SPREE BAR Master Distributor Agreements Signed, Purchase Orders and Cash Deposits Received

COSTA MESA, CA / ACCESSWIRE / November 14, 2023 / Charlie's Holdings, Inc. (OTCQB:CHUC) ("Charlie's" or the "Company"), an industry leader in the premium vapor products space, today reported results for the third quarter and nine months ended September 30, 2023, and provided an update on recent business highlights.

Key Financial Highlights for Q3 2023 (compared with Q3 2022)

• Revenue decreased 58% to $2.7 million
• Gross profit decreased 60% to $1.1 million
• Operating loss of $0.7 million compared to operating income of $0.046 million
• Net loss of $0.7 million compared to net income of $0.2 million

Key Financial Highlights for Nine Months Ended September 30, 2023 (compared with Nine Months Ended September 30, 2022)

• Revenue decreased 51% to $10.7 million
• Gross profit decreased 56% to $4.1 million
• Operating loss increased by $2.2 million to $2.3 million
• Net loss was $2.1 million compared to net income of $0.3 million

Key Business Highlights

• Charlie's awarded seven SPREE BAR Master Distributor and Distributor contracts in the third quarter
• The Company accepted purchase orders and corresponding 50% cash deposits for each SPREE BAR distributor's initial order

Subsequent Event

Charlie's received notification that U.S. Food and Drug Administration ("FDA") Acceptance Letters for the Company's 2022 Pre-Market Tobacco Application ("PMTAs") will be issued and the FDA will place Charlie's applications into filing review.

Management Commentary

"In the third quarter management focused nearly all of its resources on the product line that we believe holds the greatest long-term promise for Charlie's: SPREE BAR," stated Matt Montesano, Charlie's Holdings, Inc. Chief Financial Officer. "At the same time, while laying the groundwork for what we expect will be an outstanding 2024, we implemented substantial expense reductions over the past several months in order to minimize 2023 operating losses."

Ryan Stump, Charlie's Chief Operating Officer, explained, "Though we are disappointed at the weakness across our legacy product lines, SPREE BAR holds tremendous promise for the future and we believe the product will be a market leader in 2024." Stump, continued, "Additionally, we are cautiously optimistic about the large opportunity represented by our Age Gating Product Development Initiative. There is a huge unmet need for effective, consumer-acceptable, age-gated product technologies that can satisfy or accommodate concerns the FDA has related to under-age youth access in the ENDS marketplace. We believe that our IP and product development initiatives in this arena could prove exceptionally lucrative for Charlie's."

Henry Sicignano III, Charlie's President, commented, "The SPREE BAR product line really is Charlie's headline this year. We invested many, many months and extraordinary efforts to develop what we believe is an unbeatable product: (i) SPREE BAR provides adult consumers with the same satisfaction that typical disposable vapes provide, but without nicotine; (ii) SPREE BAR is not subject to FDA Pre-Market Tobacco Application requirements; and (iii) perhaps best of all, 6,000-puff SPREE BAR flavor pods have an MSRP that is LESS THAN HALF that of the industry-leading 5,500-puff disposables."

SPREE BAR

Featuring nicotine substitute "Metatine" in lieu of tobacco-based and synthetically derived nicotine, SPREE BAR perfectly replicates the sensation of vaping a traditional nicotine disposable ̶ but is not subject to FDA PMTA requirements.

Having invested more than $6MM in what Charlie's believes are some of the strongest FDA PMTAs in the industry for the Company's e-liquid and electronic nicotine delivery system devices, Charlie's has been frustrated by the facts that (i) more than three years after its applications were submitted, its 2020 PMTAs remain in "substantive review" with the FDA, (ii) no company in the world, to date, has received an FDA marketing order for a flavored disposable vape product, and (iii) illegal nicotine products continue to be imported into the U.S. market on a daily basis.

Accordingly, in late 2022 Charlie's initiated a plan to dramatically shift its business away from tobacco-based and synthetically-derived nicotine products in favor of nicotine substitute products. Though redirecting resources away from the sales of legacy nicotine products in favor of new nicotine substitute technologies has significantly reduced Company revenue in 2023, Charlie's believes that its breakthroughs with Metatine and with the development of the SPREE BAR product line will give the Company extraordinary long term competitive advantages in the vapor and alternative products marketplace.

