Address, Address Line One	1007 Brioso Drive
Entity Address, City or Town	Costa Mesa
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	92627
City Area Code	949
Local Phone Number	531-6855
Title of 12(b) Security	Common Stock ($0.001 par value)
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Interactive Data Current	Yes
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Public Float			$ 8
Entity Common Stock, Shares Outstanding (in shares)		224,112,168
Auditor Firm ID	23
Auditor Name	Baker Tilly US LLP
Auditor Location	Irvine, California
Entity Central Index Key	0001134765
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2022	Dec. 31, 2021
Current assets:
Cash	$ 257,000	$ 866,000
Accounts receivable, net	1,161,000	1,368,000
Inventories, net	3,652,000	5,005,000
Prepaid expenses and other current assets	780,000	755,000
Total current assets	5,850,000	7,994,000
Non-current assets:
Property, plant and equipment, net	311,000	431,000
Right-of-use asset, net	799,000	755,000
Other assets	101,000	68,000
Total non-current assets	1,211,000	1,254,000
TOTAL ASSETS	7,061,000	9,248,000
Current liabilities:
Accounts payable and accrued expenses	2,333,000	4,068,000
Note payable	1,000,000	0
Note payable, net - related party	300,000	0
Derivative liability	629,000	899,000
Lease liabilities	373,000	329,000
Deferred revenue	148,000	238,000
Total current liabilities	4,783,000	5,534,000
Non-current liabilities:
Notes payable, net of current portion	150,000	150,000
Lease liabilities, net of current portion	428,000	433,000
Total non-current liabilities	578,000	583,000
Total liabilities	5,361,000	6,117,000
Stockholders' equity (deficit):
Common stock ($0.001 par value); 500,000,000 shares authorized; 219,163,631 and 210,890,930 shares issued and outstanding as of December 31, 2022 and 2021, respectively	219,000	211,000
Additional paid-in capital	7,928,000	7,775,000
Accumulated deficit	(6,447,000)	(4,855,000)
Total stockholders' equity	1,700,000	3,131,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	7,061,000	9,248,000
Series A Preferred Stock [Member]
Stockholders' equity (deficit):
Series A, 300,000 shares designated, 133,423 and 141,873 shares issued and outstanding as of December 31, 2022 2021, respectively	0	0
Series B Preferred Stock [Member]
Stockholders' equity (deficit):
Series A, 300,000 shares designated, 133,423 and 141,873 shares issued and outstanding as of December 31, 2022 2021, respectively	$ 0	$ 0

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Consolidated Balance Sheets (Parentheticals) - $ / shares	Dec. 31, 2022	Dec. 31, 2021
Preferred Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized (in shares)	1,800,000	1,800,000
Common Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.001	$ 0.001
Common Stock, Shares Authorized (in shares)	500,000,000	500,000,000
Common Stock, Shares, Outstanding, Ending Balance (in shares)	219,163,631	210,890,930
Common Stock, Shares, Issued (in shares)	219,163,631	210,890,930
Series A Preferred Stock [Member]
Preferred Stock, Shares Authorized (in shares)	300,000	300,000
Preferred Stock, Shares Outstanding, Ending Balance (in shares)	133,423	141,873
Preferred Stock, Shares Issued (in shares)	133,423	141,873
Series B Preferred Stock [Member]
Preferred Stock, Shares Authorized (in shares)	1,500,000	1,500,000
Preferred Stock, Shares Outstanding, Ending Balance (in shares)	0	0
Preferred Stock, Shares Issued (in shares)	0	0

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Consolidated Statements of Operations - USD ($)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Revenues:
Product revenue, net	$ 26,424,000	$ 21,496,000
Operating costs and expenses:
Cost of goods sold - product revenue	16,439,000	10,423,000
General and administrative	8,381,000	8,750,000
Sales and marketing	2,605,000	1,734,000
Research and development	804,000	24,000
Total operating costs and expenses	28,229,000	20,931,000
Income (loss) from operations	(1,805,000)	565,000
Other income (expense):
Interest expense	(155,000)	(34,000)
Change in fair value of derivative liabilities	270,000	3,545,000
Gain on debt extinguishment	0	1,060,000
Other income	6,000	14,000
Total other income	121,000	4,585,000
(Loss) income before income taxes	(1,684,000)	5,150,000
Income taxes (benefit) provision	(92,000)	342,000
Net (loss) income	$ (1,592,000)	$ 4,808,000
Net earnings (loss) per share
Basic (in dollars per share)	$ (0.01)	$ 0.02
Diluted (in dollars per share)	$ (0.01)	$ 0.01
Weighted average number of common shares outstanding
Basic (in shares)	212,269,453	203,589,531
Diluted (in shares)	212,269,453	237,686,875

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Consolidated Statements of Stockholders' Equity (Deficit) - USD ($) shares in Thousands	Preferred Stock [Member] Series A Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Total
Balance at January 1, 2021 (in shares) at Dec. 31, 2020	204	189,907
Balance at January 1, 2021 at Dec. 31, 2020	$ 0	$ 190,000	$ 3,477,000	$ (9,663,000)	$ (5,996,000)
Issuance of common stock to related parties for cash (in shares)	0	3,517
Issuance of common stock to related parties for cash	$ 0	$ 3,000	2,997,000	0	3,000,000
Conversion of Series A convertible preferred stock (in shares)	(62)	13,977
Conversion of Series A convertible preferred stock	$ 0	$ 14,000	(14,000)	0	0
Issuance of common stock for dividend payment (in shares)	0	1,736
Issuance of common stock for dividend payment		$ 2,000	768,000	0	770,000
Accrue dividends payable on Series A convertible preferred stock	$ 0	$ 0	(3,000)	0	(3,000)
Stock compensation (in shares)	0	1,750
Stock compensation	$ 0	$ 2,000	550,000	0	552,000
Fraction shares adjustment due to reverse split (in shares)	0	3
Net income	$ 0	$ 0	0	4,808,000	4,808,000
Balance at December 31, 2021 (in shares) at Dec. 31, 2021	142	210,890
Balance at December 31, 2021 at Dec. 31, 2021	$ 0	$ 211,000	7,775,000	(4,855,000)	3,131,000
Conversion of Series A convertible preferred stock (in shares)	(9)	1,907
Conversion of Series A convertible preferred stock	$ 0	$ 2,000	(2,000)	0	0
Stock compensation (in shares)	0	6,366
Stock compensation	$ 0	$ 6,000	155,000	0	161,000
Net income	$ 0	$ 0	0	(1,592,000)	(1,592,000)
Balance at December 31, 2021 (in shares) at Dec. 31, 2022	133	219,163
Balance at December 31, 2021 at Dec. 31, 2022	$ 0	$ 219,000	$ 7,928,000	$ (6,447,000)	$ 1,700,000

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Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Cash Flows from Operating Activities:
Net income	$ (1,592,000)	$ 4,808,000
Reconciliation of net income to net cash used in operating activities:
Allowance for doubtful accounts	269,000	109,000
Depreciation and amortization	296,000	210,000
Accretion of debt discount	3,000	0
Loss on disposal of fixed assets	13,000	0
Change in fair value of derivative liabilities	(270,000)	(3,545,000)
Amortization of operating lease right-of-use asset	396,000	445,000
Stock based compensation	161,000	552,000
Gain from debt extinguishment	0	(1,060,000)
Subtotal of non-cash charges	868,000	(3,289,000)
Changes in operating assets and liabilities:
Accounts receivable	(62,000)	(219,000)
Inventories	1,353,000	(3,412,000)
Prepaid expenses and other current assets	20,000	(305,000)
Other assets	(33,000)	3,000
Accounts payable and accrued expenses	(1,783,000)	1,553,000
Deferred revenue	(90,000)	(30,000)
Lease liabilities	(401,000)	(456,000)
Net cash used in operating activities	(1,720,000)	(1,347,000)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment	(189,000)	(110,000)
Net cash used in investing activities	(189,000)	(110,000)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock to related parties	0	3,000,000
Proceeds from issuance of notes payable	1,000,000	184,000
Proceeds from issuance of note payable to related party	300,000	0
Repayment of notes payable	0	(1,400,000)
Dividend payment	0	(883,000)
Net cash provided by financing activities	1,300,000	901,000
Net decrease in cash	(609,000)	(556,000)
Cash, beginning of the year	866,000	1,422,000
Cash, end of the year	257,000	866,000
Supplemental disclosure of cash flow information
Cash paid for interest	90,000	150,000
Cash paid for interest to related party	10,000	0
Cash paid for income taxes	106,000	0
Conversion of Series A convertible preferred stock	2,000	14,000
Issuance of common stock for dividend payment	0	770,000
Recognize minimum accrued interest	$ 45,000	$ 0

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Note 1 - Description of the Business and Basis of Presentation

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries and consolidated variable interest entity (collectively, the “Company”, “we”), currently formulates, markets and distributes premium, non-combustible nicotine-related products, alternative alkaloid vapor products, and hemp-derived vapor and edible 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 more than 80 countries worldwide. The Company’s primary international markets include the United Kingdom, Italy, Spain, New Zealand, Australia, and Canada.

