Nevada
|
|
84-1575085
|
(State or Other Jurisdiction of Incorporation
or Organization)
|
|
(IRS Employer Identification No.)
|
Large accelerated filer
|
[ ]
|
Accelerated filer
|
[ ]
|
Non-accelerated filer
|
[X]
|
Smaller reporting company
|
[X]
|
|
|
Emerging growth company
|
[ ]
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Title
of each class
|
Trading
Symbol(s)
|
Name of
each exchange on which registered
|
|
|
|
|
|
|
|
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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15
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||
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20
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20
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||
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|||
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21
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|||
21
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|||
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33
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33
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||
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33
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||
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33
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||
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34
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||
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|
35
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|
March 31,
|
December 31,
|
|
2020
|
2019
|
|
(Unaudited)
|
|
ASSETS
|
|
|
Current
assets:
|
|
|
Cash
|
$233
|
$2,448
|
Accounts
receivable, net
|
1,576
|
918
|
Inventories,
net
|
1,639
|
1,516
|
Prepaid
expense and other current assets
|
688
|
729
|
Total
current assets
|
4,136
|
5,611
|
|
|
|
Non-current
assets:
|
|
|
Property,
plant and equipment, net
|
546
|
543
|
Right-of-use
asset, net
|
1,522
|
1,623
|
Other
assets
|
71
|
71
|
Total
non-current assets
|
2,139
|
2,237
|
|
|
|
TOTAL ASSETS
|
$6,275
|
$7,848
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
Current
liabilities:
|
|
|
Accounts
payable and accrued expense
|
$3,238
|
$2,516
|
Derivative
liability
|
3,714
|
4,144
|
Lease
liabilities
|
440
|
426
|
Deferred
revenue
|
74
|
91
|
Total
current liabilities
|
7,466
|
7,177
|
|
|
|
Non-current
liabilities:
|
|
|
Lease
liabilities, net of current portion
|
1,103
|
1,218
|
Total
non-current liabilities
|
1,103
|
1,218
|
|
|
|
Total
liabilities
|
8,569
|
8,395
|
|
|
|
COMMITMENTS AND CONTINGENCIES (see Note 12)
|
|
|
|
|
|
Stockholders'
deficit:
|
|
|
Convertible
preferred stock ($0.001 par value); 1,800,000 shares
authorized
|
|
|
Series
A, 300,000 shares designated, 204,186 and 204,561 shares issued and
outstanding as of March 31, 2020 and December 31, 2019,
respectively
|
-
|
-
|
Series
B, 1.5 million shares designated, 0 shares issued and outstanding
as of March 31, 2020 and December 31, 2019,
respectively
|
-
|
-
|
Common
stock ($0.001 par value); 50 billion shares authorized; 18.9
billion shares and 18.9 billion shares issued and outstanding as of
March 31, 2020 and December 31, 2019, respectively
|
18,982
|
18,974
|
Additional
paid-in capital
|
(14,884)
|
(17,045)
|
Accumulated
deficit
|
(6,392)
|
(2,476)
|
Total
stockholders' deficit
|
(2,294)
|
(547)
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$6,275
