[X]
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
[ ]
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
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Nevada
|
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84-1575085
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(State or Other Jurisdiction of Incorporation
or Organization)
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|
(IRS Employer Identification No.)
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Large accelerated filer
|
[ ]
|
Accelerated filer
|
[ ]
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Non-accelerated filer
|
[X]
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Smaller reporting company
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[X]
|
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Emerging growth company
|
[ ]
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
|
|
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Page
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1
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2
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3
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4
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5
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16
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29
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29
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30
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30
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40
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40
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40
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40
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40
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41
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June 30,
|
December 31,
|
|
2019
|
2018
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
|
$5,120
|
$304
|
Accounts
receivable, net
|
1,980
|
711
|
Inventories,
net
|
1,236
|
658
|
Prepaid
expenses and other current assets
|
973
|
427
|
Total
current assets
|
9,309
|
2,100
|
|
|
|
Non-current
assets:
|
|
|
Property,
plant and equipment, net
|
216
|
45
|
Right-of-use
asset, net
|
748
|
-
|
Other
assets
|
68
|
42
|
Total
non-current assets
|
1,032
|
87
|
|
|
|
TOTAL ASSETS
|
$10,341
|
$2,187
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
Current
liabilities:
|
|
|
Accounts
payable and accrued expenses
|
$1,548
|
$1,216
|
Derivative
liability
|
7,584
|
-
|
Lease
liabilities
|
249
|
-
|
Deferred
revenue
|
142
|
180
|
Total
current liabilities
|
9,523
|
1,396
|
|
|
|
Non-current
liabilities:
|
|
|
Lease
liabilities, net of current portion
|
519
|
-
|
Total
non-current liabilities
|
519
|
-
|
|
|
|
Total
liabilities
|
10,042
|
1,396
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
Convertible
preferred stock ($0.001 par value); 1,800,000 shares
authorized
|
|
|
Series
A, 300,000 shares designated, 206,248 and 0 shares issued and
outstanding as of June 30, 2019 and December 31, 2018,
respectively
|
-
|
-
|
Series
B, 1.5 million shares designated, 0 and 1.4 million shares issued
and outstanding as of June 30, 2019 and December 31, 2018,
respectively
|
-
|
1
|
Common
stock ($0.001 par value); 50 billion shares authorized; 18,936
million shares and 141 million shares issued and outstanding as of
June 30, 2019 and December 31, 2018, respectively
|
18,936
|
141
|
Additional
paid-in capital
|
(17,749)
|
-
|
Retained
earnings (accumulated deficit)
|
(888)
|
649
|
Total
stockholders' equity
|
299
|
791
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$10,341
|
$2,187
|
|
For the three months ended
|
For the six months ended
|
||
|
June 30,
|
June 30,
|
||
|
2019
|
2018
|
2019
|
2018
|
Revenues:
|
|
|
|
|
Product
revenue, net
|
$6,819
|
$5,486
|
$13,466
|
$10,919
|
Total
revenues
|
6,819
|
5,486
|
13,466
|
10,919
|
Operating costs and expenses:
|
|
|
|
|
Cost
of goods sold - product revenue
|
2,846
|
2,054
|
5,596
|
4,220
|
General
and administrative
|
6,374
|
524
|
7,029
|
1,016
|
Sales
and marketing
|
810
|
783
|
1,577
|
1,500
|
Total
operating costs and expenses
|
10,030
|
3,361
|
14,202
|
6,736
|
Loss
from operations
|
(3,211)
|
2,125
|
(736)
|
4,183
|
Other income:
|
|
|
|
|
Change
in fair value of derivative liabilities
|
178
|
-
|
178
|
-
|
Total
other income
|
178
|
-
|
178
|
-
|
Net income (loss)
|
$(3,033)
|
$2,125
|
$(558)
|
$4,183
|
|
|
|
|
|
Net earnings (loss) per share applicable to common
stockholders
|
|
|
|
|
Basic
|
$(0.00)
|
$0.02
|
$(0.00)
|
$0.03
|
Diluted
|
$(0.00)
|
$0.00
|
$(0.00)
|
$0.00
|
Weighted
average shares used in computing basic earnings (loss) per
share
|
4,259,080
|
141,041
|
2,211,436
|
141,041
|
Weighted
average shares used in computing diluted earnings (loss) per
share
|
4,259,080
|
14,104,089
|
2,211,436
|
14,104,089
|
|
For
the Three Months Ended June 30, 2019
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
Series A
Convertible
Preferred Stock |
Series B
Convertible
Preferred Stock |
Common Stock
|
Additional
|
Retained Earnings
|
Total Stockholders'
|
|||
|
Shares
|
Par value
|
Shares
|
Par value
|
Shares
|
Par value
|
Paid-in Capital
|
(Accumulated Deficit)
|
Equity
|
Balance at April 1, 2019
|
-
|
$-
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$2,145
|
$2,287
|
Effect
of reverse merger
|
-
|
-
|
-
|
-
|
2,377,530
|
2,378
|
(2,378)
|
-
|
-
|
Conversion
of Series B convertible preferred stock
|
-
|
-
|
(1,396)
|
(1)
|
13,963,048
|
13,963
|
(13,962)
|
-
|
-
|
Issuance
of common stock and warrants in a private offering, net of $7,762
warrant liability
|
206
|
-
|
-
|
-
|
1,551,466
|
1,551
|
18,186
|
-
|
19,737
|
Offering
cost related to private offering
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,339)
|
-
|
(4,339)
|
Cash
distributions to CCD Members
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,430)
|
-
|
(17,430)
|
Stock
compensation
|
-
|
-
|
-
|
-
|
902,662
|
903
|
2,174
|
-