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 products containing cannabinoids derived from hemp.

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

Reverse Stock Split

The Company’s Board of Directors approved a reverse stock split of the Company’s authorized, issued and outstanding shares of Common Stock, par value $0.001 per share, at a ratio of 1-for-100 (the “Reverse Split”). The Reverse Split was effective as of June 16, 2021 (the “Effective Date”). All share and per share amounts in the Form 10-K have been retroactively adjusted to account for the reverse stock split.

Basis of Presentation

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

Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management’s plan of operation

The accompanying 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 obtain approval from the United States Food and Drug Administration ("FDA") to continue selling and marketing certain of products used for the vaporization of nicotine in the United States. Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA. There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application. For the year ended December 31, 2022, the Company generated a loss from operations of approximately $1,805,000, and a consolidated net loss of approximately $1,592,000 and used cash in operations of approximately $1,720,000. The Company had stockholders’ equity of $1,700,000 at December 31, 2022. During the year ended December 31, 2022, the Company’s working capital requirements continued to evolve as current assets decreased to $5,850,000 from $7,994,000 as of December 31, 2021 and currently liabilities decreased to $4,783,000 from $5,534,000 as of December 31, 2021. Considering these facts, the issuance of one or several MDOs from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables and potentially require us to remove products from circulation. These regulatory risks, as well as other industry-specific challenges, our low working capital and cash position remain factors that raise substantial doubt about the Company’s ability to continue as a going concern.

Management's plans depend on its ability to increase revenues, procure cost-effective financing, and continue its business development efforts, including the expenditure of approximately $5.1 million to date, to support the Pre-Market Tobacco Application (“PMTA”) process for the Company’s submissions to the FDA. The Company has undergone cost-cutting measures including salary reductions of up to 25% for officers and certain managers and a reduction in headcount for certain departments. During 2023, we also plan to launch additional products that are not subject to FDA review or covered under the Agriculture Improvement Act (the “Farm Bill”). The Company may require additional financing in the future to support 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.

Risks and Uncertainties

The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state, and local levels. In addition, in June 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 submissions; however, there is no assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which could have a significant impact on our sales. On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. These regulations make the Company’s synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. As such, the Company was required to file a PMTA for its existing synthetic nicotine products marketed under the Pacha brands by May 14, 2022 or be subject to FDA enforcement. The Company filed new PMTAs, for its synthetic Pacha products on May 13, 2022, prior to the May 14, 2022 deadline. On November 3, 2022, FDA accepted for scientific review certain of our PMTAs for synthetic nicotine products and, on November 4, 2022, FDA refused to accept certain other PMTAs for these products, rendering the latter products subject to FDA enforcement. The Company submitted an administrative appeal with FDA regarding its refusal to accept certain of the PMTAs, and has resubmitted PMTAs for, and continues to sell, the affected synthetic nicotine products while the administrative appeal process is pending. There can be no guarantee that FDA will grant our administrative appeal, and the FDA may bring an enforcement action against our synthetic nicotine products for lack of premarket authorization and/or issue an MDO to our pending applications at any time. More generally, FDA’s regulatory initiatives and enforcement priorities regarding ENDS products are unpredictable and continue to evolve, and we cannot predict whether FDA’s priorities and review of our premarket submissions will impact our products to a greater degree than our competitors in the industry.

In addition, the impact from COVID- has affected our supply chain, and if disruptions from the COVID- outbreak persist and are prolonged, it will continue to have an adverse impact on our business.

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Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

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

Use of Estimates

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

Fair Value of Financial Instruments

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

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

Revenue Recognition

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

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

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

Cash and Cash Equivalents

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

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. We determine the allowance for doubtful accounts by regularly evaluating historical customer information and individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and establish an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2022 and 2021, the allowance for bad debt totaled $158,000 and $109,000, respectively.

Inventories

Inventories primarily consist of finished goods and are stated at the lower of cost (determined by the average cost method) or net realizable value. We calculate estimates of excess and obsolete inventories determined primarily by reviewing inventory on hand, historical sales activity, industry trends and expected net realizable value. As of December 31, 2022 and 2021, the reserve for excess and obsolete inventories totaled $733,000 and $156,000, respectively.

Plant, Property and Equipment

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

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

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

Leases

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

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

Stock-Based Compensation

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

Income Taxes

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

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

Research and Development

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

Segments

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.

The following table disaggregates revenue from our single operating segment by geographic market and customer type for the periods ending December 31, 2022 and 2021, respectively:

	December 31, 2022			December 31, 2021
Geographic Market
International		16	%		17	%
United States		84	%		83	%
Customer Type
Retailer		30	%		38	%
Distribution		70	%		62	%

Recently Issued Accounting Pronouncements

Measurement of Credit Losses on Financial Instruments

In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. On January 1, 2021, the Company adopted this standard without any material impact on its consolidated financial statements and related disclosures.

Debt – Debt with conversion and Other Options

In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for the Company on December 1, 2022, Early adoption is permitted, but no earlier than December 1, 2021. The Company elected to early adopt this guidance on January 1, 2022 with no impact on its consolidated financial statements and related disclosures.

Earnings per Share

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. On October 1, 2022, the Company adopted this standard with no impact on its consolidated financial statements and related disclosures.

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Note 3 - Fair Value Measurements

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 3 – FAIR VALUE MEASUREMENTS

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

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

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

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

The following table classifies the Company’s liabilities measured at fair value on a recurring basis into the fair value hierarchy as of December 31, 2022 and 2021 (amounts in thousands):

	Fair Value at December 31, 2022
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability – Warrants		629		-		-		629
Total liabilities	$	629	$	-	$	-	$	629

	Fair Value at December 31, 2021
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability – Warrants		899		-		-		899
Total liabilities	$	899	$	-	$	-	$	899

There were no transfers between Level 1, 2 or 3 during the years ended December 31, 2022 and 2021.

The following table presents changes in Level 3 liabilities measured at fair value for the years ended December 31, 2022 and 2021. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with liabilities within the Level 3 category include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long- dated volatilities) inputs (amounts in thousands).   

	Derivative liability - Warrants
Balance at January 1, 2021		4,444
Change in fair value		(3,545	)
Balance at December 31, 2021		899
Change in fair value		(270	)
Balance at December 31, 2022	$	629

A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in the Monte Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of December 31, 2022 and 2021 is as follows:

Warrant Liability
	December 31,			December 31,
	2022			2021
Exercise price	$	0.4431		$	0.4431
Contractual term (years)		1.32			2.32
Volatility (annual)		100.0	%		90.0	%
Risk-free rate		4.6	%		0.8	%
Dividend yield (per share)		0	%		0	%

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

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Note 4 - Property and Equipment

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

NOTE 4 – PROPERTY AND EQUIPMENT

Property and Equipment detail as of December 31, 2022, and 2021 are as follows (amounts in thousands):

PP&E
	December 31,			December 31,
	2022			2021			Estimated Useful Life (in years)
Machinery and equipment	$	41		$	42		5
Trade show booth		202			171		5
Office equipment		539			511		5
Leasehold improvements		254			380		Lesser of lease term or estimated useful life
		1,036			1,104
Accumulated depreciation		(725	)		(673	)
	$	311		$	431

Depreciation and amortization expense totaled $296,000 and $210,000, respectively, during the years ended December 31, 2022 and 2021.

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Note 5 - Concentrations

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

NOTE 5 – CONCENTRATIONS

Vendors

The Company’s concentration of purchases are as follows:

	For the years ended
	December 31,
	2022			2021
Vendor A		40	%		42	%
Vendor B		36	%		31	%

During the year ended December 31, 2022, purchases from two vendors represented 76% of total inventory purchases. During the year ended December 31, 2021, purchases from the same two vendors represented 73% of total inventory purchases.

As of December 31, 2022, and 2021, amounts owed to these vendors totaled $200,000 and $1,494,000 respectively, which are included in accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Accounts Receivable

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

	For the years ended
	December 31,
	2022			2021
Customer A		15	%		27	%
Customer B		11	%		-

Two customers made up more than 10% of net accounts receivable at December 31, 2022 and 2021. Customer A owed the Company a total of $184,000, representing 15% of net receivables at December 31, 2022. Customer B owed the Company a total of $136,000, representing 11% of net receivables at December 31, 2022. Customer A owed the Company a total of $454,000, representing 27% of net receivables at December 31, 2021. No customer exceeded 10% of total net sales for the years ended December 31, 2022 and 2021, respectively.

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Note 6 - Don Polly, LLC.

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Variable Interest Entity Disclosure [Text Block]

NOTE 6 – DON POLLY, LLC.

Don Polly, LLC is a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, a former and current executive officer of the Company, respectively, and a consolidated variable interest for which the Company is the primary beneficiary. Don Polly formulates, sells and distributes the Company’s hemp-derived 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 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, we 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 net income, or incurs 100% of the net loss of the VIE. There are no non-controlling interests recorded.