|
$7,848
|
|
For the three months ended
|
|
|
March 31,
|
|
|
2020
|
2019
|
Revenues:
|
|
|
Product
revenue, net
|
$4,405
|
$6,648
|
Total
revenues
|
4,405
|
6,648
|
Operating costs and expense:
|
|
|
Cost
of goods sold - product revenue
|
1,963
|
2,750
|
General
and administrative
|
4,151
|
1,003
|
Sales
and marketing
|
419
|
414
|
Research
and development
|
2,223
|
5
|
Total
operating costs and expense
|
8,756
|
4,172
|
(Loss)
income from operations
|
(4,351)
|
2,476
|
Other income:
|
|
|
Change
in fair value of derivative liabilities
|
430
|
-
|
Other
income
|
5
|
-
|
Total
other income
|
435
|
-
|
Net (loss) income
|
$(3,916)
|
$2,476
|
|
|
|
Net
(loss) earnings per share applicable to common
stockholders
|
||
Basic
|
$(0.00)
|
$0.02
|
Diluted
|
$(0.00)
|
$0.00
|
Weighted
average shares used in computing basic earnings per
share
|
18,973,921,000
|
141,041
|
Weighted
average shares used in computing diluted earnings per
share
|
18,973,921,000
|
14,104,089,000
|
|
Series A
|
Series B
|
|||||||
|
Convertible
Preferred Stock
|
Convertible
Preferred Stock
|
Common Stock
|
Additional Paid-in
|
Accumulated
|
Total
Stockholders'
|
|||
|
Shares
|
Par value
|
Shares
|
Par value
|
Shares
|
Par value
|
Capital
|
Deficit
|
Deficit
|
Balance at January 1, 2020
|
204
|
$-
|
-
|
$-
|
18,973,828
|
$18,974
|
$(17,045)
|
$(2,476)
|
$(547)
|
Conversion
of Series A convertible preferred stock
|
-
|
-
|
-
|
-
|
8,463
|
8
|
(8)
|
-
|
-
|
Reclassification
of liability awards to equity
|
-
|
-
|
-
|
-
|
-
|
-
|
1,638
|
-
|
1,638
|
Stock
based compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
531
|
-
|
531
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,916)
|
(3,916)
|
Balance at March 31, 2020
|
204
|
$-
|
-
|
$-
|
18,982,291
|
$18,982
|
$(14,884)
|
$(6,392)
|
$(2,294)
|
|
Series A
|
Series B
|
|
|
|
||||
|
Convertible
Preferred Stock
|
Convertible
Preferred Stock
|
Common Stock
|
Additional Paid-in
|
Retained
|
Total
Stockholders'
|
|||
|
Shares
|
Par value
|
Shares
|
Par value
|
Shares
|
Par value
|
Capital
|
Earnings
|
Equity
|
Balance at January 1, 2019
|
-
|
$-
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$649
|
$791
|
Cash
distributions to CCD Members
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(979)
|
(979)
|
Net
income
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
2,476
|
2,476
|
Balance at March 31, 2019
|
-
|
$-
|
1,396
|
$1
|
141,041
|
$141
|
$-
|
$2,146
|
$2,288
|
|
For the three months ended
|
|
|
March 31,
|
|
|
2020
|
2019
|
Cash Flows from Operating Activities:
|
|
|
Net (loss) income
|
$(3,916)
|
$2,476
|
Reconciliation of net (loss) income to net cash provided by
operating activities:
|
|
|
Allowance
for doubtful accounts
|
134
|
-
|
Depreciation
and amortization
|
40
|
4
|
Change
in fair value of derivative liabilities
|
(430)
|
-
|
Amortization
of operating lease right-of-use asset
|
101
|
8
|
Stock
based compensation
|
1,853
|
-
|
Subtotal
of non-cash charges
|
1,698
|
12
|
Changes in operating assets and liabilities:
|
|
|
Accounts
receivable
|
(792)
|
(392)
|
Inventories
|
(123)
|
(20)
|
Prepaid
expense and other current assets
|
41
|
48
|
Accounts
payable and accrued expense
|
1,038
|
(189)
|
Deferred
revenue
|
(17)
|
4
|
Lease
liabilities
|
(101)
|
(8)
|
Net
cash (used in) provided by operating activities
|
(2,172)
|
1,931
|
Cash Flows from Investing Activities:
|
|
|
Purchase
of property, plant and equipment
|
(43)
|
(13)
|
Net
cash used in investing activities