|
3,077
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,033)
|
(3,033)
|
Balance at June 30, 2019
|
206
|
$-
|
-
|
$0
|
18,935,747
|
$18,936
|
$(17,749)
|
$(888)
|
$299
|
|
For
the Three Months Ended June 30, 2018
|
||||||
|
|
|
|
|
|
|
|
|
Series B
Convertible
Preferred Stock |
Common Stock
|
Additional
|
Retained
|
Total
Stockholders'
|
||
|
Shares
|
Par value
|
Shares
|
Par value
|
Paid-in Capital
|
Earnings
|
Equity
|
Balance at April 1, 2018
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$2,309
|
$2,451
|
Cash
distributions to CCD Members
|
-
|
-
|
-
|
-
|
-
|
(2,252)
|
(2,252)
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
2,125
|
2,125
|
Balance at June 30, 2018
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$2,182
|
$2,324
|
|
For
the Six Months Ended June 30, 2019
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
Series A
Convertible
Preferred Stock |
Series B
Convertible
Preferred Stock |
Common Stock
|
Additional
|
Retained Earnings
|
Total
Stockholders'
|
|||
|
Shares
|
Par value
|
Shares
|
Par value
|
Shares
|
Par value
|
Paid-in Capital
|
(Accumulated Deficit)
|
Equity
|
Balance at January 1, 2019
|
-
|
$-
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$649
|
$791
|
Effect
of reverse merger
|
-
|
-
|
-
|
-
|
2,377,530
|
2,378
|
(2,378)
|
-
|
-
|
Conversion
of Series B convertible preferred stock
|
-
|
-
|
(1,396)
|
(1)
|
13,963,048
|
13,963
|
(13,962)
|
-
|
-
|
Issuance
of common stock and warrants in a private offering, net of $7,762
warrant liability
|
206
|
-
|
-
|
-
|
1,551,466
|
1,551
|
18,186
|
-
|
19,737
|
Offering
cost related to private offering
|
-
|
-
|
-
|
-
|
-
|
-
|
(4,339)
|
-
|
(4,339)
|
Cash
distributions to CCD Members
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,430)
|
(979)
|
(18,409)
|
Stock
compensation
|
-
|
-
|
-
|
-
|
902,662
|
903
|
2,174
|
-
|
3,077
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(558)
|
(558)
|
Balance at June 30, 2019
|
206
|
$-
|
-
|
$-
|
18,935,747
|
$18,936
|
$(17,749)
|
$(888)
|
$299
|
|
For the Six Months Ended June 30, 2018
|
||||||
|
Series B Convertible
Preferred Stock
|
Common Stock
|
Additional
|
Retained
|
Total Stockholders'
|
||
|
Shares
|
Par value
|
Shares
|
Par value
|
Paid-in Capital
|
Earnings
|
Equity
|
Balance at January 1, 2018
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$1,401
|
$1,543
|
Cash
distributions to CCD Members
|
-
|
-
|
-
|
-
|
-
|
(3,402)
|
(3,402)
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
4,183
|
4,183
|
Balance at June 30, 2018
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$2,182
|
$2,324
|
|
For the six months ended
|
|
|
June 30,
|
|
|
2019
|
2018
|
Cash Flows from Operating Activities:
|
|
|
Net (loss) income
|
$(558)
|
$4,183
|
Reconciliation of net (loss) income to net cash provided by
operating activities:
|
|
|
Bad
debt recoveries
|
(35)
|
-
|
Depreciation
and amortization
|
12
|
10
|
Change
in fair value of derivative liabilities
|
(178)
|
-
|
Amortization
of operating lease right-of-use asset
|
46
|
-
|
Stock
based compensation
|
3,077
|
-
|
Subtotal
of non-cash charges
|
2,922
|
10
|
Changes in operating assets and liabilities:
|
|
|
Accounts
receivable
|
(1,235)
|
(241)
|
Inventories
|
(578)
|
(440)
|
Prepaid
expenses and other current assets
|
(546)
|
303
|
Other
assets
|
(26)
|
(4)
|
Accounts
payable and accrued expenses
|
332
|
(326)
|
Deferred
revenue
|
(38)
|
130
|
Lease
liabilities
|
(26)
|
-
|
Net
cash provided by operating activities
|
247
|
3,615
|
Cash Flows from Investing Activities:
|
|
|
Purchase
of property, plant and equipment
|
(182)
|
(5)
|
Net
cash used in investing activities
|
(182)
|
(5)
|
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)
|
(3,402)
|
Net
cash provided by (used in) financing activities
|
4,751
|
(3,402)
|
Net
increase in cash
|
4,816
|
208
|
|
|
|
Cash,
beginning of the period
|
304
|
655
|
Cash, end of the period
|
$5,120
|
$863
|
|
|
|
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
|
$-
|
|
Fair
Value at June 30, 2019
|
|||
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Liabilities:
|
|
|
|
|
Derivative
liability
|
$7,584
|
$-
|
$-
|
$7,584
|
Total
liabilities
|
$7,584
|
$-
|
$-
|
$7,584
|
|
Warrant
Liability
|
Balance
at January 1, 2019
|
$-
|
Addition
|
7,762
|
Change
in fair value
|
(178)
|
Balance
at June 30, 2019
|
$7,584
|
|
As of
June 30, 2019
|
Exercise
price
|
$0.0044
|
Contractual
term (years)
|
4.83
|
Volatility
(annual)
|
65.0%
|
Risk-free
rate
|
1.8%
|
Dividend
yield (per share)
|
0%
|
|
June
30,
|
December
31,
|
|
|
2019
|
2018
|
Estimated
Useful Life
|
Machinery
and equipment
|
$74
|
$64
|
5
years
|
Trade
show booth
|
144
|
144
|
5
years
|
Office
equipment
|
61
|
26
|
5
years
|
Leasehold
improvements
|
158
|
20
|
Lesser
of lease term or estimated useful life
|
|
437
|
254
|
|
Accumulated
depreciation
|
(221)
|
(209)
|
|
|
$216
|
$45
|
|
|
For the
three months ended
|
For the
six months ended
|
||
|
June
30,
|
June
30,
|
||
|
2019
|
2018
|
2019
|
2018
|
Vendor
A
|
54%
|
69%
|
66%
|
66%
|
Vendor
B
|
18%
|
15%
|
15%
|
19%
|
Vendor
C
|
-
|
12%
|
-
|
13%
|
|
June
30,
|
December
31,
|
|
2019
|
2018
|
Customer
A
|
14%
|
6%
|
|
June
30,
|
December
31,
|
|
2019
|
2018
|
Accounts
payable
|
$1,106
|
$901
|
Accrued
compensation
|
213
|
288
|
Insurance
payable
|
140
|
20
|
Other
accrued expenses
|
89
|
7
|
|
$1,548
|
$1,216
|
|
For the
three months ended
|
For the
six months ended
|
||
|
June
30,
|
June
30
|
||
|
2019
|
2018
|
2019
|
2018
|
Numerator
|
|
|
|
|
Net
earnings (loss)
|
$(3,033)
|
$2,125
|
$(558)
|
$4,183
|
|
|
|
|
|
Denominator
|
|
|
|
|
Weighted
average shares outstanding - basic
|
4,259,080
|
141,041
|
2,211,436
|
141,041
|
Series
B convertible preferred shares
|
-
|
13,963,048
|
-
|
13,963,048
|
Weighted
average shares outstanding - diluted
|
4,259,080
|
14,104,089
|
2,211,436
|
14,104,089
|
Earnings
(loss) per share - basic
|
$(0.00)
|
$0.02
|
$(0.00)
|
$0.03
|
Earnings
(loss) per share - diluted
|
$(0.00)
|
$0.00
|
$(0.00)
|
$0.00
|
|
For the
three and six months ended
|
|
|
June
30