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Note 7 - Accounts Payable and Accrued Expenses

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses as of December 31, 2022, and 2021 are as follows (amounts in thousands):

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
	December 31,		December 31,
	2022		2021
Accounts payable	$	1,222	$	2,476
Accrued compensation		631		902
Accrued income taxes		137		342
Other accrued expenses		343		348
	$	2,333	$	4,068

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Note 8 - Notes Payable

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Debt Disclosure [Text Block]

NOTE 8 – NOTES PAYABLE

April 2022 Note Financing

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 is 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 April 28, 2024, contingent upon the payment of all interest accrued under the Note through March 28, 2023 and certain other modifications to the Note. Principal shall be payable on the 28th day of each month in installments of $25,000, commencing April 28, 2023, continuing up to and including April 28, 2024 whereby a balloon payment for the remaining principal balance will be paid. Interest shall accrue on the aggregate outstanding principal amount at a rate equal to 20% simple interest per annum and shall be payable on the same day as installments of principal are payable. The Company may prepay all or any portion of the principal amount, together with all accrued but unpaid interest thereon, at any time without premium or penalty. All outstanding principal and interest are due earlier of April 28, 2024, or a liquidity event. The Company used the proceeds from the Note for general corporate purposes, and its working capital requirements, pending the availability of alternative debt financing.

August 2022 Note Financing – Related Party

On August 17, 2022, the Company and its Chief Operating Officer and Director, Ryan Stump (the "Stump Lender") entered into a loan agreement (the “Loan”) in the principal amount of $300,000. The Loan will be due in full in 120 days or sooner if, before the end of term, the Company secures (i) new debt financing or (ii) sufficient PMTA strategic partnership funds. The Loan bears an annual interest rate of 10%. The Company also incurred additional $3,000 issuance cost resulting from the payment of the Stump Lender’s legal fees. On December 17, 2022, the Company and Stump Lender entered into a modification to the Loan to extend the maturity date to April 16, 2023 and the Company has paid all accrued interest under the Loan through such date. On April 13, 2023, the Company and Stump Lender entered into a second modification to the Loan to extend the maturity date to August 14, 2023.

Economic Injury Disaster Loan

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

The following summarizes the Company’s notes payable maturities as of December 31, 2022 (amounts in thousands):

Year Ending December 31, 2023		1,300
Year Ending December 31, 2024		-
Year Ending December 31, 2025		-
Year Ending December 31, 2026
Year Ending December 31, 2027
Thereafter		150
Total	$	1,450

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Note 9 - Earnings (Loss) Per Share Basic and Fully Diluted

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE 9 – EARNINGS (LOSS) PER SHARE BASIC AND FULLY DILUTED

Basic (loss) earnings per common share is computed by dividing net (loss) income by the weighted average number of common shares outstanding during the reporting period. Diluted (loss) earnings per common share is computed similar to basic (loss) earnings 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.

For the years ended December 31, 2022, and 2021, net (loss) income is adjusted for gain (loss) from changes in the fair value of warrant liabilities.

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

	For the years ended
	December 31,
	2022			2021
Net (loss) income - basic	$	(1,592	)	$	4,808
Reversal of gain due to change in fair value of warrant liability		-			(3,545	)
Net (loss) income - diluted	$	(1,592	)	$	1,263
Weighted average shares outstanding - basic		212,269,453			203,589,531
Diluted stock options		-			168,309
Diluted warrants		-			1,912,544
Diluted preferred shares		-			32,016,491
Weighted average shares outstanding - diluted		212,269,453			237,686,875
Basic (loss) earnings per share	$	(0.01	)	$	0.02
Diluted (loss) earnings per share	$	(0.01	)	$	0.01

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

	For the years ended
	December 31,
	2022		2021
Options		6,003		6,955
Warrants		40,338		38,425
Total		46,341		45,380

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Note 10 - Stockholders' Equity

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

NOTE 10 – STOCKHOLDERS’ EQUITY

Series A Preferred Share Dividend & Share Waiver

On April 25, 2020, the Company was required to pay a one-time dividend equal to eight percent (8%) of the stated value of its Series A Preferred, equal to $1,650,000 (“Dividend Amount”), which Dividend Amount was required to be paid in cash on or before April 25, 2020.

On August 13, 2020, the Company received a formal notice of default from a holder of its Series A Preferred requesting full payment of dividends due and payable with respect to the Series A Preferred held by such holder on or before August 23, 2020 (“Dividend Default”).

On April 21, 2021, the Company issued a waiver and exchange agreement (“Waiver Agreement”) to shareholders of its Series A Preferred shares (“Stock Payees”) requesting such Stock Payee's respective amount of the dividend payment (each individual Stock Payee's respective amount the "Stock Payee Indebtedness") to be paid in the form of shares of Common Stock (the "Stock Payment") and agreeing to consummate an exchange of such Stock Payee's right to the Stock Payee Indebtedness in cash for shares of Common Stock (the "Exchange"), pursuant to which the entire Stock Payee Indebtedness shall be exchanged for that number of shares of Common Stock (the “Shares”) equal to the total Stock Payee Indebtedness divided by $0.44313.

On May 25, 2021, the Company entered into a Dividend Waiver and Exchange Agreement (the “Exchange Agreement”), between the Company and the holders (the “Series A Holders”) of its Series A Convertible Preferred Stock, par value $0.001 (“Series A Preferred”), pursuant to which the Company paid to the Series A Holders total consideration of approximately $1,650,000 (the “Dividend Amount”), which Dividend Amount was paid in the form of 1,736,501 shares of the Company’s common stock, par value $0.001 (“Common Stock”), valued at $0.44313 per share (the “Shares”), and approximately $880,000 in cash.

During the year ended December 31, 2021, the Company incurred an additional $3,000 dividend payment in order to fully satisfy the Series A Preferred dividend.

As of December 31, 2021, all dividend liability has been satisfied, which is reflected on the Company’s consolidated balance sheet.

Conversion of Series A Preferred Shares

For the year ended December 31 2022, the Company issued approximately 1,907,000 shares of Common Stock upon conversion of 8,450 shares of Series A Preferred. For the year ended December 31, 2021, the Company issued approximately 13,977,000 shares of Common Stock upon conversion of 61,937 shares of Series A Preferred.

March 2021 Private Placement

On March 19, 2021, the Company entered into Securities Purchase Agreements by and between the Company and certain family trusts in which Mr. Brandon Stump and Mr. Ryan Stump, the Company's former Chief Executive Officer and Chief Operating Officer, respectfully, are trustees and beneficiaries (the "Purchase Agreements"), for the private placement of an aggregate of 3,517,000 shares of its common stock, par value $0.001 ("Common Stock"), at a purchase price per share of $0.853 (the "Private Placement"), which Private Placement was consummated on March 22, 2021. The Private Placement resulted in gross proceeds to the Company of approximately $3.0 million. The Private Placement was undertaken pursuant to Rule 506 promulgated under the Securities Act of 1933, as amended, and was consummated in a transaction approved by the Company's independent directors in accordance with Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, as amended.

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Note 11 - Stock-based Compensation

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

NOTE 11 – 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 “2019 Plan Amendment”). Furthermore, the Company received written consents approving the 2019 Plan Amendment from holders of approximately 50.3% of our outstanding voting securities. In accordance with Rule 14c of the Exchange Act, our Board of Directors’ authority to implement the 2019 Plan Amendment became effective February 28, 2022, twenty calendar days after notification of our shareholders.

Non-Qualified Stock Options

The following table summarizes stock option activities during the year ended December 31, 2022 and 2021 (all option amounts are in thousands):

Options
	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at January 1, 2021		7,503		$	0.54		8.5	$	-
Options granted		80			0.44		10.0		-
Options forfeited/expired		(460	)		0.44		-		-
Outstanding at December 31, 2021		7,123			0.54		7.5	$	-
Options forfeited/expired		(1,120	)		0.44		-		-
Outstanding at December 31, 2022		6,003		$	0.56		6.4	$	-
Options vested and exercisable at December 31, 2022		5,986		$	0.56		6.4	$	-

During the year ended December 31, 2022, no options were granted and 1,120,000 were forfeited under the 2019 Plan. During the year ended December 31, 2021, 80,000 options were granted and 460,000 were forfeited under the 2019 Plan. During the year ended December 31, 2021, the fair value of options granted on the issuance date totaled approximately $12,000 based on the following weighted average assumptions:

	For the years ended
	December 31,
	2021
Exercise price	$	0.4431
Contractual term (years)		6.00
Volatility (annual)		85.0	%
Risk-free rate		0.9	%
Dividend yield (per share)		0	%

As of December 31, 2022, there was approximately $340 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the 2019 Plan. That cost is expected to be recognized by December 31, 2023. For the year ended December 31, 2022, and 2021, the Company recorded compensation expense of $11,000 and $151,000, respectively, related to the issuance of stock options.