|
(43)
|
(13)
|
Cash Flows from Financing Activities:
|
|
|
Cash
distributions to CCD Members
|
-
|
(979)
|
Net
cash used in financing activities
|
-
|
(979)
|
Net
(decrease) increase in cash
|
(2,215)
|
939
|
|
|
|
Cash,
beginning of the period
|
2,448
|
304
|
Cash, end of the period
|
$233
|
$1,243
|
|
|
|
Supplemental disclosure of
cash flow information
|
|
|
Cash paid for
interest
|
$-
|
$-
|
Cash paid for
income taxes
|
$-
|
$-
|
|
|
|
Supplemental disclosure of
non-cash investing and financing
activities
|
|
|
Conversion
of Series A convertible preferred stock
|
$8
|
$-
|
Reclassification
of liability awards to equity
|
$1,638
|
$-
|
|
Fair
Value at March 31, 2020
|
|||
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Liabilities:
|
|
|
|
|
Derivative
liability - Warrants
|
3,714
|
-
|
-
|
3,714
|
Total
liabilities
|
$3,714
|
$-
|
$-
|
$3,714
|
|
Fair
Value at December 31, 2019
|
|||
|
Total
|
Level
1
|
Level
2
|
Level
3
|
Liabilities:
|
|
|
|
|
Derivative
liability - Warrants
|
4,144
|
-
|
-
|
4,144
|
Total
liabilities
|
$4,144
|
$-
|
$-
|
$4,144
|
|
Derivative
liability - Warrants
|
Balance
at January 1, 2020
|
$4,144
|
Change
in fair value
|
(430)
|
Balance
at March 31, 2020
|
$3,714
|
|
March
31,
|
December
31,
|
|
2020
|
2019
|
Exercise
price
|
$0.0044
|
$0.0044
|
Contractual
term (years)
|
4.07
|
4.32
|
Volatility
(annual)
|
75.0%
|
70.0%
|
Risk-free
rate
|
0.3%
|
1.7%
|
Dividend
yield (per share)
|
0%
|
0%
|
|
March
31,
|
December
31,
|
|
|
2020
|
2019
|
Estimated
Useful Life
|
Machinery
and equipment
|
$96
|
$96
|
5
years
|
Trade
show booth
|
171
|
171
|
5
years
|
Office
equipment
|
161
|
118
|
5
years
|
Leasehold
improvements
|
440
|
440
|
Lesser
of lease term
or
estimated useful life
|
|
868
|
825
|
|
Accumulated
depreciation
|
(322)
|
(282)
|
|
|
$546
|
$543
|
|
|
For the
three months ended
|
|
|
March
31,
|
|
|
2020
|
2019
|
Vendor
A
|
31%
|
79%
|
Vendor
B
|
20%
|
0%
|
Vendor
C
|
15%
|
0%
|
Vendor
D
|
12%
|
12%
|
|
March
31,
|
December
31,
|
|
2020
|
2019
|
Customer
A
|
7%
|
23%
|
|
March
31,
|
December
31,
|
|
2020
|
2019
|
Accounts
payable
|
$1,638
|
$673
|
Accrued
compensation
|
1,360
|
1,635
|
Other
accrued expense
|
240
|
208
|
|
$3,238
|
$2,516
|
|
For the
three months ended
|
|
|
March
31,
|
|
|
2020
|
2019
|
Net
(loss) earnings - basic
|
$(3,916)
|
$2,476
|
|
|
|
Net
(loss) earnings - diluted
|
$(3,916)
|
$2,476
|
|
|
|
Weighted
average shares outstanding - basic
|
18,973,921,000
|
141,041,000
|
Series
B convertible preferred shares
|
-
|
13,963,048,000
|
Weighted
average shares outstanding - diluted
|
18,973,921,000
|
14,104,089,000
|
|
For the
three months ended
|
|
|
March
31,
|
|
|
2020
|
2019
|
Options
|
801,325
|
70,625
|
Series
A convertible preferred stock
|
5,572,758
|
-
|
Warrants
|
4,033,769
|
-
|
Total
|
10,407,852
|
70,625
|
|
For the
three months ended
|
|
|
March
31,
|
|
|
2020
|
2019
|
Operating
leases
|
|
|
Operating
lease cost
|
$149
|
$10
|
Variable
lease cost
|
-
|
-
|
Operating
lease expense
|
149
|
10
|
Short-term
lease rent expense
|
-
|
-
|
Total
rent expense
|
$149
|
$10
|
|
For the
three months ended
|
|
|
March
31,
|
|
|
2020
|
2019
|
Operating
cash flows from operating leases
|
$101
|
$8
|
Weighted-average
remaining lease term – operating leases (in
years)
|
3.6
|
2.0
|
Weighted-average
discount rate – operating leases
|
12.0%
|
12.0%
|
Remaining
months ended December 31, 2020
|
$499
|
Year
Ended December 31, 2021
|
577
|
Year