|
|
|
2019
|
2018
|
Options
|
61,825
|
15,566
|
Series
A convertible preferred shares
|
4,654,399
|
-
|
Total
|
4,716,224
|
15,566
|
|
Stock Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Life (in years)
|
Aggregate Intrinsic Value
|
Outstanding
at January 1, 2019
|
85,990,609
|
$0.02
|
8.18
|
-
|
Options
granted
|
49,382,294
|
0.02
|
|
|
Options
forfeited
|
(73,548,077)
|
0.02
|
-
|
-
|
Outstanding
at June 30, 2019
|
61,824,826
|
0.02
|
5.20
|
-
|
Options
vested and exercisable at June 30, 2019
|
61,824,826
|
$0.02
|
5.20
|
-
|
|
For the Three Months Ended June 30, 2019
|
For the Six Months Ended June 30, 2019
|
Operating
leases
|
|
|
Operating
lease cost
|
$54
|
$64
|
Variable
lease cost
|
-
|
-
|
Operating
lease expense
|
54
|
64
|
Short-term
lease rent expense
|
-
|
-
|
Total
rent expense
|
$54
|
$64
|
|
For the Three Months Ended June 30, 2019
|
For the Six Months Ended June 30, 2019
|
Operating
cash flows from operating leases
|
$34
|
$44
|
Weighted-average
remaining lease term – operating leases (in
years)
|
2.8
|
2.8
|
Weighted-average
discount rate – operating leases
|
12.0%
|
12.0%
|
|
|
|
Remaining
months in the year ended December 31, 2019
|
$161
|
$161
|
Year
Ended December 31, 2020
|
325
|
325
|
Year
Ended December 31, 2021
|
302
|
302
|
Year
Ended December 31, 2022
|
124
|
123
|
Total
|
912
|
912
|
Less
present value discount
|
(144)
|
(144)
|
Operating
lease liabilities as of June 30, 2019
|
$768
|
$768
|
|
For the
three months ended
|
|
|
|
|
June
30,
|
Change
|
||
|
2019
|
2018
|
Amount
|
Percentage
|
($ in thousands)
|
|
|
|
|
Revenues:
|
|
|
|
|
Product
revenue, net
|
$6,819
|
$5,486
|
$1,333
|
24%
|
Total
revenues
|
6,819
|
5,486
|
1,333
|
24%
|
Operating costs and expenses:
|
|
|
|
|
Cost
of goods sold - product revenue
|
2,846
|
2,054
|
792
|
39%
|
General
and administrative
|
6,374
|
524
|
5,850
|
1116%
|
Sales
and marketing
|
810
|
783
|
27
|
3%
|
Total
operating costs and expenses
|
10,030
|
3,361
|
6,669
|
198%
|
Loss
from operations
|
(3,211)
|
2,125
|
(5,336)
|
-251%
|
Other income:
|
|
|
|
|
Change
in fair value of derivative liabilities
|
178
|
-
|
178
|
100%
|
Total
other income
|
178
|
-
|
178
|
100%
|
Net income (loss)
|
$(3,033)
|
$2,125
|
$(5,158)
|
-243%
|
|
For the
six months ended
|
|
|
|
|
June
30,
|
Change
|
||
|
2019
|
2018
|
Amount
|
Percentage
|
($ in thousands)
|
|
|
|
|
Revenues:
|
|
|
|
|
Product
revenue, net
|
$13,466
|
$10,919
|
$2,547
|
23%
|
Total
revenues
|
13,466
|
10,919
|
2,547
|
23%
|
Operating costs and expenses:
|
|
|
|
|
Cost
of goods sold - product revenue
|
5,596
|
4,220
|
1,376
|
33%
|
General
and administrative
|
7,029
|
1,016
|
6,013
|
592%
|
Sales
and marketing
|
1,577
|
1,500
|
77
|
5%
|
Total
operating costs and expenses
|
14,202
|
6,736
|
7,466
|
111%
|
Loss
from operations
|
(736)
|
4,183
|
(4,919)
|
-118%
|
Other income:
|
|
|
|
|
Change
in fair value of derivative liabilities
|
178
|
-
|
178
|
100%
|
Total
other income
|
178
|
-
|
178
|
100%
|
Net income (loss)
|
$(558)
|
$4,183
|
$(4,741)
|
-113%
|
|
|
(a)
|
|
Exhibits
|
|
|
|
|
Amended and Restated Articles of Incorporation incorporated herein
by reference from Appendix A to the Definitive Information
Statement on Schedule 14C, filed on May 28, 2019.
|
|
|
2019 Omnibus Incentive Plan, incorporated by reference from
Appendix B to the Definitive Information Statement on Schedule 14C,
filed on May 28, 2019.
|
|
|
License Agreement by and between the Company and Don Polly, LLC,
dated June 5, 2019, incorporated by reference from Exhibit 10.1 to
the Current Report on Form 8-K, filed on June 11,
2019.
|
|
|
Services Agreement by and between the Company and Don Polly, LLC,
dated June 5, 2019, incorporated by reference from Exhibit 10.2 to
the Current Report on Form 8-K, filed on June 11,
2019.
|
|
|
Certification of the Principal Executive Officer pursuant to Rule
13a-14(a) and 15d-14(a).
|
|
|
Certification of the Principal Financial and Accounting Officer
pursuant to Rule 13a-14(a) and 15d-14(a).
|
|
|
Certification by the Principal Executive Officer pursuant to 18
U.S.C. 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
Certification by the Principal Financial and Accounting Officer
pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
101.INS
|
|
XBRL
Instance Document
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase
|
Date: August 14, 2019
|
|
CHARLIE’S HOLDINGS, INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Brandon
Stump
|
|
|
|
Brandon Stump
Chief Executive Officer and Chairman
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
/s/
David Allen
|
|
|
|
David Allen
Chief Financial Officer
(Principal
Financial and Accounting Officer)
|
|
|
|
|
1. I have reviewed this quarterly report on Form 10-Q 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 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
our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made
known to us 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 our 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 functions):
|
|
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.
|
|
/s/ Brandon Stump
|
|
Brandon
Stump
|
|
Chief Executive Officer and Chairman
(Principal Executive Officer)
|
|
1. I have reviewed this quarterly report on Form 10-Q 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 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
our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made
known to us 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 our 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 functions):
|
|
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.
|
|
/s/ David Allen
|
|
David Allen
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
(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
results of operations of the Company.
|
|
/s/ Brandon
Stump
|
|
Brandon
Stump
|
|
Chief Executive Officer and Chairman
(Principal Executive Officer)
|
|
|
Date: August 14, 2019
|
|
|
(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
results of operations of the Company.