Common Stock Awards

Prior to the Share Exchange, Charlie’s employees held Member units, which were automatically converted into 71,000 shares of common stock and 69,815 shares of Series B Preferred (or 6.98 million shares of common stock equivalents) due to the effect of the Share Exchange. The 7.1 million shares of common stock vested over a two-year period. The fair value of a share of common stock was $0.32 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recognized the remaining stock-based compensation of approximately $376,000 during the year ended December 31, 2021.

Restricted Stock Awards

The following table summarizes restricted stock awards activities during the years ended December 31, 2022 and 2021 (all share amounts are in thousands).

	Number of Shares			Weighted Average Grant Date Fair Value per Share
Nonvested at January 1, 2021		-		$	-
Restricted stock granted		1,750			0.044
Nonvested at December 31, 2021		1,750			0.044
Restricted stock granted		7,142			0.041
Vested		(1,500	)		-
Forfeited		(776	)		-
Nonvested at December 31, 2022		6,616		$	0.041

During the year ended December 31, 2022, the Company granted approximately 7,142,000 restricted shares (subject to forfeiture) (“RSAs”) to employees, officers and directors 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 RSAs had a grant date fair value of approximately $290,000.

On April 1, 2021, the Board of Directors of the Company entered into an Employment Agreement (the "Agreement") with Henry Sicignano III, MBA, pursuant to which the Company appointed Mr. Sicignano to serve as President of the Company. Pursuant to the Agreement, Mr. Sicignano will serve as President for an initial period of two years, renewable on an annual basis unless earlier terminated by the Company or Mr. Sicignano. Mr. Sicignano was awarded 1,500,000 restricted shares (subject to forfeiture) of the Company. Mr. Sicignano will have all the rights of a shareholder of the Company with respect to voting the 1,500,000 restricted shares awarded under this grant and share adjustments, receipt of dividends (if any) and distributions (if any) on such shares. Restricted Shares, in the amount of 750,000, were no longer subject to forfeiture as of April 1, 2022, with the remaining 750,000 shares still subject to forfeiture until April 1, 2023. Restricted Shares are also subject to additional forfeiture-release features set forth in Addendum A to the Employment Agreement of Henry Sicignano, III, included in the Company’s 8-K filed April 6, 2021. The grant date fair value of the 1,500,000 restricted shares was approximately $65,000.

On November 1, 2021 (“Grant Date”) the Company granted to Jeff Fox, an Independent Director, 250,000 shares of Common Stock of the Company (“Fox Shares”) pursuant to the 2019 Plan. The grant of the Fox Shares was made in consideration for services rendered by Mr. Fox to the Company. Mr. Fox will have all the rights of a shareholder of the Company with respect to voting the 250,000 restricted shares awarded under this grant and share adjustments, receipt of dividends (if any) and distributions (if any) on such shares. Fox Shares will be subject to forfeiture in 125,000 share increments until the first to occur of the following: (i) each anniversary of the Grant Date; (ii) the event of a change in control of the Company; or (iii) the death, disability, or retirement of Mr. Fox. The fair value of the 250,000 restricted shares was approximately $12,775.

As of December 31, 2022, there was approximately $165,000 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 2.5 years. The Company recorded total stock-based compensation of approximately $150,000 and $26,000 during the years ended December 31, 2022 and 2021 related to the RSAs, respectively.

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Note 12 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE 12 - 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 expires in 2024, its warehouse in Santa Ana, California, which was renewed in May 2022 and expires May 2025, its office and warehouse in Denver, Colorado, which expired in May 2022, and its warehouse space in Huntington Beach, California, which was renewed in June 2022. On April 29, 2022, the Company entered into a commercial lease agreement for the Company’s sales and marketing operations in Williamsville, New York (“Williamsville Lease”) with Henry Sicignano Jr., a relative of the Company’s President, Henry Sicignano III. The Williamsville Lease, which became effective on May 1, 2022, has a term of one year and a base rent of $1,650 per month. The Williamsville Lease is considered a modified gross lease and therefore the Company will also be responsible for additional monthly expenses including gas, electricity, and internet. The Williamsville Lease was evaluated and approved by the Company’s Board of Directors.

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

The Company excludes short-term leases having initial terms of 12 months or less from Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company entered into a commercial lease for the Company’s corporate headquarters (the “Lease”) in Costa Mesa, California with Brandon Stump, the Company’s former Chief Executive Officer, Ryan Stump, the Company’s Chief Operating Officer, and Keith Stump, a former member of the Company’s Board of Directors. The Stumps purchased the property that is the subject of the Lease in July 2019. The Lease, which was effective as of September 1, 2019, on a month-to-month basis, was then formalized on November 1, 2019 to have a term of five years and a base rent rate of $22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease. The terms of the Lease were negotiated and approved by the independent members of the Board, and executed by Mr. David Allen, the Company’s former Chief Financial Officer, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. The total amount paid to related parties for the years ended December 31, 2022 and 2021 was $293,536 and $278,040, respectively.

Effective June 1, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025. The renewal was not reflected in the Company’s June 30, 2022 interim financial statements, but was corrected during the quarter ended September 30, 2022. Had it been properly recorded during the quarter ended June 30, 2022, the effect on the Company’s financial statements would have included an additional $429,000 in right-of-use assets, $430,000 in lease liabilities as well as an additional $1,000 in rent expense. The Company performed a thorough assessment to determine the significance of the prior period error and concluded that it was neither quantitatively or qualitatively material to the Company’s financial position, results of operations or cash flows for the quarters ended June 30, 2022 and September 30, 2022.

At December 31, 2022, the Company had operating lease liabilities of approximately $801,000 and right of use assets of approximately $799,000, which were included in the consolidated balance sheet.

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

	For the years ended
	December 31,
	2022		2021
Operating leases
Operating lease cost	$	480	$	566
Variable lease cost		-		-
Operating lease expense		480		566
Short-term lease rent expense		13		-
Total rent expense	$	493	$	566

	For the years ended
	December 31,
	2022			2021
Operating cash flows from operating leases	$	484		$	456
Right-of-use assets exchanged for operating lease liabilities	$	440		$	-
Weighted-average remaining lease term – operating leases (in years)		2.06			2.38
Weighted-average discount rate – operating leases		12.0	%		12.0	%

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

Year Ending December 31, 2023		449
Year Ending December 31, 2024		385
Year Ending December 31, 2025		75
Total		909
Less present value discount		(108	)
Operating lease liabilities as of December 31, 2022	$	801

Legal proceedings

From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. There are not material pending or threatened legal proceedings at this time.

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Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Income Tax Disclosure [Text Block]

NOTE 13- INCOME TAXES

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

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

	As of December 31,
	2022			2021
Current
US Federal	$	(89	)	$	110
US State		(3	)		232
Total current (benefit) provision		(92	)		342
Deferred
US Federal		-			-
US State		-			-
Total deferred (benefit) provision		-			-
Total (benefit) provision for income taxes	$	(92	)	$	342

The tax effects of temporary differences and tax loss carryovers that give rise to significant portions of deferred tax assets and liabilities at December 31, 2022 and 2021 are comprised of the following (in thousands):

	As of December 31,
	2022			2021
Deferred tax assets:
Bad debt	$	50		$	47
Inventory		190			43
Accrued expenses		128			222
Lease liability		218			208
Research and development credits		141			-
Stock compensation		156			255
Net operating loss carryovers		1,642			1,224
Other		7			9
Derivatives		39			56
Total deferred income tax assets		2,571			2,064
Deferred income tax liabilities:
ROU assets		(217	)		(206	)
Fixed assets		(27	)		(18	)
Total deferred income tax liabilities		(244	)		(224	)
Net deferred income tax assets					1,840
Valuation allowance		(2,327	)		(1,840	)
Deferred tax asset, net of allowance	$	-		$	-

The Company recognizes Federal, and state deferred tax assets or liabilities based on the Company's estimate of future tax effects attributable to temporary differences and carryovers. The Company records a valuation allowance to reduce any deferred tax assets by the amount of any tax benefits that, based on available evidence and judgment, are not expected to be realized. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. The Company considers projected future taxable income and planning strategies in making this assessment. As of December 31, 2022, as a result of a three-year cumulative loss and lack of sufficient positive evidence, we concluded that a full valuation allowance was necessary to offset our deferred tax assets. We intend to maintain a valuation allowance until sufficient positive evidence exists to support its reversal. The Company will continue to evaluate its deferred tax balances to determine any assets that are more likely than not to be realized.

At December 31, 2022, the Company had federal and state net operating loss carryovers for income tax purposes of approximately $5,704,000 and $7,458,000, respectively. The Federal net operating losses can be carried forward indefinitely but are limited to offsetting only 80% of taxable income each year. The state net operating losses expire at various dates through 2042, if not utilized beforehand.

At December 31, 2022, the Company had federal research and development credit carryovers of approximately $218,000. The federal research credits expire by 2040 if not utilized beforehand.