Ended December 31, 2022
|
399
|
Year
Ended December 31, 2023
|
275
|
Year
Ended December 31, 2024
|
207
|
Total
|
1,957
|
Less
present value discount
|
(414)
|
Operating
lease liabilities as of March 31, 2020
|
$1,543
|
|
For the
three months ended
|
|
|
|
|
March
31,
|
Change
|
||
|
2020
|
2019
|
Amount
|
Percentage
|
($ in thousands)
|
|
|
|
|
Revenues:
|
|
|
|
|
Product
revenue, net
|
$4,405
|
$6,648
|
$(2,243)
|
-34%
|
Total
revenues
|
4,405
|
6,648
|
(2,243)
|
-34%
|
Operating costs and expense:
|
|
|
|
|
Cost
of goods sold - product revenue
|
1,963
|
2,750
|
(787)
|
-29%
|
General
and administrative
|
4,151
|
1,003
|
3,148
|
314%
|
Sales
and marketing
|
419
|
414
|
5
|
1%
|
Research
and development
|
2,223
|
5
|
2,218
|
44360%
|
Total
operating costs and expense
|
8,756
|
4,172
|
4,584
|
110%
|
(Loss)
income from operations
|
(4,351)
|
2,476
|
(6,827)
|
-276%
|
Other income:
|
|
|
|
|
Change
in fair value of derivative liabilities
|
430
|
-
|
430
|
100%
|
Other
income
|
5
|
-
|
5
|
100%
|
Total
other income
|
435
|
-
|
435
|
100%
|
Net (loss) income
|
$(3,916)
|
$2,476
|
$(6,392)
|
-258%
|
|
|
(a)
|
|
Exhibits
|
|
|
|
|
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: May 15, 2020
|
|
CHARLIE’S HOLDINGS, INC.
|
|
|
|
|
|
|
|
By:
|
/s/ Brandon
Stump
|
|
|
|
Brandon Stump
Chief Executive Officer and Chair of the Board
(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
|
Date:
May15, 2020
|
Brandon
Stump
|
|
Chief Executive Officer and Chair of the Board
(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
|
Date:
May 15, 2020
|
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 Chair of the Board
(Principal Executive Officer)
|
|
|
Date: May15, 2020
|
|
|
(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: May 15, 2020
|
|
PROPERTY AND EQUIPMENT (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Property, Plant and Equipment [Abstract] | ||
Depreciation and amortization | $ 40 | $ 4 |
EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Earnings Per Share, Basic and Diluted [Abstract] | ||
Net (loss) earnings - basic | $ (3,916) | $ 2,476 |
Net (loss) earnings - diluted | $ (3,916) | $ 2,476 |
Weighted average shares outstanding - basic (in thousands) | 18,973,921,000 | 141,041 |
Series B convertible preferred shares (in thousands) | 0 | 13,963,048 |
Weighted average shares outstanding - diluted (in thousands) | 18,973,921,000 | 14,104,089,000 |
SUBSEQUENT EVENTS |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | The Company has evaluated events subsequent to March 31, 2020 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 the following items were noted.
On April 1, 2020, the Company, Charlie's and its variable interest entity, Don Polly, issued a secured promissory note (the "Note") to one of the Company's largest stockholders, Red Beard Holdings, LLC (the "Lender") in the principal amount of $750,000, which Note is secured by all assets of the Company pursuant to the terms of a Security Agreement entered into by and between the Company and the Lender (the "Note Financing").
The Note requires the payment of principal and guaranteed interest in the amount of at least $75,000 on or before the earlier date of (i) a Liquidity Event, as defined under the terms of the Note; or (ii) October 1, 2020. The Company intends to use the proceeds from the Note Financing for general corporate purposes, and its working capital requirements, pending availability of long-term working capital.