As of the end of the quarter, the Company awarded SPREE BAR Master Distributor and Distributor contracts to seven large customers. As part of these agreements, purchase orders were accepted and corresponding 50% cash deposits were collected for each distributor's initial order. It is the Company's plan to sign additional Master Distributor agreements with as many as ten new SPREE BAR Distributors. Given the novelty of the product, its compelling value in the marketplace as a disposable pod system (with a reusable battery), and its very significant regulatory advantages, SPREE BAR represents the single largest, most important commercial opportunity in Charlie's history.

• SPREE BAR, with Metatine, is indistinguishable from a conventional disposable vape; SPREE BAR provides adult consumers with the same satisfaction that typical nicotine disposables provide… but without nicotine.
• As a disposable pod system ̶ with a reusable battery ̶ 6,000-puff SPREE BAR flavor pods have an MSRP that is LESS THAN HALF that of the industry-leading 5,500-puff disposables.
• Because Metatine is not made or derived from tobacco, and because Metatine does not consist of or contain nicotine from any source, SPREE BAR is not subject to FDA Pre-Market Tobacco Application ("PMTA") requirements.

Age-Gating Technology

The Company has 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 Charlie's 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.

Synthetic Nicotine PMTA Update

On November 4, 2022, the FDA issued two Refuse to Accept Letters ("RTAs") covering multiple 2022 PMTA submissions for certain of the Company's synthetic nicotine products. The Company exercised its right to appeal the decision with the FDA and, on March 6, 2023, the Company filed a request for supervisory review with FDA's Center for Tobacco Products. On October 30, 2023, the Company received notification from the FDA that its supervisory review appeal had been granted. Therefore, the FDA has rescinded the RTAs, notified the Company that Acceptance Letters for the PMTAs will be issued, and will place these applications into filing review.

Financial Results for the Three Months Ended September 30, 2023:

• Revenue: For the three months ended September 30, 2023, revenue was $2.7 million, a decrease of $3.7 million, or 58%, compared with $6.4 million for the three months ended September 30, 2022. The decrease in revenue was primarily due to a $3.6 million decrease in Charlie's nicotine-based vapor product sales.
  
  The decrease in Charlie's nicotine-based vapor product sales was primarily driven by decreased sales of its Pacha Disposable line as well by periodic, voluntary stockouts of its e-liquid products. The FDA has continued to enhance enforcement efforts in recent quarters, including the periodic halting of shipments into U.S. shipping ports which has caused supply chain issues and further marketplace unrest. As a result, the domestic market for nicotine-based disposable vapor products has continued to move "underground" as brands attempt to avoid attention from FDA. The illegal importing of nicotine disposable products, which are sold at a discount in an attempt to capture market share, continues to negatively impact the Company's top line Voluntary stockouts of e-liquid products were the result of diverting working capital to the launch of the Company's new SPREE BAR line of nicotine substitute vapor products.
  
  The decrease in sales for Charlie's hemp-derived business during the quarter was directly related to the diversion of working capital and other resources towards the launch of the Company's SPREE BAR line of nicotine substitute vapor products. Despite achieving increased market share for the PINWEEL brand of hemp-derived products, the Company believes that the market for alternative alkaloid products, such as SPREE BAR, offers the Company the most significant opportunity for growth. However, the Company continues to believe that the hemp-derived category offers short- and medium-term potential for the Company and will continue to pursue actionable opportunities in this segment.
  
• Gross Profit: For the three months ended September 30, 2023, gross profit was $1.1 million, a decrease of $1.7 million, or 60%, compared with $2.8 million for the three months ended September 30, 2022. The resulting gross margin for the three months ended September 30, 2034 was 40.5%, compared with 42.9% for the three months ended September 30, 2022. Gross margin declined slightly due to lower overhead cost absorption resulting from reduced sales activity, as well as a decrease in the amount of shipping cost passed on to customers.
  
• Total Operating Expenses: For the three months ended September 30, 2023, total operating expenses, including general and administrative, sales and marketing and research and development costs, were $1.8 million, a decrease of $0.9 million, or 32%, compared with $2.7 million for the three months ended September 30, 2022.
  
• Operating Loss/Income: For the three months ended September 30, 2023, operating loss was $0.7 million, compared with an operating income of $0.046 million for the three months ended September 30, 2022.
  