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

A reconciliation of the statutory income tax rates and the Company's effective tax rate for the years ended December 31, 2022 and December 31, 2021, are as follows:

	Year ended December 31, 2022			Year ended December 31, 2021
Statutory federal income tax rate		21.0	%		21.0	%
Non-taxed loss from VIE		0.0	%		0.0	%
Research credits		13.5	%		0.0	%
State taxes, net of federal tax benefit		5.3	%		3.3	%
Stock compensation		(4.5	)%		10.1	%
Permanent Items		0.1	%		(4.3	)%
Section 382 NOL Adjustments		0.0	%		3.1	%
Derivatives		2.6	%		(11.1	)%
Return to provision adjustments		0.1	%		(2.2	)%
Other		(3.9	)%		(1.3	)%
Change in valuation allowance		(28.8	)%		(12.0	)%
Total effective tax rate		5.4	%		6.6	%

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The following table summarizes the activity related to the Company’s gross unrecognized tax benefits at the beginning and end of the years ended December 31, 2022 and December 31, 2021 (in thousands):

	Year ended December 31, 2022		Year ended December 31, 2021
Gross unrecognized tax benefits at the beginning of the year	$	32	$	-
Increases related to current year positions		-		-
Increases related to prior year positions		77		32
Decreases related to prior year positions		-		-
Expiration of unrecognized tax benefits		-		-
Gross unrecognized tax benefits at the end of the year	$	109	$	32

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

The Company policy is to recognize interest and penalties related to uncertain tax positions as a component of income tax expense. As of December 31, 2022 and December 31, 2021, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statement of operations.

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

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Note 14 - Subsequent Events

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Subsequent Events [Text Block]

NOTE 14- SUBSEQUENT EVENTS

The Company evaluated subsequent events for their potential impact on the consolidated condensed financial statements and disclosures through the date the consolidated condensed financial statements were available to be issued and determined that, except as set forth below, no subsequent events occurred that were reasonably expected to impact the consolidated condensed financial statements presented herein.

Future Receivables Sale Agreement

On January 19, 2023 the Company entered into a future receivables sale agreement (“Receivables Financing” or “Receivables Financing Agreement”) with Austin Business Finance (“Austin Purchaser”) by which Austin Purchaser purchases from the Company, its future accounts and contract rights arising from the sale of goods or rendition of services to the Company’s customers. The purchase price, as defined by the Receivables Financing Agreement, was $650,000 which was paid to the Company on January 19, 2023, net of a 3% origination fee. The Receivables Financing Agreement requires twenty six equal payments of $29,500 to be paid weekly for a total repayment of $760,500 over the term of the agreement. The Company is eligible for an early repayment discount if the balance paid prior to the July 21, 2023 termination date.

Preferred A Shareholders Consent

The Board of Directors and the holders of a majority of our Series A Preferred approved an amendment (the “Amendment”) to the Company’s Certificate of Designations, Preferences, and Rights of the outstanding shares of Series A Convertible Preferred Stock (the “Certificate of Designations”). The Amendment (i) adds the New York Stock Exchange and the NYSE American markets to the list of national security exchanges that would satisfy the condition in Section 4(b)(i) of the Certificate of Designations which, upon a listing on such exchanges, causes an automatic conversion of the Series A Convertible Preferred Stock into shares of common stock and (ii) increases the amount of Permitted Indebtedness (as defined in the Certificate of Designations) from $2.5 million to an amount not to exceed $6.0 million. The Amendment was effectuated through the filing of the Certificate of Amendment with the Secretary of the State of Nevada on March 29, 2023 and effective on such date.

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Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2022

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

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

Use of Estimates, Policy [Policy Text Block]

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

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial InstrumentsU.S. GAAP requires disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. The fair value of derivative liabilities was estimated using a Monte Carlo simulation method, based on both observable and unobservable inputs. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. The Company determined that the carrying amounts of the current portion of outstanding notes payable approximate fair value due to the short-term nature of borrowings and current market interest rates. The Company determined the carrying amounts of the non-current portion of outstanding notes payable approximate fair value due to the current interest rates payable in relation to current market conditions.

Revenue [Policy Text Block]

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

Cash and Cash Equivalents, Policy [Policy Text Block]

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

Accounts Receivable [Policy Text Block]

Accounts ReceivableAccounts receivable are recorded at the invoiced amount and do not bear interest. We determine the allowance for doubtful accounts by regularly evaluating historical customer information and individual customer receivables and considering a customer’s financial condition, credit history and current economic conditions and establish an allowance for doubtful accounts when collection is uncertain. Customers’ accounts are written off against the allowance when all attempts to collect have been exhausted. Recoveries of accounts receivable previously written off are recorded as income when received. As of December 31, 2022 and 2021, the allowance for bad debt totaled $158,000 and $109,000, respectively.

Inventory, Policy [Policy Text Block]

InventoriesInventories 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, 2022 and 2021, the reserve for excess and obsolete inventories totaled $733,000 and $156,000, respectively.

Property, Plant and Equipment, Policy [Policy Text Block]

Plant, Property and EquipmentProperty and equipment are stated at cost. Depreciation and amortization are provided for using the straight-line method, in amounts sufficient to charge the cost of depreciable assets to operations over their estimated service lives. Repairs and maintenance costs are charged to operations as incurred.Costs for capital assets not yet placed into service are capitalized as construction in progress on the consolidated balance sheets and will be depreciated once placed into service.The Company assesses its long-lived assets for impairment whenever facts and circumstances indicate that the carrying amounts may not be fully recoverable. To analyze recoverability, the Company projects undiscounted net future cash flows over the remaining lives of such assets. If these projected undiscounted net future cash flows are less than the carrying amounts, an impairment loss would be recognized, resulting in a write-down of the assets with a corresponding charge to earnings. The impairment loss is measured based upon the difference between the carrying amounts and the fair values of the assets.

Lessee, Leases [Policy Text Block]

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

Share-Based Payment Arrangement [Policy Text Block]

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

Income Tax, Policy [Policy Text Block]

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

F-10

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

Research and Development Expense, Policy [Policy Text Block]

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

Segment Reporting, Policy [Policy Text Block]

SegmentsOperating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business in one operating segment.The following table disaggregates revenue from our single operating segment by geographic market and customer type for the periods ending December 31, 2022 and 2021, respectively:

	December 31, 2022			December 31, 2021
Geographic Market
International		16	%		17	%
United States		84	%		83	%
Customer Type
Retailer		30	%		38	%
Distribution		70	%		62	%

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Accounting PronouncementsMeasurement of Credit Losses on Financial InstrumentsIn June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not believe the impact of adopting this standard will be material to its consolidated financial statements and related disclosures.Income TaxesIn December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. On January 1, 2021, the Company adopted this standard without any material impact on its consolidated financial statements and related disclosures.

F-11

Debt – Debt with conversion and Other OptionsIn August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The ASU is effective for the Company on December 1, 2022, Early adoption is permitted, but no earlier than December 1, 2021. The Company elected to early adopt this guidance on January 1, 2022 with no impact on its consolidated financial statements and related disclosures.Earnings per ShareIn May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. On October 1, 2022, the Company adopted this standard with no impact on its consolidated financial statements and related disclosures.

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Note 2 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Disaggregation of Revenue [Table Text Block]

	December 31, 2022			December 31, 2021
Geographic Market
International		16	%		17	%
United States		84	%		83	%
Customer Type
Retailer		30	%		38	%
Distribution		70	%		62	%

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Note 3 - Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Fair Value, Liabilities Measured on Recurring Basis [Table Text Block]

	Fair Value at December 31, 2022
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability – Warrants		629		-		-		629
Total liabilities	$	629	$	-	$	-	$	629

	Fair Value at December 31, 2021
	Total		Level 1		Level 2		Level 3
Liabilities:
Derivative liability – Warrants		899		-		-		899
Total liabilities	$	899	$	-	$	-	$	899

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	Derivative liability - Warrants
Balance at January 1, 2021		4,444
Change in fair value		(3,545	)
Balance at December 31, 2021		899
Change in fair value		(270	)
Balance at December 31, 2022	$	629

Fair Value Measurement Inputs and Valuation Techniques [Table Text Block]

Warrant Liability
	December 31,			December 31,
	2022			2021
Exercise price	$	0.4431		$	0.4431
Contractual term (years)		1.32			2.32
Volatility (annual)		100.0	%		90.0	%
Risk-free rate		4.6	%		0.8	%
Dividend yield (per share)		0	%		0	%

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Note 4 - Property and Equipment (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Property, Plant and Equipment [Table Text Block]

PP&E
	December 31,			December 31,
	2022			2021			Estimated Useful Life (in years)
Machinery and equipment	$	41		$	42		5
Trade show booth		202			171		5
Office equipment		539			511		5
Leasehold improvements		254			380		Lesser of lease term or estimated useful life
		1,036			1,104
Accumulated depreciation		(725	)		(673	)
	$	311		$	431

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Note 5 - Concentrations (Tables)

12 Months Ended

Dec. 31, 2022

Accounts Receivable [Member]

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	For the years ended
	December 31,
	2022			2021
Customer A		15	%		27	%
Customer B		11	%		-

Inventory Purchases [Member]

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	For the years ended
	December 31,
	2022			2021
Vendor A		40	%		42	%
Vendor B		36	%		31	%