On April 30, 2020, Charlie's, a wholly owned subsidiary of the Company, received approval to enter into a U.S. Small Business Administration ("SBA") Promissory Note (the "PPP Loan") with TBK Bank, SSB (the "SBA Lender"), pursuant to the Paycheck Protection Program ("PPP") of the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") as administered by the SBA (the "Loan Agreement").
The PPP Loan provides for working capital to CCD in the amount of $650,761. The PPP Loan will mature on April 30, 2022 and will accrue interest at a rate of 1.00% per annum. Payments of principal and interest will be deferred for six months from the date of the PPP Loan, or until November 30, 2020. Interest, however, will continue to accrue during this time.
On April 14, 2020, Don Polly, a related company, which is consolidated as a Variable Interest Entity (“VIE”) of the Company, also obtained a PPP Loan from Community Banks of Colorado, a division of NBH Bank (the "Polly Lender"). The PPP Loan obtained by Don Polly provides for working capital to Don Polly in the amount of $215,600. The PPP Loan will mature on April 14, 2022 and will accrue interest at a rate of 1.00% per annum. Payments of principal and interest will be deferred for six months from the date of the PPP Loan, or until November 14, 2020. Interest, however, will continue to accrue during this time.
The aforementioned PPP Loans were made under the PPP enacted by Congress under the CARES Act. The CARES Act (including the guidance issued by SBA and U.S. Department of the Treasury) provides that all or a portion of the PPP Loans may be forgiven upon request from the Company to the SBA Lender or the Polly Lender, as the case may be, subject to requirements in the PPP Loans and under the CARES Act.
On April 25, 2020, the Company was required to pay a one-time dividend equal to eight percent (8%) of the stated value of its Series A Preferred, equal to $1,650,000 (“Dividend Amount”), which Dividend Amount was required to be paid in cash on or before April 25, 2020. The Company failed to pay the required dividend and has requested that holders of more than 50% of the Series A Preferred issued and outstanding (“Required Holders”) consent to an amendment to the Series A Preferred to allow the Company to pay such Dividend Amount in shares of the Company’s common stock.
On May 8, 2020, the Company issued approximately 8,462,528 shares of common stock upon conversion of 375 shares of Series A Preferred (not related to the shares described in Note 10 above). |
EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share, Basic and Diluted [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS | Basic earnings (loss) per common share is computed by dividing net income 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 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 preferred stock, warrants and vested and unvested stock options.
The following table sets forth the computation of earnings per share for the three months ended March 31, 2020 and 2019, respectively (amounts in thousands except per share data):
The following securities were not included in the diluted net earnings per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):
|
PROPERTY AND EQUIPMENT |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT | Property and Equipment detail as of March 31, 2020 and December 31, 2019 are as follows (amount in thousands):
Depreciation and amortization expense totaled $40,500 and $3,600, respectively, during the three months ended March 31, 2020 and 2019.
|
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Revenues: | ||
Product revenue, net | $ 4,405 | $ 6,648 |
Total revenues | 4,405 | 6,648 |
Operating costs and expense: | ||
Cost of goods sold - product revenue | 1,963 | 2,750 |
General and administrative | 4,151 | 1,003 |
Sales and marketing | 419 | 414 |
Research and development | 2,223 | 5 |
Total operating costs and expense | 8,756 | 4,172 |
(Loss) income from operations | (4,351) | 2,476 |
Other income: | ||
Change in fair value of derivative liabilities | 430 | 0 |
Other income | 5 | 0 |
Total other income | 435 | 0 |
Net (loss) income | $ (3,916) | $ 2,476 |
Basic | $ (0.00) | $ 0.02 |
Diluted | $ (0.00) | $ .00 |
Weighted average shares used in computing basic earnings per share (in thousands) | 18,973,921,000 | 141,041 |
Weighted average shares used in computing diluted earnings per share (in thousands) | 18,973,921,000 | 14,104,089,000 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 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, 2019 balances within the interim condensed consolidated financial statements were derived from audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2019. The financial information contained in the 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 December 31, 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 in its current form, and these costs and expenses are nominal and will continue to be so in the future. The operating results of Don Polly 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.