|
|
/s/ David
Allen
|
|
David Allen
|
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
Date: August 14, 2019
|
|
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2019 |
Aug. 12, 2019 |
|
Document And Entity Information | ||
Entity Registrant Name | Charlie's Holdings, Inc. | |
Entity Central Index Key | 0001134765 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2019 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Emerging Growth Company | false | |
Entity Small Business | true | |
Entity Common Stock, Shares Outstanding | 18,935,746,390 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2019 | |
Entity Interactive Data Current | Yes | |
Entity Incorporation State Country Code | NV | |
Entity File Number | 001-32420 |
CONSOLIDATED BALANCE SHEET (Parenthetical) - $ / shares |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Preferred stock par value | $ .001 | $ .001 |
Preferred stock shares authorized | 1,800,000 | 1,800,000 |
Common stock, par value | $ .001 | $ 0.001 |
Common stock, shares authorized | 50,000,000,000 | 50,000,000,000 |
Common stock, shares issued | 18,936,000,000 | 141,000,000 |
Common stock, shares outstanding | 18,936,000,000 | 141,000,000 |
Series A Preferred Stock | ||
Preferred stock shares authorized | 300,000 | 300,000 |
Preferred stock shares issued | 206,248 | 0 |
Preferred stock shares outstanding | 206,248 | 0 |
Series B Preferred Stock | ||
Preferred stock shares authorized | 1,500,000 | 1,500,000 |
Preferred stock shares issued | 0 | 1,400,000 |
Preferred stock shares outstanding | 0 | 1,400,000 |
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
|
Revenues: | ||||
Product revenue, net | $ 6,819 | $ 5,486 | $ 13,466 | $ 10,919 |
Total revenues | 6,819 | 5,486 | 13,466 | 10,919 |
Operating costs and expenses: | ||||
Cost of goods sold - product revenue | 2,846 | 2,054 | 5,596 | 4,220 |
General and administrative | 6,374 | 524 | 7,029 | 1,016 |
Sales and marketing | 810 | 783 | 1,577 | 1,500 |
Total operating costs and expenses | 10,030 | 3,361 | 14,202 | 6,736 |
Loss from operations | (3,211) | 2,125 | (736) | 4,183 |
Other income: | ||||
Change in fair value of derivative liabilities | 178 | 0 | 178 | 0 |
Total other income | 178 | 0 | 178 | 0 |
Net income (loss) | $ (3,033) | $ 2,125 | $ (558) | $ 4,183 |
Net earnings (loss) per share applicable to common stockholders | ||||
Basic | $ (0.00) | $ 0.02 | $ 0.00 | $ 0.03 |
Diluted | $ (0.00) | $ 0.00 | $ 0.00 | $ 0.00 |
Weighted average shares used in computing basic earnings (loss) per share | 4,259,080 | 141,041 | 2,211,436 | 141,041 |
Weighted average shares used in computing diluted earnings (loss) per share | 4,259,080 | 14,104,089 | 2,211,436 | 14,104,089 |
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION |
6 Months Ended |
---|---|
Jun. 30, 2019 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION | Description of the Business
Charlie’s Holdings, Inc., (formerly True Drinks Holdings, Inc.) a Nevada corporation and its wholly owned subsidiaries and consolidated variable interest entity (collectively, the “Company”, “we”) currently formulates, markets and distributes branded e-cigarette liquid for use in both open and closed consumer e-cigarette and vaping systems. The Company’s products are produced domestically through contract manufacturers for sale by select distributors, specialty retailers and third-party online resellers throughout the United States, as well as over 80 countries worldwide. The Company’s primary international markets include the United Kingdom, Italy, Spain, Belgium, Australia, Sweden and Canada. In June 2019, The Company launched distribution, through Don Polly, a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, the Company’s Chief Executive Officer and Chief Operating Officer, respectively, and a consolidated variable interest for which the Company is the primary beneficiary (“Don Polly”), of certain premium vapor, tincture and topical products containing hemp-derived cannabidiol (“CBD”) and the Company currently intends to develop and launch additional products containing hemp-derived CBD in the future.
In addition to Don Polly, we are also the holding company for two wholly-owned subsidiaries, Charlie’s Chalk Dust, LLC (“Charlie’s”), which activity includes production and sale of our branded nicotine-based e-cigarette liquid, and Bazi, Inc, which activity includes sales of all-natural energy drink Bazi® All Natural Energy. At this time, we do not intend to continue sales of the Bazi product. Our CBD based products are produced, marketed and sold through, Don Polly.
Acquisition of True Drinks Holdings, Inc.
On April 26, 2019 (the “Closing Date”), we entered into a Securities Exchange Agreement with each of the members (“Members”) of Charlie’s, and certain direct investors (“Direct Investors”), pursuant to which we acquired all outstanding membership interests of Charlie’s beneficially owned by the Members in exchange for the issuance by the Company of units, with such units consisting of an aggregate of (i) 15,655,538,349 shares of common stock (which includes the issuance of an aggregate of 1,396,305 shares of a newly created class of Series B Convertible Preferred Stock, par value $0.001 per share (“Series B Preferred”), convertible into an aggregate of 13,963,047,716 shares of common stock, issued to certain individuals in lieu of common stock); (ii) 206,249 shares of a newly created class of Series A Convertible Preferred Stock, par value $0.001 per share (“Series A Preferred”), convertible into an aggregate of 4,654,349,239 shares of common stock; and (iii) warrants to purchase an aggregate of 3,102,899,493 shares of common stock (the “Investor Warrants”) (the “Share Exchange”). As a result of the Share Exchange, Charlie’s became a wholly owned subsidiary of the Company.
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 CCD of approximately $27.5 million (the “Charlie’s Financing”). Katalyst Securities LLC (“Katalyst”) acted as the sole placement agent in connection with the Charlie’s Financing pursuant to an Engagement Letter entered into by and between Katalyst, Charlie’s and the Company on February 15, 2019. As consideration for its services in connection with the Charlie’s Financing and the Share Exchange, the Company issued to Katalyst and its designees five-year warrants to purchase an aggregate of 902,661,671 shares of Common Stock at a price of $0.0044313 per share (the “Placement Agent Warrants”). The Placement Agent Warrants have substantially the same terms as those set forth in the Investor Warrants.
The Share Exchange resulted in a change of control of the Company, with the Members and Direct Investors owning approximately 85.7% of the Company’s outstanding voting securities immediately after the Share Exchange, and the Company’s current stockholders beneficially owning approximately 14.3% of the issued and outstanding voting securities, which includes the Advisory Shares. Together, Ryan Stump and Brandon Stump, the founders of Charlie’s and the Company’s newly appointed Chief Executive Officer and Chief Operating Officer, respectively, own in excess of 50% of the Company’s issued and outstanding voting securities as a result of the Share Exchange.
The Share Exchange is accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) because the primary assets of the Company were nominal following the close of the Share Exchange. Charlie’s was determined to be the accounting acquirer based upon the terms of the Share Exchange and other factors including: (i) Charlie’s stockholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for Charlie’s membership units now own approximately 49%, on a fully diluted basis, of the Company’s outstanding securities immediately following the effective time of the Merger, (ii) individuals associated with Charlie’s now hold a majority of the seats on the Company’s Board of Directors and (iii) Charlie’s management holds all key positions in the management of the combined Company. Accordingly, the historical financial statements of True Drinks became the Company's historical financial statements including the comparative prior periods. All references in the unaudited condensed consolidated financial statements to the number of shares and per-share amounts of common stock have been retroactively restated to reflect the exchange rate.
Basis of Presentation
The unaudited interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted pursuant to such SEC rules and regulations; nevertheless, the Company believes that the disclosures are adequate to make the information presented in this Quarterly Report on Form 10-Q (this “Report”) not misleading.
Amounts related to disclosure of December 31, 2018 balances within the interim condensed consolidated financial statements were derived from the audited 2018 financial statements and notes thereto of Charlie’s. These financial statements and the notes hereto should be read in conjunction with the audited December 31, 2018 financial statements and notes thereto contained in our Registration Statement on Form S-1, filed with the SEC on July 11, 2019 (File No. 333-232596). 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. The results of operations for the interim period are not necessarily indicative of the results for any subsequent interim period or for the full year.