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Note 7 - Accounts Payable and Accrued Expenses (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Schedule of Accounts Payable and Accrued Liabilities [Table Text Block]

ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
	December 31,		December 31,
	2022		2021
Accounts payable	$	1,222	$	2,476
Accrued compensation		631		902
Accrued income taxes		137		342
Other accrued expenses		343		348
	$	2,333	$	4,068

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Note 8 - Notes Payable (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Schedule of Maturities of Long-Term Debt [Table Text Block]

Year Ending December 31, 2023		1,300
Year Ending December 31, 2024		-
Year Ending December 31, 2025		-
Year Ending December 31, 2026
Year Ending December 31, 2027
Thereafter		150
Total	$	1,450

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Note 9 - Earnings (Loss) Per Share Basic and Fully Diluted (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the years ended
	December 31,
	2022			2021
Net (loss) income - basic	$	(1,592	)	$	4,808
Reversal of gain due to change in fair value of warrant liability		-			(3,545	)
Net (loss) income - diluted	$	(1,592	)	$	1,263
Weighted average shares outstanding - basic		212,269,453			203,589,531
Diluted stock options		-			168,309
Diluted warrants		-			1,912,544
Diluted preferred shares		-			32,016,491
Weighted average shares outstanding - diluted		212,269,453			237,686,875
Basic (loss) earnings per share	$	(0.01	)	$	0.02
Diluted (loss) earnings per share	$	(0.01	)	$	0.01

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	For the years ended
	December 31,
	2022		2021
Options		6,003		6,955
Warrants		40,338		38,425
Total		46,341		45,380

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Note 11 - Stock-based Compensation (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Share-Based Payment Arrangement, Option, Activity [Table Text Block]

Options
	Stock Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)		Aggregate Intrinsic Value
Outstanding at January 1, 2021		7,503		$	0.54		8.5	$	-
Options granted		80			0.44		10.0		-
Options forfeited/expired		(460	)		0.44		-		-
Outstanding at December 31, 2021		7,123			0.54		7.5	$	-
Options forfeited/expired		(1,120	)		0.44		-		-
Outstanding at December 31, 2022		6,003		$	0.56		6.4	$	-
Options vested and exercisable at December 31, 2022		5,986		$	0.56		6.4	$	-

Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	For the years ended
	December 31,
	2021
Exercise price	$	0.4431
Contractual term (years)		6.00
Volatility (annual)		85.0	%
Risk-free rate		0.9	%
Dividend yield (per share)		0	%

Schedule of Unvested Restricted Stock Units Roll Forward [Table Text Block]

	Number of Shares			Weighted Average Grant Date Fair Value per Share
Nonvested at January 1, 2021		-		$	-
Restricted stock granted		1,750			0.044
Nonvested at December 31, 2021		1,750			0.044
Restricted stock granted		7,142			0.041
Vested		(1,500	)		-
Forfeited		(776	)		-
Nonvested at December 31, 2022		6,616		$	0.041

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Note 12 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Lease, Cost [Table Text Block]

	For the years ended
	December 31,
	2022		2021
Operating leases
Operating lease cost	$	480	$	566
Variable lease cost		-		-
Operating lease expense		480		566
Short-term lease rent expense		13		-
Total rent expense	$	493	$	566

	For the years ended
	December 31,
	2022			2021
Operating cash flows from operating leases	$	484		$	456
Right-of-use assets exchanged for operating lease liabilities	$	440		$	-
Weighted-average remaining lease term – operating leases (in years)		2.06			2.38
Weighted-average discount rate – operating leases		12.0	%		12.0	%

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

Year Ending December 31, 2023		449
Year Ending December 31, 2024		385
Year Ending December 31, 2025		75
Total		909
Less present value discount		(108	)
Operating lease liabilities as of December 31, 2022	$	801

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Note 13 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2022

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	As of December 31,
	2022			2021
Current
US Federal	$	(89	)	$	110
US State		(3	)		232
Total current (benefit) provision		(92	)		342
Deferred
US Federal		-			-
US State		-			-
Total deferred (benefit) provision		-			-
Total (benefit) provision for income taxes	$	(92	)	$	342

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	As of December 31,
	2022			2021
Deferred tax assets:
Bad debt	$	50		$	47
Inventory		190			43
Accrued expenses		128			222
Lease liability		218			208
Research and development credits		141			-
Stock compensation		156			255
Net operating loss carryovers		1,642			1,224
Other		7			9
Derivatives		39			56
Total deferred income tax assets		2,571			2,064
Deferred income tax liabilities:
ROU assets		(217	)		(206	)
Fixed assets		(27	)		(18	)
Total deferred income tax liabilities		(244	)		(224	)
Net deferred income tax assets					1,840
Valuation allowance		(2,327	)		(1,840	)
Deferred tax asset, net of allowance	$	-		$	-

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	Year ended December 31, 2022			Year ended December 31, 2021
Statutory federal income tax rate		21.0	%		21.0	%
Non-taxed loss from VIE		0.0	%		0.0	%
Research credits		13.5	%		0.0	%
State taxes, net of federal tax benefit		5.3	%		3.3	%
Stock compensation		(4.5	)%		10.1	%
Permanent Items		0.1	%		(4.3	)%
Section 382 NOL Adjustments		0.0	%		3.1	%
Derivatives		2.6	%		(11.1	)%
Return to provision adjustments		0.1	%		(2.2	)%
Other		(3.9	)%		(1.3	)%
Change in valuation allowance		(28.8	)%		(12.0	)%
Total effective tax rate		5.4	%		6.6	%

Schedule of Unrecognized Tax Benefits Roll Forward [Table Text Block]

	Year ended December 31, 2022		Year ended December 31, 2021
Gross unrecognized tax benefits at the beginning of the year	$	32	$	-
Increases related to current year positions		-		-
Increases related to prior year positions		77		32
Decreases related to prior year positions		-		-
Expiration of unrecognized tax benefits		-		-
Gross unrecognized tax benefits at the end of the year	$	109	$	32

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Note 1 - Description of the Business and Basis of Presentation (Details Textual)		12 Months Ended
	Jun. 16, 2021 $ / shares	Dec. 31, 2022 USD ($) $ / shares	Dec. 31, 2021 USD ($) $ / shares	May 25, 2021 $ / shares	Mar. 22, 2021 $ / shares	Dec. 31, 2020 USD ($)
Common Stock, Par or Stated Value Per Share | $ / shares		$ 0.001	$ 0.001	$ 0.001	$ 0.001
Preferred Stock, Par or Stated Value Per Share | $ / shares		$ 0.001	$ 0.001
Operating Income (Loss), Total		$ 1,805,000	$ (565,000)
Net Income (Loss) Attributable to Parent, Total		1,592,000	(4,808,000)
Net Cash Provided by (Used in) Operating Activities, Total		1,720,000	1,347,000
Stockholders' Equity Attributable to Parent, Ending Balance		1,700,000	3,131,000			$ (5,996,000)
Assets, Current, Total		5,850,000	7,994,000
Liabilities, Current, Total		4,783,000	$ 5,534,000
Premarket Tobacco Application Registration [Member]
Cost of Revenue, Total		$ 5,100,000
Reverse Stock Split [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio	100
Series B Preferred Stock [Member]
Preferred Stock, Par or Stated Value Per Share | $ / shares	$ 0.001

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Note 2 - Summary of Significant Accounting Policies (Details Textual)	12 Months Ended
	Dec. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)
Accounts Receivable, Allowance for Credit Loss, Ending Balance	$ 158,000	$ 109,000
Inventory Valuation Reserves	$ 733,000	$ 156,000
Number of Operating Segments	1
Charlie's Chalk Dust, LLC and Bazi, Inc [Member]
Noncontrolling Interest, Ownership Percentage by Parent	100.00%

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Note 2 - Summary of Significant Accounting Policies - Disaggregation of Revenue (Details)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Retailer [Member]
Percentage of Revenue	30.00%	38.00%
Distribution [Member]
Percentage of Revenue	70.00%	62.00%
Non-US [Member]
Percentage of Revenue	16.00%	17.00%
UNITED STATES
Percentage of Revenue	84.00%	83.00%

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Note 3 - Fair Value Measurements (Details Textual) - USD ($) $ / shares in Units, $ in Millions	Mar. 22, 2021	Apr. 26, 2019
Proceeds from Issuance of Private Placement	$ 3.0	$ 27.5
Warrants and Rights Outstanding, Term		5 years
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 0.44313
Investor Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		31,028,996
Placement Agent Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		9,308,699

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Note 3 - Fair Value Measurements - Fair Value Hierarchy on a Recurring Basis (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Derivative liability – Warrants	$ 629	$ 899
Fair Value, Recurring [Member]
Derivative liability – Warrants	629	899
Total liabilities	629	899
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Derivative liability – Warrants	0	0
Total liabilities	0	0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Derivative liability – Warrants	0	0
Total liabilities	0	0
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Derivative liability – Warrants	629	899
Total liabilities	$ 629	$ 899