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 expense during the reporting periods. Actual results could differ from those estimates.
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2019 Annual Report.
Recent Accounting Standards Not Yet Adopted
Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.
|
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
Operating lease liabilities | $ 1,543 | |
Right of use assets | $ 1,522 | $ 1,623 |
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
Dec. 31, 2019 |
Dec. 31, 2018 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
(Loss) income from operations | $ (4,351) | $ 2,476 | ||
Net (loss) income | (3,916) | 2,476 | ||
Total stockholders' deficit | $ (2,294) | $ 2,288 | $ (547) | $ 791 |
CONCENTRATIONS (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Concntration of purchases and accounts receivable | Vendors
The Company’s concentration of purchases are as follows:
Accounts Receivable
The Company’s concentration of accounts receivable are as follows:
|
COMMITMENTS AND CONTINGENCIES (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating lease quantitative information |
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Maturities of operating leases |
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PROPERTY AND EQUIPMENT (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property and equipment |
|
CONCENTRATIONS (Details) - Purchases |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Vendor A | ||
Concentration risk | 31.00% | 79.00% |
Vendor B | ||
Concentration risk | 20.00% | 0.00% |
Vendor C | ||
Concentration risk | 15.00% | 0.00% |
Vendor D | ||
Concentration risk | 12.00% | 12.00% |
EARNINGS (LOSS) PER SHARE APPLICABLE TO COMMON STOCKHOLDERS (Details 1) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Anti-dilutive securities (in thousands) | 10,407,853 | 70,625 |
Options | ||
Anti-dilutive securities (in thousands) | 801,325 | 70,625 |
Series A Preferred Stock | ||
Anti-dilutive securities (in thousands) | 5,572,758 | 0 |
Warrants | ||
Anti-dilutive securities (in thousands) | 4,033,769 | 0 |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCOUNTS PAYABLE AND ACCRUED EXPENSES | Accounts payable and accrued expense as of March 31, 2020 and December 31, 2019 are as follows (amounts in thousands):
|
STOCK-BASED COMPENSATION |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Share-based Payment Arrangement, Noncash Expense [Abstract] | |
STOCK-BASED COMPENSATION | On April 26, 2019, in connection with employment agreements with its Chief Executive Officer and Chief Operating Officer, the Company issued market condition awards contingent upon the achievement of certain market capitalization targets. The awards are subject to a three-year service vesting period. The awards are settleable in a variable number of common shares based on defined percentages of the Company's total shares determined by market capitalization targets and are, therefore, classified as liabilities in accordance with ASC 718. The fair value of the awards is remeasured at each reporting period until settlement. Compensation cost is attributed over the period encompassing the derived service period and the explicit service period. The fair value of the market condition awards on the termination date of February 12, 2020was approximately $1,638,000. The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 1.44% and a volatility of 75% based on volatility over 3 years using daily stock prices. For the three months ended March 31, 2020, the Company recorded an expense of $1,321,700for these awards. In addition, as these market awards were eliminated during the first quarter of 2020 (see paragraph below), the Company reversed the entire compensation liability of $1,638,000 to Additional Paid In Capital during the quarter ended March 31, 2020.
On February 12, 2020, the Company, entered into a form of Amended and Restated Employment Agreement with both the Company’s Chief Executive Officer and Chief Operating Officer. The terms of the Amended Employment Agreements have been amended as follows: (i) the annual equity awards based upon, among other conditions, the Company’s market capitalization and a percentage of base salary have been eliminated; however, the awards based on financial milestones remain in full force and effect; and (ii) payment of the 2019 bonuses has been deferred, resulting in the accrual of such bonuses on the books and records of the Company. All other terms of the respective Employment Agreements will remain in full force and effect subject to further review by the Board as it deems necessary and appropriate.
