Charlie’s Holdings Reports Full Year 2019 Results

Revenue Increased 9% to $22.7 Million

COSTA MESA, CA / ACCESSWIRE / April 15, 2020 / Charlie’s Holdings, Inc. (OTC PINK:CHUC) (“Charlie’s” or the “Company), an industry leader in both the premium, nicotine-only, e-cigarette space and the hemp-derived, CBD wellness space, announced today the Company’s financial results for the full year ended December 31, 2019.

Key Financial Highlights for 2019

  • Revenue increased 9% to $22.7 million
  • Gross Margins of 55.7%
  • Recently launched CBD wellness products generated revenue of $2,765,000

Key Business Highlights for 2019

  • Partnered with Blackbriar Regulatory Services to direct submission of Premarket Tobacco Product Application (“PMTA”)
  • Executed strategic partnership with nzo to collaborate on closed device pod system
  • Sales through all top five domestic vape specialty retailers totaling 350+ retail locations and nine of the top ten largest vape e-commerce platforms
  • Opened new 11,000 square foot dedicated warehouse facility in Huntington Beach, California
  • Addition of key distribution accounts for our hemp-derived CBD wellness products
  • Increasing internal e-commerce direct-to-consumer efforts
  • Completed share exchange to become publicly-traded in April

Management Commentary

“2019 was an extremely active year for our Company, having successfully listed as a publicly-traded company, battled unforeseen industry headwinds and negative effects from the nationwide vaping concerns, successfully launched our hemp-derived CBD wellness products and prepared for our PMTA submission. While we are pleased to have achieved 9% top-line revenue growth, it did not meet the high aspirations we had set forth when we executed our plan to become publicly-traded in April 2019. We have prudently implemented cost reductions wherever possible in light of the regulatory environment and the effect on revenue from COVID-19, as we seek to operate more efficiently in this time of uncertainty. I am proud of our team as we have adapted and transitioned well and remain confident and enthusiastic on our future growth prospects,” commented Brandon Stump, Chief Executive Officer of Charlie’s.

“The nicotine-based e-liquid sales decline began late in the third quarter due to the current regulatory and health-related news stories surrounding the vaping industry. Since then, the concerns have been more clearly identified by the Center for Disease Control as having been linked to an additive which is not included in the formulation of our products. Although we experienced a decline in our domestic nicotine-based e-liquid sales in the United States, we currently see little effect on our international e-liquid sales and CBD product sales and expect growth in that area to resume once the recent outbreak of COVID-19 is brought under control,” added Stump.

Stump concluded, “we are strategically positioned more favorably than most vapor companies with our hemp-derived CBD wellness products, our international vaping distribution network and upcoming PMTA registrations. Our focus is on the highest standards of regulatory compliance, a huge differentiating factor for the Company. Our submission of a PMTA to the Food and Drug Administration (“FDA”) remains on track to be submitted by the May 2020 deadline.”

Financial Results for the Year Ended December 31, 2019

Revenue for the year ended December 31, 2019 was $22,740,000, an increase of $1,899,000, or 9%, as compared to approximately $20,841,000 for the year ended December 31, 2018. The increase was primarily due to an increase in sales from our newly launched CBD wellness products business of $2,765,000 and offset by an $888,000 decrease in our nicotine-based product sales.

Gross profit for the year ended December 31, 2019 was $12,669,000, compared to $12,326,000 for the year ended December 31, 2018. The resulting gross margin was 55.7% for the year ended December 31, 2019, compared to 59.1% for the year ended December 31, 2018.

General and administrative expense for the year ended December 31, 2019 was $15,017,000, an increase of $11,859,000, as compared to $3,158,000 for the year ended December 31, 2018. Costs relating to the completion of the Share Exchange on April 26, 2019 accounted for a significant part of the $11.9 million increase, including $5.1 million of non-cash stock-based compensation and executive bonus accruals, $1.7 million of one-time employee cash compensation, and $150,000 of transaction-related professional fees. The remaining $4.8 million increase is primarily due to PMTA consulting fees, ongoing professional fees and increased salaries associated with conducting business as a public company and certain step-up costs related to new business activities, including the launch of CBD products and opening our Denver location.