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Note 3 - Fair Value Measurements - Changes in Level 3 Liabilities (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Balance	$ 899	$ 4,444
Change in fair value	(270)	(3,545)
Balance	$ 629	$ 899

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Note 3 - Fair Value Measurements - Unobservable Inputs Assumptions (Details)	Dec. 31, 2022	Dec. 31, 2021
Measurement Input, Exercise Price [Member]
Derivitave liability, measurement input	0.4431	0.4431
Measurement Input, Expected Term [Member]
Derivitave liability, measurement input	1.32	2.32
Measurement Input, Price Volatility [Member]
Derivitave liability, measurement input	1.000	0.900
Measurement Input, Risk Free Interest Rate [Member]
Derivitave liability, measurement input	0.046	0.008
Measurement Input, Expected Dividend Rate [Member]
Derivitave liability, measurement input	0	0

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Note 4 - Property and Equipment (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Depreciation, Depletion and Amortization, Nonproduction, Total	$ 296,000	$ 210,000

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Note 4 - Property and Equipment - Property and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Property and equipment, gross	$ 1,036	$ 1,104
Accumulated depreciation	(725)	(673)
Property, Plant and Equipment, Net, Total	311	431
Machinery and Equipment [Member]
Property and equipment, gross	$ 41	42
Estimated useful life (Year)	5 years
Trade Show Booth [Member]
Property and equipment, gross	$ 202	171
Estimated useful life (Year)	5 years
Office Equipment [Member]
Property and equipment, gross	$ 539	511
Estimated useful life (Year)	5 years
Leasehold Improvements [Member]
Property and equipment, gross	$ 254	$ 380
Leasehold improvements	Lesser of lease term or estimated useful life

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Note 5 - Concentrations (Details Textual)	12 Months Ended
	Dec. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)
Accounts Payable and Accrued Liabilities, Current, Total	$ 2,333,000	$ 4,068,000
Customer A [Member]
Accounts Receivable, after Allowance for Credit Loss, Total	184,000	454,000
Customer B [Member]
Accounts Receivable, after Allowance for Credit Loss, Total	136,000
Four Vendors [Member]
Accounts Payable and Accrued Liabilities, Current, Total	$ 200,000	$ 1,494,000
Supplier Concentration Risk [Member] | Inventory Purchases [Member]
Number of Major Vendors	2	4
Supplier Concentration Risk [Member] | Inventory Purchases [Member] | Two Vendors [Member]
Concentration Risk, Percentage	76.00%	73.00%
Customer Concentration Risk [Member] | Accounts Receivable [Member]
Number of Major Customers	1
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Two Customers [Member]
Concentration Risk, Percentage	10.00%
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Customer A [Member]
Concentration Risk, Percentage	15.00%	27.00%
Customer Concentration Risk [Member] | Accounts Receivable [Member] | Customer B [Member]
Concentration Risk, Percentage	11.00%	0.00%

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Note 5 - Concentrations - Concentration Risk Inventory Purchases (Details) - Supplier Concentration Risk [Member] - Inventory Purchases [Member]	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Vendor A [Member]
Concentration risk, percentage	40.00%	42.00%
Vendor B [Member]
Concentration risk, percentage	36.00%	31.00%

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Note 5 - Concentrations - Concentration Risk Accounts Receivable (Details) - Customer Concentration Risk [Member] - Accounts Receivable [Member]	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Customer A [Member]
Concentration risk, percentage	15.00%	27.00%
Customer B [Member]
Concentration risk, percentage	11.00%	0.00%

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Note 6 - Don Polly, LLC. (Details Textual)	12 Months Ended
	Dec. 31, 2022
Don Polly, LLC [Member]
Percent of Net Income Received, Variable Interest Entity	100.00%

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Note 7 - Accounts Payable and Accrued Expenses - Accounts Payable (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Accounts payable	$ 1,222	$ 2,476
Accrued compensation	631	902
Accrued income taxes	137	342
Other accrued expenses	343	348
Accounts Payable and Accrued Liabilities, Current, Total	$ 2,333	$ 4,068

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Note 8 - Notes Payable (Details Textual) - USD ($)	Mar. 28, 2023	Aug. 17, 2022	Jun. 24, 2020	Apr. 06, 2022
The “Loan” [Member]
Debt Instrument, Face Amount		$ 300,000
Debt Instrument, Interest Rate During Period		10.00%
Debt Issuance Costs, Gross		$ 3,000
EID Loan [Member] | Don Polly [Member]
Proceeds from Issuance of Debt			$ 150,000
Debt Instrument, Interest Rate, Stated Percentage			3.75%
Michael King [Member] | Notes Payable, Other Payables [Member]
Debt Instrument, Face Amount				$ 1,000,000
Michael King [Member] | Notes Payable, Other Payables [Member] | Subsequent Event [Member]
Debt Instrument, Periodic Payment, Principal	$ 25,000
Debt Instrument, Interest Rate During Period	20.00%

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Note 8 - Notes Payable - Notes Payable Maturities (Details) $ in Thousands	Dec. 31, 2022 USD ($)
Year Ending December 31, 2023	$ 1,300
Year Ending December 31, 2024	0
Year Ending December 31, 2025	0
Thereafter	150
Total	$ 1,450

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Note 9 - Earnings (Loss) Per Share Basic and Fully Diluted - Earnings (Loss) Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 30, 2021
Net (loss) income - basic	$ (1,592)		$ 4,808
Reversal of gain due to change in fair value of warrant liability	0		(3,545)
Net (loss) income - diluted	$ (1,592)		$ 1,263
Weighted average shares outstanding - basic (in shares)	212,269,453	203,589,531	203,589,531
Diluted stock options (in shares)	0		168,309
Diluted warrants (in shares)	0		1,912,544
Diluted preferred shares (in shares)	0		32,016,491
Weighted average shares outstanding - diluted (in shares)	212,269,453	237,686,875	237,686,875
Basic (loss) earnings per share (in dollars per share)	$ (0.01)	$ 0.02	$ 0.02
Diluted (loss) earnings per share (in dollars per share)	$ (0.01)	$ 0.01	$ 0.01

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Note 9 - Earnings (Loss) Per Share Basic and Fully Diluted - Antidilutive Securities (Details) - shares shares in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Antidilutive securities (in shares)	46,341	45,380
Share-Based Payment Arrangement, Option [Member]
Antidilutive securities (in shares)	6,003	6,955
Warrant [Member]
Antidilutive securities (in shares)	40,338	38,425

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Note 10 - Stockholders' Equity (Details Textual) - USD ($)					12 Months Ended
	May 25, 2021	Mar. 22, 2021	Apr. 25, 2020	Apr. 26, 2019	Dec. 31, 2022	Dec. 31, 2021
Preferred Stock, Par or Stated Value Per Share					$ 0.001	$ 0.001
Common Stock Dividends, Shares	1,736,501
Common Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001			$ 0.001	$ 0.001
Shares Issued, Price Per Share	$ 0.44313	$ 0.853
Proceeds from Issuance of Private Placement		$ 3,000,000.0		$ 27,500,000
Private Placement [Member]
Stock Issued During Period, Shares, New Issues		3,517,000
Conversion of Series A Preferred Stock to Common Stock [Member]
Conversion of Stock, Shares Issued					1,907,000	13,977,000
Conversion of Stock, Shares Converted					8,450	61,937
Series A Preferred Stock [Member]
Preferred Stock, Dividend Rate, Percentage			8.00%
Dividends, Total	$ 1,650,000		$ 1,650,000
Preferred Stock, Par or Stated Value Per Share	$ 0.001
Dividends, Cash, Total	$ 880,000
Series A Preferred Stock [Member] | Dividend Paid [Member]
Dividends, Cash, Total						$ 3,000