• Net Loss/Income: For the three months ended September 30, 2023, net loss was $0.7 million, compared with a net income of $0.2 million for the three months ended September 30, 2022. Of note, net loss for the three months ended September 30, 2023 included a $0.2 million gain in fair value of derivative liabilities and a $0.1 million interest expense, compared with $0. 2 million gain in fair value of derivative liabilities and a $0.0 million interest expense for the three months ended September 30, 2022.
  
• EPS: For the three months ended September 30, 2023, diluted earnings per share was $0.00, compared with diluted earnings per share of $0.00, for the three months ended September 30, 2022.

Financial Results for the Nine Months Ended September 30, 2022:

• Revenue: For the nine months ended September 30, 2023, revenue was $10.7 million, a decrease of $11.2 million, or 51%, compared with $21.9 million for the nine months ended September 30, 2022. The decrease in revenue was primarily due to a $10.3 million decrease in Charlie's nicotine-based vapor product sales, as well as a $0.9 million decrease in sales of the Company's hemp-derived products. The decrease in Charlie's nicotine-based vapor product sales was primarily driven by decreased sales of its Pacha Disposable line as well by periodic, voluntary stockouts of its e-liquid products in anticipation of the Company's SPREE BAR product launch.
  
  The decrease in sales for Charlie's hemp-derived business was directly related to an eight-week pause in manufacturing, and a subsequent lack of inventory, when the Company changed some of the ingredients in its PINWEEL products in order to avoid compounds that were newly deemed "controlled substances." However, inventory was restored during the second quarter, resulting in a modest rise in sales.
  
• Gross Profit: For the nine months ended September 30, 2023, gross profit was $4.1 million, a decrease of $5.2 million, or 56%, compared with $9.2 million for the nine months ended September 30, 2022. The resulting gross margin for the nine months ended September 30, 2023 was 38.1%, compared with 42.2% for the nine months ended September 30, 2022.
  
• Total Operating Expenses: For the nine months ended September 30, 2023, total operating expenses, including general and administrative, sales and marketing and research and development costs, were $6.4 million, a decrease of $3.0 million, or 32%, compared with $9.4 million for the nine months ended September 30, 2022.
  
• Operating Loss: For the nine months ended September 30, 2023, operating loss was $2.3 million, an increase of $2.2 million, as compared with an operating loss of $0.1 million for the nine months ended September 30, 2022.
  
• Net Income/Loss: For the nine months ended September 30, 2023, net loss was $2.1 million, compared with net income of $0.3 million for the nine months ended September 30, 2022. Of note, net loss for the nine months ended September 30, 2023 included a $0.6 million gain in fair value of derivative liabilities and a $0.4 million interest expenses, compared with $0.6 million gain in fair value of derivative liabilities and a $0.1 million interest expense for the nine months ended September 30, 2022.
  
• EPS: For the nine months ended September 30, 2023, loss per share was ($0.01), compared with diluted earnings per share of $0.00, for the nine months ended September 30, 2022.

About Charlie's Holdings, Inc.

Charlie's Holdings, Inc. (OTCQB: CHUC) is an industry leader in the premium vapor products space. The Company's products are sold around the world to select distributors, specialty retailers, and third-party online resellers through subsidiary companies Charlie's Chalk Dust, LLC and Don Polly, LLC. Charlie's Chalk Dust, LLC has developed an extensive portfolio of brand styles, flavor profiles, and innovative product formats. Don Polly, LLC creates innovative hemp-derived products and brands.

For additional information, please visit Charlie's corporate website at: Chuc.com and the Company's branded online websites: CharliesChalkDust.com, Pacha.co, Pinweel.com and SPREEBAR.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 ongoing ability to quote its shares on the OTCQB; whether the Company will meet the requirements to uplist to a national securities exchange in the future; the Company's ability to successfully increase sales and enter new markets; whether the Company's PMTA's will be approved by the FDA, and the FDA's decisions with respect to the Company's future PMTA's; the Company's ability to manufacture and produce products 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, synthetic nicotine, and products containing cannabidiol; litigation risks from the use of the Company's products; risks of government regulations, including recent regulation of synthetic nicotine; 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, annual report on Form 10-K, 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

Phone: 949-570-0691

SOURCE: Charlie's Holdings, Inc.