Sales and marketing expenses for the year ended December 31, 2019 was $2,314,000, an increase of $346,000, or 18%, as compared to $1,968,000 for the year ended December 31, 2018. The increase was primarily due to enhanced marketing efforts for the launch of our CBD wellness products.

Research and development expense for the year ended December 31, 2019 was $1,102,000, an increase of $1,102,000, as compared to $0 for the year ended December 31, 2018. The increase was primarily due to costs incurred with the PMTA registration process.

Operating loss for the year ended December 31, 2019 was $5,764,000, as compared to operating income of $7,200,000 for the year ended December 31, 2018. The operating loss for the year ended December 31, 2019 includes significant costs relating to the completion of the Share Exchange on April 26, 2019, including $5.1 million of non-cash stock-based compensation and executive bonus accruals, $1.7 million of one-time employee cash compensation, and $150,000 of transaction-related professional fees.

Net loss for the year ended December 31, 2019 was $2,146,000, a decrease of $9,346,000, compared net income of $7,200,000 for the year ended December 31, 2018. The decrease was primarily related to increased general and administrative expenses, which were offset by a non-cash gain on the change in fair value of derivative liabilities of $3,618,000. There were no derivative liabilities outstanding on December 31, 2018.

Cash and cash equivalents balance at December 31, 2019 was $2,448,000 with common shares issued and outstanding at 18.974 billion.

About Charlie’s Holdings, Inc.

Charlie’s Holdings, Inc. (OTC PINK:CHUC) is an industry leader in both the premium, nicotine-only, e-cigarette space and the hemp-derived, CBD wellness space through its subsidiary companies Charlie’s Chalk Dust, LLC and Don Polly, LLC. Charlie’s Chalk Dust produces high-quality vapor products currently distributed in more than over 90 countries around the world. Charlie’s Chalk Dust has developed an extensive portfolio of brand styles, flavor profiles and innovative product formats. Launched in June of 2019, Don Polly, LLC formulates innovative hemp-derived CBD wellness products. Don Polly’s high-quality CBD products derive from single-strain-sourced hemp extract and high purity CBD isolate crystals.

For additional information, please visit our corporate website at: CharliesHoldings.com and our branded online websites: CharliesChalkDust.com and EnjoyPachamama.com.

Safe Harbor Statement

This press release contains “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding the Company’s overall business, existing and anticipated markets and expectations regarding future sales and expenses. Words such as “expect,” “anticipate,” “should,” “believe,” “target,” “project,” “goals,” “estimate,” “potential,” “predict,” “may,” “will,” “could,” “intend,” variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company’s control. The Company’s actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: the Company’s ability to successful increase sales and enter new markets; the Company’s ability to manufacture and produce product for its customers; the Company’s ability to formulate new products; the acceptance of existing and future products; the complexity, expense and time associated with compliance with government rules and regulations affecting nicotine and products containing cannabidiol; litigation risks from the use of the Company’s products; risks of government regulations; the impact of competitive products; and the Company’s ability to maintain and enhance its brand, as well as other risk factors included in the Company’s most recent quarterly report on Form 10-Q and other SEC filings. These forward-looking statements are made as of the date of this press release and were based on current expectations, estimates, forecasts and projections as well as the beliefs and assumptions of management. Except as required by law, the Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in its expectations.

Investors Contact:

IR@charliesholdings.com
P: 949-418-4020

CHARLIE’S HOLDINGS, INC.
CONSOLIDATED
BALANCE SHEETS
(in thousands, except share and per share amounts)

 
  December 31,     December 31,  
 
  2019     2018  
ASSETS
           
Current assets:
           
Cash
  2,448     304  
Accounts receivable, net
    918       711  
Inventories, net
    1,516       658  
Prepaid expenses and other current assets
    729       427  
Total current assets
    5,611       2,100  
 
               
Non-current assets:
               
Property, plant and equipment, net
    543       45  
Right-of-use asset, net
    1,623        
Other assets
    71       42  
Total non-current assets
    2,237       87  
 
               
TOTAL ASSETS
  7,848     2,187  
 
               
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
Current liabilities:
               