The financial information contained in these unaudited condensed consolidated financial statements and footnotes are based on Charlie’s historical financial statements and the Company’s financial activity beginning April 26, 2019, as adjusted, to give effect to Charlie’s reverse recapitalization of the Company and the Charlie’s Financing completed prior to the Share Exchange. In addition, from the period April 26, 2019 until June 30, 2019, there were minimal costs and revenue associated with the Bazi product line which are included in the interim condensed consolidated financial statements. As noted above, we do not intend to continue to produce and sell the Bazi product line, and these costs and expenses are nominal and will continue to be so in the future. The operating results of Don Polly for the quarter ended June 30, 2019 are also included.
Historical financial information presented prior to April 26, 2019 is that of Charlie’s only, while financial information presented after April 26, 2019 includes Charlie’s, Don Polly, Bazi Drinks and the Company, which includes the transactions associated with the share exchange and private placement transaction along with ongoing corporate costs.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended |
---|---|
Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | Principles of Consolidation
As noted above, the consolidated financial statements include the accounts of the Company, Charlie’s Holdings, Inc., its two 100% wholly owned subsidiaries, Charlie’s Chalk Dust, LLC and Bazi, Inc, and Don Polly, LLC, a consolidated variable interest for which the Company is the primary beneficiary (see Note 8). 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. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, warrant liability and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.
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 and promotional discounts on current orders. 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.
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 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 June 30, 2019, and December 31, 2018, the allowance for bad debt totaled $116,000 and $151,000, 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 June 30, 2019, and December 31, 2018, the reserve for excess and obsolete inventories totaled $62,000 and $74,000, respectively.
Stock-Based Compensation
We account for all stock-based compensation using a fair value-based method. The fair value of financial instruments 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 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.
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.
Recently Issued Accounting Pronouncements
Revenue from Contracts with Customer
The Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this update create common revenue recognition guidance for entities reporting revenue under U.S. GAAP and IFRS by requiring entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Entities should apply the following five steps: (1) identify the contract(s) with a customer, (2) identify performance obligations in the contract, (3) determine transaction price, (4) allocate transaction price to performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Entities should also disclose qualitative and quantitative information about (1) contracts with customers, including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations and related transaction price allocation to remaining performance obligations, (2) significant judgments and changes thereof in determining the timing of performance obligations over time or at a point in time and the transaction price and amounts allocated to performance obligations, and (3) assets recognized from the costs to obtain or fulfill a contract. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017.
The Company adopted this guidance on January 1, 2018 using the modified retrospective transition method. Prior periods were not adjusted and, based on the Company’s implementation assessment, no cumulative-effect adjustment was made to the opening balance of retained earnings. The adoption of this standard did not have a material impact on the financial statements other than expanded disclosures. For further description of the Company’s revenue recognition policy refer to the Revenue Recognition section above and for disaggregated revenue information refer to the Segment Reporting section above.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets of approximately $81,000 and lease liability of approximately $81,000.
Improvements to Non-Employee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07 “Improvements to Non-employee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the ASU, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company has early adopted the new standard effective January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
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REVERSE RECAPITALIZATION |
6 Months Ended |
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Jun. 30, 2019 | |
Reverse Recapitalization | |
REVERSE RECAPITALIZATION | As noted under the heading “Share Exchange” in Note 1 above, on April 26, 2019, we entered into a Securities Exchange Agreement with each of the Members of Charlie’s, and certain Direct Investors, pursuant to which we completed the Share Exchange and acquired all outstanding membership interests of Charlie’s beneficially owned by the Members in exchange for the issuance by the Company of units, with such units consisting of an aggregate of (i) 15,655,538,349 shares of common stock (which includes the issuance of an aggregate of 1,396,305 shares of a newly created class Series B Preferred, convertible into an aggregate of 13,963,047,716 shares of common stock, issued to certain individuals in lieu of common stock); (ii) 206,249 shares of a newly created class of Series A Preferred, convertible into an aggregate of 4,654,349,239 shares of common stock; and (iii) Investor Warrants to purchase an aggregate of 3,102,899,493 shares of common stock . As a result of the Share Exchange, Charlie’s became a wholly owned subsidiary of the Company. The Company accounted for such transaction as reverse recapitalization.
Immediately prior to, and in connection with, the Share Exchange, Charlie’s consummated the Charlie’s Financing, a private offering of membership interests that resulted in gross proceeds to Charlie’s of approximately $27.5 million. Katalyst acted as the sole placement agent in connection with the Charlie’s Financing pursuant to an Engagement Letter entered into by and between Katalyst, Charlie’s and the Company on February 15, 2019, which was amended on April 16, 2019 (“Amended Engagement Letter”). As consideration for its services in connection with the Charlie’s Financing and Share Exchange, the Company issued to Katalyst and its designees five-year Placement Agent Warrants to purchase an aggregate of 930,869,848 shares of common stock at a price of $0.0044313 per share. The Placement Agent Warrants have substantially the same terms as those set forth in the Investor Warrants.
The Share Exchange resulted in a change of control of the Company, with the Members and Direct Investors owning approximately 85.7% of the Company’s outstanding voting securities immediately after the Share Exchange, and the Company’s current stockholders beneficially owning approximately 14.3% of the issued and outstanding voting securities, which includes the Advisory Shares. Together, Ryan Stump and Brandon Stump, the founders of Charlie’s and the Company’s newly appointed Chief Executive Officer and Chief Operating Officer, respectively, own in excess of 50% of the Company’s issued and outstanding voting securities as a result of the Share Exchange.
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FAIR VALUE MEASUREMENTS |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 June 30, 2019 (amount in thousands):
There were no transfers between Level 1, 2 or 3 during the six-month period ended June 30, 2019.
The following table presents changes in Level 3 liabilities measured at fair value for the six-month period ended June 30, 2019. 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 (amount in thousands).
A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in Mote Carlo simulation measuring the Company’s warrant liabilities that are categorized within Level 3 of the fair value hierarchy as of June 30, 2019 is as follows:
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STOCK-BASED COMPENSATION |
6 Months Ended |
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Jun. 30, 2019 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
STOCK-BASED COMPENSATION | On April 26, 2019, as additional consideration for advisory services provided in connection with the Charlie’s Financing and the Share Exchange (see Note 3 above), the Company issued an aggregate of 902.7 million shares of common stock (the “Advisory Shares”), including to a member of the Company’s Board of Directors, pursuant to a subscription agreement. The fair value of a share of common stock was $0.0032 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recorded stock-based compensation of approximately $2.9 million on the grant date.
Prior to the Share Exchange, Charlie’s employees held Member units, which were automatically converted into 7.1 million shares of common stock and 69,815 shares of Series B Preferred (or 698.1 million shares of common stock equivalents) due to the effect of the Share Exchange. The 705.3 million shares of common stock will vest over a two-year period. The fair value of a share of common stock was $0.0032 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recorded stock-based compensation of approximately $188,000 during the six months ended June 30, 2019.
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PROPERTY AND EQUIPMENT |
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PROPERTY AND EQUIPMENT | Property and Equipment detail as of June 30, 2019 and December 31, 2018 are as follows (amount in thousands):
Depreciation and amortization expense totaled $9,000 and $5,000 , respectively, during the three months ended June 30, 2019 and 2018. For the six months ended June 30, 2019 and 2018 depreciation and amortization expense totaled $12,000 and $10,000, respectively.