On April 26, 2019, as additional consideration for advisory services provided in connection with the Charlie’s Financing and the Share Exchange (see Note 1 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 based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recorded stock-based compensation of approximately $282,082 during the three months ended March 31, 2020. |
COMMITMENTS AND CONTINGENCIES |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Commitments and Contingencies Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | Leases
The Company leases office space under agreements classified as operating leases that expire on various dates through 2024. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expires in 2024, its warehouse in Santa Ana, California, which expires in 2021, its office and warehouse in Denver, Colorado, which expires in 2022, and its warehouse 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 Topic 842 as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company entered into a commercial lease for the Company’s corporate headquarters (the “Lease”) in Costa Mesa, California with Brandon Stump, Ryan Stump and Keith Stump, the Company’s Chief Executive Officer, Chief Operating Officer and member of the Board. Messrs. Stump, Stump and Stump purchased the property that is the subject of the Lease in July 2019. The Lease, which was effective as of September 1, 2019, on a month to month basis, has been formalized to have a term of five years and a base rent rate of $22,940 per month, which rate is subject to annual adjustments based on the consumer price index, as may be mutually agreed upon by the parties to the Lease. The terms of the Lease were negotiated and approved by the independent members of the Board, and executed by Mr. David Allen, the Company’s Chief Financial Officer after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. The total amount paid to related parties for the three months ended March 31, 2020 is $68,820.
At March 31, 2020, the Company had operating lease liabilities of approximately $1,543,000 and right of use assets of approximately $1,522,000, which were included in the consolidated balance sheet.
The following summarizes quantitative information about the Company’s operating leases for the three months ended March 31, 2020 and 2019 (amount in thousands):
Maturities of our operating leases as of March 31, 2020, excluding short-term leases, are as follows:
Legal Proceedings
From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Other than as set forth below, there are no additional pending or threatened legal proceedings at this time.
C.H. Robinson Worldwide, Inc. v. True Drinks, Inc. On September 5, 2018, C.H. Robinson Worldwide (“Robinson”) filed a complaint against True Drinks, Inc. in the California Superior Court for the County of Orange located in Santa Ana, California alleging open book account, account stated, reasonable value of services received, agreement, and unjust enrichment related to shipping services provided by Robinson. Robinson has asserted $121,743 in damages plus interest, attorney’s fees and costs. We believe Robinson’s claim is substantially offset by damages caused by its failures to timely deliver products it was supposed to ship and intend to vigorously defend the complaint. The probability of any loss cannot be determined at this time.
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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 March 31, 2020 and December 31, 2019 (amount in thousands):
There were no transfers between Level 1, 2 or 3 during the three-month period ended March 31, 2020.
The following table presents changes in Level 3 liabilities measured at fair value for the three-month period ended March 31, 2020. 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 the Monte Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of March 31, 2020 and December 31, 2019 is as follows:
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Document and Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
May 13, 2020 |
|
Document And Entity Information | ||
Entity Registrant Name | Charlie's Holdings, Inc. | |
Entity Central Index Key | 0001134765 | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2020 | |
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 Shell Company | false | |
Entity Interactive Data Current | Yes | |
Entity Incorporation, State or Country Code | NV | |
Entity File Number | 001-32420 | |
Entity Common Stock, Shares Outstanding | 18,990,752,596 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2020 |
COMMITMENTS AND CONTINGENCIES (Details 2) $ in Thousands |
Mar. 31, 2020
USD ($)
|
---|---|
Commitments and Contingencies Disclosure [Abstract] | |
Remaining months ended December 31, 2020 | $ 499 |
Year Ended December 31, 2021 | 577 |
Year Ended December 31, 2022 | 399 |
Year Ended December 31, 2023 | 275 |
Year Ended December 31, 2024 | 207 |
Total | 1,957 |
Less present value discount | (414) |
Operating lease liabilities | $ 1,543 |
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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Warrant liability | $ 3,714 | $ 4,144 |
Total liabilities | 3,714 | 4,144 |
Level 1 | ||
Warrant liability | 0 | 0 |
Total liabilities | 0 | 0 |
Level 2 | ||
Warrant liability | 0 | 0 |
Total liabilities | 0 | 0 |
Level 3 | ||
Warrant liability | 3,714 | 4,144 |
Total liabilities | $ 3,714 | $ 4,144 |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued expenses |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Accounting Policies [Abstract] | |
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, 2019 balances within the interim condensed consolidated financial statements were derived from audited financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2019. The financial information contained in the 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 December 31, 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 in its current form, and these costs and expenses are nominal and will continue to be so in the future. The operating results of Don Polly 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.