Accounts payable and accrued expenses
  2,516     1,216  
Derivative liability
    4,144        
Lease liabilities
    426        
Deferred revenue
    91       180  
Total current liabilities
    7,177       1,396  
 
               
Non-current liabilities:
               
Lease liabilities, net of current portion
    1,218        
Total non-current liabilities
    1,218        
 
               
Total liabilities
    8,395       1,396  
 
               
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, 204,561 and 0 shares issued and outstanding as of December 31, 2019 and 2018, respectively
           
Series B, 1.5 million shares designated, 0 and 1.4 million shares issued and outstanding as of December 31, 2019 and 2018, respectively
          1  
Common stock ($0.001 par value); 50 billion shares authorized; 18.974 billion shares and 141 million shares issued and outstanding as of December 31, 2019 and 2018, respectively
    18,974       141  
Additional paid-in capital
    (17,045 )      
Retained earnings (accumulated deficit)
    (2,476 )     649  
Total stockholders’ equity (deficit)
    (547 )     791  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
  7,848     2,187  

CHARLIE’S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(in thousands, except share and per share amounts)

 
  For the years ended  
 
  December 31,  
 
  2019     2018  
Revenues:
           
Product revenue, net
  22,740     20,841  
Total revenues
    22,740       20,841  
Operating costs and expenses:
               
Cost of goods sold – product revenue
    10,071       8,515  
General and administrative
    15,017       3,158  
Sales and marketing
    2,314       1,968  
Research and development
    1,102        
Total operating costs and expenses
    28,504       13,641  
(Loss) income from operations
    (5,764 )     7,200  
Other income:
               
Change in fair value of derivative liabilities
    3,618        
Total other income
    3,618        
Net (loss) income
    (2,146 )     7,200  
Deemed dividend on Series A preferred stock
    (1,650 )      
Net (loss) earnings applicable to common stockholders
  (3,796 )   7,200  
 
               

Net (loss) earnings per share applicable to common stockholders

               
Basic
  (0.00 )   0.05  
Diluted
  (0.00 )   0.00  
Weighted average shares used in computing basic earnings per share
    10,648,129,286       141,040,886  
Weighted average shares used in computing diluted earnings per share
    10,648,129,286       14,104,089,886  

CHARLIE’S HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in thousands)

 
  For the years ended  
 
  December 31,  
 
  2019     2018  
Cash Flows from Operating Activities:
           
Net (loss) income
  (2,146 )   7,200  
Reconciliation of net (loss) income to net cash (used in) provided by operating activities:
               
Bad debt expense
    573       93  
Depreciation and amortization
    73       18  
Change in fair value of derivative liabilities
    (3,618 )      
Amortization of operating lease right-of-use asset
    190        
Stock based compensation
    3,819        
Subtotal of non-cash charges
    1,037       111  
Changes in operating assets and liabilities:
               
Accounts receivable
    (780 )     129  
Inventories
    (858 )     (291 )
Prepaid expenses and other current assets
    (302 )     14  
Other assets
    (29 )     (5 )
Accounts payable and accrued expenses
    1,300       394  
Deferred revenue
    (89 )     65  
Lease liabilities
    (169 )      
Net cash (used in) provided by operating activities
    (2,036 )     7,617  
Cash Flows from Investing Activities:
               
Purchase of property, plant and equipment
    (571 )     (16 )
Net cash used in investing activities
    (571 )     (16 )
Cash Flows from Financing Activities:
               
Proceeds from issuance of common stock and warrants in a private offering, net
    23,160        
Cash distributions to CCD Members
    (18,409 )     (7,952 )
Net cash provided by (used in) financing activities
    4,751       (7,952 )
Net increase (decrease) in cash
    2,144       (351 )
 
               
Cash, beginning of the year
    304       655  
Cash, end of the year
  2,448     304  
 
               
Supplemental disclosure of cash flow information
               
Cash paid for interest
       
Cash paid for income taxes
       
 
               
Supplemental disclosure of cash flow information
               
Effect of reverse merger
  2,378      
Conversion of Series B convertible preferred stock
  13,963      

SOURCE: Charlies Holdings, Inc.

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