Business Description

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION Description of the Business Charlie’s Holdings, Inc., a Nevada corporation, together with its wholly owned subsidiaries (collectively, the “ Company ”, “ we ”), currently formulates, markets and distributes premium, non-combustible nicotine-related products and alternative alkaloid vapor products. The Company’s products are produced through contract manufacturers for sale through select distributors, specialty retailers, and third-party online resellers throughout the United States, and in select international markets. Charlie’s Chalk Dust, LLC (“ Charlie ’ s ” or “ CCD ”), is the Company’s wholly owned subsidiary which produces and sells nicotine-based and alternative alkaloid vapor products. The Company's Common Stock, par value $0.001 per share (the " Common Stock "), trades under the symbol "CHUC" on the OTCQB Venture Market. Basis of Presentation The consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“ GAAP ”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “ SEC ”). On October 7, 2025, the Company’s Board of Directors unanimously approved a resolution to wind down and close permanently the Don Polly division, the Company’s variable interest entity. On December 31, 2025, Don Polly entered into a Bill of Sale And Assignment Agreement (the “ Assignment Agreement ” ) with Charlie’s. Pursuant to the Assignment Agreement, Don Polly transferred ownership of all of its right, title, and interest in, as well as custody and control of, its assets to Charlie’s. The results of operations of Don Polly are reported as discontinued operations for the years ended December 31, 2025 and 2024. See Note 7 for additional information. Certain reclassifications have been made to the prior period financial information to reflect discontinued operations presentation. Unless otherwise noted, amounts and disclosures throughout these Notes to Consolidated Financial Statements relate solely to continuing operations and exclude all discontinued operations. Going Concern Regarding the Legal and Regulatory Environment, Liquidity and Management ’ s Plan of Operation Our consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the year ended December 31, 2025, the Company’s revenue increased, the Company incurred a loss from operations of approximately $2,165,000, and a net income from continuing operations of approximately $4,318,000. Net cash used in continuing operating activities was approximately $6,314,000. The Company had a stockholders’ equity of $3,423,000 at December 31, 2025. During the year ended December 31, 2025, the Company’s working capital was increased to $3,137,000 from a deficit of $1,855,000 as of December 31, 2024. Management evaluated whether these conditions could raise a substantial doubt about the Company’s ability to continue as a going concern. During the year ended December 31, 2025, the Company entered into and closed an Asset Purchase Agreement (the “ Agreement ”) and subsequent amendment with one of the world’s largest tobacco companies (the “ Buyer ”) pursuant to which the Buyer purchased 16 of the Company’s PACHA synthetic products and related assets (the “ Assets ”) that are covered by a premarket tobacco application (“ PMTA ”) first submitted by the Company in 2022. The combined purchase price for the Assets was $6.5 million paid at closings in April and May 2025, and an additional $1.0 million paid at closings in August 2025, plus a contingent one-time payment of up to $4.2 million based on product sold by the Buyer during the one year following the first day of commercialization of the Assets. The proceeds from these transactions have significantly improved the Company’s liquidity position, reduced outstanding obligations, and strengthened working capital.…