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Note 11 - Stock-based Compensation (Details Textual) - USD ($)						12 Months Ended
	Dec. 22, 2021	Nov. 01, 2021	Apr. 01, 2021	Apr. 26, 2019	Dec. 31, 2018	Dec. 31, 2022	Dec. 31, 2021	May 08, 2019
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross							80,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Forfeitures and Expirations in Period, Total						1,120,000	460,000
Common Stock Awards, Unvested					7,100,000
Common Stock Awards, Fair Value Per Share					$ 0.32
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures, Total			1,500,000
Shares, Restricted Stock Award, Subject to Annual Forfeiture			750,000
Series B Preferred Stock [Member]
Preferred Stock, Convertible, Shares Issuable					6,980,000
Conversion of Membership Units Into Common Stock [Member]
Stock Issued During Period, Shares, Conversion of Convertible Securities				71,000
Conversion of Membership Units Into Series B Convertible Preferred Stock [Member]
Stock Issued During Period, Shares, Conversion of Convertible Securities					69,815
Common Stock [Member]
Share-Based Payment Arrangement, Expense							$ 376,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Award Vesting Period					2 years
Restricted Stock [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Non-Option Equity Instruments, Granted			1,500,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Aggregate Intrinsic Value, Granted			$ 65,000
The 2019 Omnibus Incentive Plan [Member]
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Shares Available for Grant	26,072,542							11,072,542
Share-Based Compensation Arrangement by Share-Based Payment Award, Number of Additional Shares Authorized	15,000,000.0
Ownership Percentage	50.30%
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross						0
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Forfeitures and Expirations in Period, Total						1,120,000	460,000
Share-based Compensation Arrangement by Share-based Payment Award, Options Grant Date Fair Value							$ 80,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Grant Date Fair Value							12,000
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total						$ 340,000
Stock Issued During Period, Shares, Restricted Stock Award, Net of Forfeitures, Total						7,142,000
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition						2 years 6 months
The 2019 Omnibus Incentive Plan [Member] | Director [Member]
Stock Issued During Period, Shares, Issued for Services		250,000
The 2019 Omnibus Incentive Plan [Member] | Share-Based Payment Arrangement, Option [Member]
Share-Based Payment Arrangement, Expense						$ 11,000	151,000
The 2019 Omnibus Incentive Plan [Member] | Restricted Stock [Member]
Share-Based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total						165,000
Share-Based Payment Arrangement, Expense						150,000	$ 26,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Other Than Options, Grants in Period, Grant Date Fair Value						$ 290,000
The 2019 Omnibus Incentive Plan [Member] | Restricted Stock [Member] | Director [Member]
Stock Issued During Period, Shares, Issued for Services		250,000
Stock Issued During Period, Shares Subject to Forfeiture, Increments		125,000
Stock Issued During Period, Value, Issued for Services		$ 12,775

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Note 11 - Stock-based Compensation - Stock Option Activity (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021	Dec. 31, 2020
Outstanding at January 1, 2021 (in shares)	7,123	7,503
Outstanding at January 1, 2021 (in dollars per share)	$ 0.54	$ 0.54
Outstanding at January 1, 2021 (Year)	6 years 4 months 24 days	7 years 6 months	8 years 6 months
Outstanding at January 1, 2021	$ 0	$ 0
Options granted (in shares)		80
Options granted (in dollars per share)		$ 0.44
Options granted (Year)		10 years
Options forfeited/expired (in shares)	(1,120)	(460)
Options forfeited/expired (in dollars per share)	$ 0.44	$ 0.44
Outstanding at December 31, 2021 (in shares)	6,003	7,123	7,503
Outstanding at December 31, 2021 (in dollars per share)	$ 0.56	$ 0.54	$ 0.54
Options vested and exercisable at December 31, 2022 (in shares)	5,986
Options vested and exercisable at December 31, 2022 (in dollars per share)	$ 0.56
Options vested and exercisable at December 31, 2022 (Year)	6 years 4 months 24 days
Options vested and exercisable at December 31, 2022	$ 0

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Note 11 - Stock-based Compensation - Fair Value of Options Assumptions (Details) - Share-Based Payment Arrangement, Option [Member]	12 Months Ended
	Dec. 31, 2021 $ / shares
Exercise price (in dollars per share)	$ 0.4431
Contractual term (years) (Year)	6 years
Volatility (annual)	85.00%
Risk-free rate	0.90%
Dividend yield (per share)	0.00%

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Note 11 - Stock-based Compensation - Restricted Stock Awards Activities (Details) - Restricted Stock [Member] - $ / shares shares in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Nonvested at January 1, 2021 (in shares)	1,750	0
Nonvested at January 1, 2021 (in dollars per share)	$ 0.044	$ 0
Restricted stock granted (in shares)	7,142	1,750
Restricted stock granted (in dollars per share)	$ 0.041	$ 0.044
Vested (in shares)	(1,500)
Forfeited (in shares)	(776)
Nonvested at December 31, 2021 (in shares)	6,616	1,750
Nonvested at December 31, 2021 (in dollars per share)	$ 0.041	$ 0.044

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Note 12 - Commitments and Contingencies (Details Textual) - USD ($)			6 Months Ended	12 Months Ended
	May 01, 2022	Nov. 01, 2019	Jun. 30, 2022	Dec. 31, 2022	Dec. 31, 2021
Operating Lease, Expense				$ 480,000	$ 566,000
Operating Lease, Right-of-Use Asset				799,000	755,000
Operating Lease, Liability, Total				801,000
Williamsville Lease [Member]
Lease, Monthly Rent	$ 1,650
Corporate Headquarters Lease [Member]
Lease, Monthly Rent		$ 22,940
Operating Lease, Expense				293,536	$ 278,040
Operating Lease, Right-of-Use Asset				799,000
Operating Lease, Liability, Total				$ 801,000
Lease at 5331 Production Drive, Huntington Beach, Ca [Member] | Revision of Prior Period, Adjustment [Member]
Operating Lease, Expense			$ 1,000
Operating Lease, Right-of-Use Asset			429,000
Operating Lease, Liability, Total			$ 430,000

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Note 12 - Commitments and Contingencies - Operating Lease Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Operating cash flows from operating leases	$ 484	$ 456
Operating lease cost	480	566
Right-of-use assets exchanged for operating lease liabilities	440	0
Variable lease cost	$ 0	$ 0
Weighted-average remaining lease term – operating leases (in years) (Year)	2 years 21 days	2 years 4 months 17 days
Operating lease expense	$ 480	$ 566
Weighted-average discount rate – operating leases	12.00%	12.00%
Short-term lease rent expense	$ 13	$ 0
Total rent expense	$ 493	$ 566

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Note 12 - Commitments and Contingencies - Maturities of Operating Leases (Details) $ in Thousands	Dec. 31, 2022 USD ($)
Year Ending December 31, 2023	$ 449
Year Ending December 31, 2024	385
Year Ending December 31, 2025	75
Total	909
Less present value discount	(108)
Operating lease liabilities as of December 31, 2022	$ 801

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Note 13 - Income Taxes (Details Textual)	12 Months Ended
	Dec. 31, 2022 USD ($)
Domestic Tax Authority [Member]
Operating Loss Carryforwards, Incurred Before the Closing Date	$ 5,704,000,000,000
Open Tax Year	2019 2020 2021 2022
Domestic Tax Authority [Member] | Research Tax Credit Carryforward [Member]
Tax Credit Carryforward, Amount	$ 218,000
State and Local Jurisdiction [Member]
Operating Loss Carryforwards	$ 7,458,000,000,000
Open Tax Year	2018 2019 2020 2021 2022

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Note 13 - Income Taxes - Income Tax Expense (Benefits) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
US Federal	$ (89)	$ 110
US State	(3)	232
Total current (benefit) provision	(92)	342
US Federal	0	0
US State	0	0
Total deferred (benefit) provision	0	0
Total (benefit) provision for income taxes	$ (92)	$ 342

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Note 13 - Income Taxes - Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2022	Dec. 31, 2021
Bad debt	$ 50	$ 47
Inventory	190	43
Accrued expenses	128	222
Lease liability	218	208
Research and development credits	141	0
Stock compensation	156	255
Net operating loss carryovers	1,642	1,224
Other	7	9
Derivatives	39	56
Total deferred income tax assets	2,571	2,064
ROU assets	(217)	(206)
Fixed assets	(27)	(18)
Total deferred income tax liabilities	(244)	(224)
Net deferred income tax assets		1,840
Valuation allowance	(2,327)	(1,840)
Deferred tax asset, net of allowance	$ 0	$ 0

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Note 13 - Income Taxes - Reconciliations of Federal Statutory Rate to Effective Income Tax Rate (Details)	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Statutory federal income tax rate	21.00%	21.00%
Non-taxed loss from VIE	0.00%	0.00%
Research credits	13.50%	0.00%
State taxes, net of federal tax benefit	5.30%	3.30%
Stock compensation	(4.50%)	10.10%
Permanent Items	0.10%	(4.30%)
Section 382 NOL Adjustments	0.00%	3.10%
Derivatives	2.60%	(11.10%)
Return to provision adjustments	0.10%	(2.20%)
Other	(3.90%)	(1.30%)
Change in valuation allowance	(28.80%)	(12.00%)
Total effective tax rate	5.40%	6.60%

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Note 13 - Income Taxes - Unrecognized Tax Benefits (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2022	Dec. 31, 2021
Gross unrecognized tax benefits at the beginning of the year	$ 32	$ 0
Increases related to current year positions	0	0
Increases related to prior year positions	77	32
Decreases related to prior year positions	0	0
Expiration of unrecognized tax benefits	0	0
Gross unrecognized tax benefits at the end of the year	$ 109	$ 32

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Note 14 - Subsequent Events (Details Textual) - Subsequent Event [Member]	Jan. 19, 2023 USD ($)	Mar. 29, 2023 USD ($)	Mar. 28, 2023 USD ($)
Permitted Indebtedness		$ 6,000,000.0	$ 2,500,000
Receivables Financing Agreement [Member] | Austin Purchaser [Member]
Proceeds from Collection of Finance Receivables	$ 650,000
Finance Receivables, Percentage of Origination Fee	3.00%
Financing Receivable, Number of Payments	26
Financing Receivable, Weekly Repayments	$ 29,500
Financing Receivable, Total Repayments	$ 760,500