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CONCENTRATIONS |
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CONCENTRATIONS | Vendors
The Company’s concentration of purchases are as follows:
During the three months ended June 30, 2019, purchases from two vendors represented 73% of total inventory purchases. During the three months ended June 30, 2018, purchases from three vendors represented 96% of total inventory purchases. During the six months ended June 30, 2019, purchases from two vendors represented 81% of total inventory purchases. During the six months ended June 30, 2018, purchases from three vendors represented 98% of total inventory purchases.
As of June 30, 2019, and December 31, 2018, amounts owed to these vendors totaled $651,504 and $653,647, respectively, which are included in accounts payable in the accompanying condensed balance sheets.
Accounts Receivable
`The Company’s concentration of accounts receivable are as follows:
One customer made up more than 10% of accounts receivable at June 30, 2019. Customer A owed the Company a total of $284,871, representing 14% of net receivables. No customer exceeded 10% of total net sales for the three and six-month periods ended June 30, 2019 and June 30, 2018, respectively.
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DON POLLY, LLC. |
6 Months Ended |
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Jun. 30, 2019 | |
Variable Interest Entity, Measure of Activity [Abstract] | |
DON POLLY, LLC. | Don Polly, LLC is a Nevada limited liability company that is owned by entities controlled by Brandon and Ryan Stump, the Company’s Chief Executive Officer and Chief Operating Officer, respectively, and a consolidated variable interest for which the Company is the primary beneficiary. Don Polly formulates, sells and distributes the Company’s CBD product lines.
We evaluate our ownership, contractual and other interests in entities that are not wholly-owned to determine if these entities are variable interest entities (“VIEs”), and, if so, whether we are the primary beneficiary of the VIE. In determining whether we are the primary beneficiary of a VIE and therefore required to consolidate the VIE, we apply a qualitative approach that determines whether we have both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (2) the obligation to absorb losses of, or the rights to receive benefits from, the VIE that could potentially be significant to that VIE. We continuously perform this assessment, as changes to existing relationships or future transactions may result in the consolidation or deconsolidation of a VIE. Effective April 25, 2019, we consolidated the financial statements of Don Polly and it is considered a VIE of The Company. Since the Company has been determined to be the primary beneficiary of Don Polly, we have included Don Polly’s assets, liabilities, and operations in the accompanying consolidated financial statements of the Company.
Don Polly operates under exclusive licensing and service contracts with the Company whereby the Company receives 75% of net income from the licensing agreement and 25% of net income from the service agreement, therefore, as the Company receives 100% of the net income or incurs 100% of the net loss of the VIE, no non-controlling interests are recorded.
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Accounts payable and accrued expenses as of June 30, 2019 and December 31, 2018 are as follows (amount in thousands):
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EARNING PER SHARE BASIC AND FULLY DILUTED |
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Earnings Per Share, Basic and Diluted [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNING PER SHARE BASIC AND FULLY DILUTED | Basic earnings (loss) per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted earnings (loss) per common share is computed similar to basic earnings (loss) 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 notes, warrants and vested and unvested stock options.
The following table sets forth the computation of earnings (loss) per share (amounts in thousands except per share data):
The following securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
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STOCKHOLDERS' EQUITY |
6 Months Ended |
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Jun. 30, 2019 | |
Stockholders' Equity | |
STOCKHOLDERS' EQUITY | Preferred Stock
Series A Preferred
On April 25, 2019, in connection with the Share Exchange, the Company filed the Certificate of Designation, Preferences and Rights of the Series A Convertible Preferred Stock (the “ Series A COD ”), with the Secretary of State of the State of Nevada, designating 300,000 shares of its preferred stock as Series A Convertible Preferred Stock. Each share of Series A Preferred has a stated value of $100 per share (the “ Series A Stated Value ”). The Series A Preferred rank senior to all of the Company’s outstanding securities, including the Company’s Series B Convertible Preferred Stock.
The Series A Preferred provides the holders with the right to receive a one-time dividend payment equal to 8% of the Series A Stated Value (the “ Series A Dividend ”), which Series A Dividend shall be paid by the Company on the earlier to occur of (i) when declared at the election of the Company, (ii) one year from the date of issuance, or (iii) when a holder elects to convert its shares of Series A Preferred into common stock.
Each share of Series A Preferred is convertible, at the option of the holder, into that number of shares of common stock equal to the Series A Stated Value, plus all accrued but unpaid dividends, divided by $0.044313, which conversion rate is subject to adjustment in accordance with the terms of the Series A COD. Holders of Series A Preferred are prohibited from converting Series A Preferred into common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or 9.99% upon the election of the holder prior to the issuance of the Series A Preferred) of the total number of shares of common stock then issued and outstanding. Each share of Series A Preferred is convertible at the option of the Company, at the same conversion rate set forth above, at such time, if ever, that the Company’s common stock is listed on the Nasdaq Stock Market and the Company has paid the Series A Dividend. In addition, upon the occurrence of a Bankruptcy Event (as defined in the Series A COD), the Company shall be required to redeem, in cash, all outstanding shares of Series A Preferred at a price equal to the conversion amount; provided, however , that holders of the Series A Preferred shall have the right to waive, in whole or in part, such right to receive payment upon the occurrence of a Bankruptcy Event.
Holders of the Series A Preferred are entitled to vote on an as-converted basis along with holders of the Company’s common stock on all matters presented to the Company’s stockholders; provided, however, that the number of votes that any holder, together with its affiliates, may exercise in connection with all of the Company securities held by such holder shall not exceed 9.99% of the voting power of the Company. In addition, pursuant to the Series A COD, the Company shall not take the following actions without obtaining the prior consent of at least a majority of the holders of the outstanding Series A Preferred, voting separately as a single class: (i) amend the Company’s Amended and Restated Articles of Incorporation or bylaws, or file a certificate of designation or certificate of amendment to any series of preferred stock if such action would adversely affect the holders of the Series A Preferred, (ii) increase or decrease the authorized number of shares of Series A Preferred, (iii) create or authorize any series of stock that ranks senior to, or on parity with, the Series A Preferred, (iv) purchase, repurchase or redeem any shares of junior stock, or (v) pay dividends on any junior or parity stock . Furthermore, so long as at least 25% of the Series A Preferred remain outstanding, holders of the Series A Preferred (other than the Direct Investors) shall have a right to appoint two members to the Company’s Board of Directors, and the Board shall not consist of more than five members, unless the holders of a majority of the outstanding Series A Preferred have consented to an increase in such number.
Series B Preferred
On April 26, 2019, in connection with the Share Exchange, the Company filed the Certificate of Designation, Preferences and Rights of the Series B Convertible Preferred Stock (the “Series B COD”), with the Secretary of State of the State of Nevada, designating 1.5 million shares of its preferred stock as Series B Preferred. The Series B Preferred ranks junior to the Series A Preferred and senior to all of the Company’s other outstanding securities.
The Series B Preferred was structured to act as a common stock equivalent, and, on June 28, 2019, the Company amended and restated its Articles of Incorporation (the “Amended and Restated Charter”) to (i) change our corporate name to Charlie’s Holdings, Inc. and (ii) increase the number of shares authorized as common stock from 7.0 billion to 50.0 billion shares. The Amended and Restated Charter was approved by our Board of Directors and holders of a majority of our outstanding voting securities on May 8, 2019, and the Amended and Restated Charter was filed with the State of Nevada on June 28, 2019. As a result of the filing of the Amended and Restated Charter and the increase of our authorized common stock to 50.0 billion shares, all 1,396,305 outstanding shares of Series B Preferred automatically converted into a total of 13,963,047,716 shares of common stock in accordance with the Series B COD.
On June 30, 2019, no shares of Series B Preferred were outstanding.
Prior to the filing of the Amended and Restated Charter, holders of the Series B Preferred were entitled to vote on an as-converted basis along with holders of the Company’s common Stock on all matters presented to the Company’s stockholders. In addition, pursuant to the Series B COD, the Company was not permitted to take the following actions without obtaining the prior consent of at least 50% of the holders of the outstanding Series B Preferred, voting separately as a single class: (i) amend the provisions of the Series B COD so as to adversely affect holders of the Series B Preferred, (ii) increase the authorized number of shares of Series B Preferred, or (iii) effect any distribution with respect to junior stock, unless the Company also provides such distribution to holders of the Series B Preferred.
Common Stock
As noted above, on June 28, 2019, the Company filed the Amended and Restated Charter to change the name of the Company to “Charlie’s Holdings, Inc.” (as mentioned in Note 1), as well as to increase the number of shares of the Company’s common stock authorized for issuance from 7.0 billion shares to 50.0 billion shares.
Warrants
On April 26, 2019, pursuant to the Share Exchange as described in Notes 1 and 3, the Company issued approximately 4 billion warrants, consisting of the Investor Warrants issued to the new investors and the Direct Investors, and the Placement Agent Warrants issued to Katalyst. The warrants have a 5-year term and an exercise price of $0.0044313, subject to adjustment for anti-dilution events. Due to the exercise features of these warrants they are not 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”). ASC 815 requires the Company to assess the fair value of warrant liabilities at each reporting period and recognize any change in the fair value as items of other income or expense (see Note 4).
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STOCK OPTIONS |
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STOCK OPTIONS | The following table summarizes stock option activities during the six months ended June 30, 2019:
During the six months ended June 30, 2019, the Company modified 49.4 million option to extend its maturity date. All options were fully vested as of the modification date. The Company accounted for the modification as a Type I (probable-to-probable) modification. Any additional compensation related to this modification was considered immaterial.
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LEASES |
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Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LEASES | The Company leases office space under agreements classified as operating leases that expire on various dates through 2022. All of the Company’s lease liabilities result from the lease of its office in Edinger, California, which expires in 2021, its office in Denver, Colorado, which expires in 2022, and its office space in Huntington Beach, California, which expires in 2022. 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 the new accounting guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company’s lease for its corporate headquarters is set to terminate September 30, 2019 and is therefore considered a short-term lease.
At June 30, 2019, the Company had operating lease liabilities of approximately $768,000 and right of use assets of approximately $748,000, which were included in the condensed consolidated balance sheet.
The following summarizes quantitative information about the Company’s operating leases (amount in thousands):
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SUBSEQUENT EVENTS |
6 Months Ended |
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Jun. 30, 2019 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS |
The Company has evaluated events subsequent to June 30, 2019 to assess the need for potential recognition or disclosure in this report. Such events were evaluated through the date these financial statements were available to be issued. Based upon this evaluation, it was determined that no subsequent events occurred that require recognition or disclosure in the financial statements. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
6 Months Ended |
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Jun. 30, 2019 | |
Accounting Policies [Abstract] | |
Principles of Consolidation | As noted above, the consolidated financial statements include the accounts of the Company, Charlie’s Holdings, Inc., its two 100% wholly owned subsidiaries, Charlie’s Chalk Dust, LLC and Bazi, Inc, and Don Polly, LLC, a consolidated variable interest for which the Company is the primary beneficiary (see Note 8). All inter-company balances and transactions have been eliminated in consolidation.
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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.
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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. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, warrant liability and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments.
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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 and promotional discounts on current orders. 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.
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Cash and Cash Equivalents | The Company considers all liquid investments purchased with original maturities of ninety days or less to be cash equivalents.
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Accounts Receivable | 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 June 30, 2019, and December 31, 2018, the allowance for bad debt totaled $116,000 and $151,000, respectively.
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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 June 30, 2019, and December 31, 2018, the reserve for excess and obsolete inventories totaled $62,000 and $74,000, respectively.
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Income taxes |
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. |
Stock-Based Compensation | We account for all stock-based compensation using a fair value-based method. The fair value of financial instruments 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.
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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.
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Recently Issued Accounting Pronouncements | Revenue from Contracts with Customer
The Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this update create common revenue recognition guidance for entities reporting revenue under U.S. GAAP and IFRS by requiring entities to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. Entities should apply the following five steps: (1) identify the contract(s) with a customer, (2) identify performance obligations in the contract, (3) determine transaction price, (4) allocate transaction price to performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation. Entities should also disclose qualitative and quantitative information about (1) contracts with customers, including revenue and impairments recognized, disaggregation of revenue, and information about contract balances and performance obligations and related transaction price allocation to remaining performance obligations, (2) significant judgments and changes thereof in determining the timing of performance obligations over time or at a point in time and the transaction price and amounts allocated to performance obligations, and (3) assets recognized from the costs to obtain or fulfill a contract. The amendments in this update are effective for annual reporting periods beginning after December 15, 2017.
The Company adopted this guidance on January 1, 2018 using the modified retrospective transition method. Prior periods were not adjusted and, based on the Company’s implementation assessment, no cumulative-effect adjustment was made to the opening balance of retained earnings. The adoption of this standard did not have a material impact on the financial statements other than expanded disclosures. For further description of the Company’s revenue recognition policy refer to the Revenue Recognition section above and for disaggregated revenue information refer to the Segment Reporting section above.
Leases
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by, among other provisions, recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. For public companies, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018 (including interim periods within those periods) using a modified retrospective approach and early adoption is permitted. In transition, entities may also elect a package of practical expedients that must be applied in its entirety to all leases commencing before the adoption date, unless the lease is modified, and permits entities to not reassess (a) the existence of a lease, (b) lease classification or (c) determination of initial direct costs, as of the adoption date, which effectively allows entities to carryforward accounting conclusions under previous U.S. GAAP. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides entities an optional transition method to apply the guidance under Topic 842 as of the adoption date, rather than as of the earliest period presented. The Company adopted Topic 842 on January 1, 2019, using the optional transition method to apply the new guidance as of January 1, 2019, rather than as of the earliest period presented, and elected the package of practical expedients described above. Based on the analysis, on January 1, 2019, the Company recorded right of use assets of approximately $81,000 and lease liability of approximately $81,000.
Improvements to Non-Employee Share-Based Payment Accounting
In June 2018, the FASB issued ASU 2018-07 “Improvements to Non-employee Share-Based Payment Accounting”, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the ASU, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company has early adopted the new standard effective January 1, 2019 and the adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements.
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FAIR VALUE MEASUREMENTS (Tables) |
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Fair value of financial liabilities on a recurring basis |
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Weighted average significant unobservable inputs |
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PROPERTY AND EQUIPMENT (Tables) |
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Property and equipment |
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CONCENTRATIONS (Tables) |
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Concntration of purchases and accounts receivable | The Company’s concentration of purchases are as follows:
The Company’s concentration of accounts receivable are as follows:
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ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) |
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Payables and Accruals [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued expenses |
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EARNING PER SHARE BASIC AND FULLY DILUTED (Tables) |
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Earnings Per Share, Basic and Diluted [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Computation of earnings (loss) per share |
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Anti-dilutive securities |
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STOCK OPTIONS (Tables) |
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Share-based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock option activity |
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LEASES (Tables) |
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Leases [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating lease quantitative information |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
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Accounting Policies [Abstract] | ||
Allowance for bad debt | $ 115 | $ 151 |
Reserve for excess and obsolete inventories | $ 62 | $ 74 |
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
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Derivative liability | $ 7,584 | $ 0 |
Total liabilities | 7,584 | |
Level 1 | ||
Derivative liability | 0 | |
Total liabilities | 0 | |
Level 2 | ||
Derivative liability | 0 | |
Total liabilities | 0 | |
Level 3 | ||
Derivative liability | 7,584 | |
Total liabilities | $ 7,584 |
FAIR VALUE MEASUREMENTS (Details 1) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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Fair Value Disclosures [Abstract] | ||||
Warranty liability, beginning balance | $ 0 | |||
Addition | 7,762 | |||
Change in fair value | $ (178) | $ 0 | (178) | $ 0 |
Warranty liability, ending balance | $ 7,584 | $ 7,584 |
FAIR VALUE MEASUREMENTS (Details 2) |
6 Months Ended |
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Jun. 30, 2019
$ / shares
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Fair Value Disclosures [Abstract] | |
Exercise price | $ .0044 |
Contractual term (years) | 4 years 9 months 29 days |
Volatility (annual) | 65.00% |
Risk-free rate | 1.80% |
Dividend yield (per share) | 0.00% |
STOCK-BASED COMPENSATION (Details Narrative) $ in Thousands |
6 Months Ended |
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Jun. 30, 2019
USD ($)
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Share-based Payment Arrangement, Noncash Expense [Abstract] | |
Stock-based compensation | $ 188 |
PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands |
6 Months Ended | |
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Jun. 30, 2019 |
Dec. 31, 2018 |
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Property and equipment, gross | $ 437 | $ 254 |
Accumulated depreciation | (221) | (209) |
Property and equipment, net | 216 | 45 |
Machinery and Equipment | ||
Property and equipment, gross | $ 74 | 64 |
Estimated useful life | 5 years | |
Trade Show Booth | ||
Property and equipment, gross | $ 144 | 144 |
Estimated useful life | 5 years | |
Office Equipment | ||
Property and equipment, gross | $ 61 | 26 |
Estimated useful life | 5 years | |
Leasehold Improvements | ||
Property and equipment, gross | $ 158 | $ 20 |
Estimated useful life | Lesser of lease term or estimated useful life |
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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Property, Plant and Equipment [Abstract] | ||||
Depreciation and amortization | $ 9 | $ 5 | $ 12 | $ 10 |
CONCENTRATIONS (Details) - Purchases |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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Vendor A | ||||
Concentration risk | 54.00% | 69.00% | 66.00% | 66.00% |
Vendor B | ||||
Concentration risk | 18.00% | 15.00% | 15.00% | 19.00% |
Vendor C | ||||
Concentration risk | 0.00% | 12.00% | 0.00% | 13.00% |
CONCENTRATIONS (Details 1) |
6 Months Ended | 12 Months Ended |
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Jun. 30, 2019 |
Dec. 31, 2018 |
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Accounts Receivable | Customer A | ||
Concentration risk | 14.00% | 6.00% |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
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Payables and Accruals [Abstract] | ||
Accounts payable | $ 1,106 | $ 901 |
Accrued compensation | 213 | 288 |
Insurance payable | 140 | 20 |
Other accrued expenses | 89 | 7 |
Accounts payable and accrued expenses | $ 1,548 | $ 1,216 |
EARNING PER SHARE BASIC AND FULLY DILUTED (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
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Jun. 30, 2019 |
Jun. 30, 2018 |
Jun. 30, 2019 |
Jun. 30, 2018 |
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Earnings Per Share, Basic and Diluted [Abstract] | ||||
Net earnings (loss) - basic | $ (3,033) | $ 2,125 | $ (558) | $ 4,183 |
Net earnings (loss) - diluted | $ (3,033) | $ 2,125 | $ (558) | $ 4,183 |
Weighted average shares outstanding - basic | 4,259,080 | 141,041 | 2,211,436 | 141,041 |
Series B convertible preferred shares | 0 | 13,963,048 | 0 | 13,963,048 |
Weighted average shares outstanding - diluted | 4,259,080 | 14,104,089 | 2,211,436 | 14,104,089 |
Basic | $ (0.00) | $ 0.02 | $ 0.00 | $ 0.03 |
Diluted | $ (0.00) | $ 0.00 | $ 0.00 | $ 0.00 |
EARNING PER SHARE BASIC AND FULLY DILUTED (Details 1) - shares |
6 Months Ended | |
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Jun. 30, 2019 |
Jun. 30, 2018 |
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Anti-dilutive securities | 4,716,224 | 15,566 |
Options | ||
Anti-dilutive securities | 62,825 | 15,566 |
Series A Preferred Stock | ||
Anti-dilutive securities | 4,654,399 | 0 |
LEASES (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2019 |
Jun. 30, 2019 |
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Leases [Abstract] | ||
Operating lease cost | $ 54 | $ 64 |
Variable lease cost | 0 | 0 |
Operating lease expense | 54 | 64 |
Short-term lease rent expense | 0 | 0 |
Total rent expense | $ 54 | $ 64 |
LEASES (Details 1) $ in Thousands |
3 Months Ended | 6 Months Ended |
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Jun. 30, 2019
USD ($)
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Jun. 30, 2019
USD ($)
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Leases [Abstract] | ||
Operating cash flows from operating leases | $ 34 | $ 44 |
Weighted-average remaining lease term - operating leases | 2 years 9 months 18 days | 2 years 9 months 18 days |
Weighted-average discount rate - operating leases | 12.00% | 12.00% |
LEASES (Details 2) $ in Thousands |
Jun. 30, 2019
USD ($)
|
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Leases [Abstract] | |
Remaining months in the year ended December 31, 2019 | $ 161 |
Year Ended December 31, 2020 | 325 |
Year Ended December 31, 2021 | 302 |
Year Ended December 31, 2022 | 124 |
Total | 912 |
Less present value discount | (144) |
Operating lease liabilities | $ 768 |
LEASES (Details Narrative) - USD ($) $ in Thousands |
Jun. 30, 2019 |
Dec. 31, 2018 |
---|---|---|
Leases [Abstract] | ||
Operating lease liabilities | $ 768 | |
Right of use assets | $ 748 | $ 0 |
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