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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 expense during the reporting periods. Actual results could differ from those estimates.
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Recent Accounting Standards Not Yet Adopted | Income Taxes
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements and related disclosures.
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STOCKHOLDERS' EQUITY |
3 Months Ended |
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Mar. 31, 2020 | |
Stockholders' deficit: | |
STOCKHOLDERS' EQUITY | Conversion of Series A Preferred Shares
For the three months ended March 31, 2020, the Company issued approximately 8,462,528 in common stock conversion shares as 375 of Series A Convertible Preferred Stock (“Series A Preferred”).
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CONCENTRATIONS |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Risks and Uncertainties [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONCENTRATIONS | Vendors
The Company’s concentration of purchases are as follows:
During the three months ended March 31, 2020, purchases from four vendors represented 78% of total inventory purchases. During the three months ended March 31, 2019, purchases from four vendors represented 91% of total inventory purchases.
As of March 31, 2020, and December 31, 2019, amounts owed to these vendors totaled $1,172,500 and $68,000 respectively, which are included in accounts payable in the accompanying condensed consolidated balance sheets.
Accounts Receivable
The Company’s concentration of accounts receivable are as follows:
No customer made up more than 10% of accounts receivable at March 31, 2020. Customer A owed the Company a total of $109,600, representing 7% of net receivables. One customer made up more than 10% of net accounts receivable at December 31, 2019. Customer A owed the Company a total of $211,000, representing 23% of net receivables. No customer exceeded 10% of total net sales for the three-month periods ended March 31, 2020 and March 31, 2019, respectively.
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PROPERTY AND EQUIPMENT (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
|
Property and equipment, gross | $ 868 | $ 825 |
Accumulated depreciation | (322) | (282) |
Property and equipment, net | 546 | 543 |
Machinery and Equipment | ||
Property and equipment, gross | $ 96 | 96 |
Estimated useful life | 5 years | |
Trade Show Booth | ||
Property and equipment, gross | $ 171 | 171 |
Estimated useful life | 5 years | |
Office Equipment | ||
Property and equipment, gross | $ 161 | 118 |
Estimated useful life | 5 years | |
Leasehold Improvements | ||
Property and equipment, gross | $ 440 | $ 440 |
Estimated useful life | Lesser of lease term or estimated useful life |
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Details) - USD ($) $ in Thousands |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accounts payable | $ 1,638 | $ 673 |
Accrued compensation | 1,360 | 1,635 |
Other accrued expense | 240 | 208 |
Accounts payable and accrued expense | $ 3,238 | $ 2,516 |
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Mar. 31, 2020 |
Mar. 31, 2019 |
|
Commitments and Contingencies Disclosure [Abstract] | ||
Operating lease cost | $ 149 | $ 10 |
Variable lease cost | 0 | 0 |
Operating lease expense | 149 | 10 |
Short-term lease rent expense | 0 | 0 |
Total rent expense | $ 149 | $ 10 |
CONSOLIDATED BALANCE SHEET (Parenthetical) - $ / shares |
Mar. 31, 2020 |
Dec. 31, 2019 |
---|---|---|
Preferred stock par value | $ .001 | $ 0.001 |
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 (in millions) | 18,982 | 18,974 |
Common stock, shares outstanding (in millions) | 18,982 | 18,974 |
Series A Preferred Stock | ||
Preferred stock shares authorized | 300,000 | 300,000 |
Preferred stock shares issued | 204,186 | 204,561 |
Preferred stock shares outstanding | 204,186 | 204,561 |
Series B Preferred Stock | ||
Preferred stock shares authorized | 1,500,000 | 1,500,000 |
Preferred stock shares issued | 0 | 0 |
Preferred stock shares outstanding | 0 | 0 |
DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
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, together with 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”). Our CBD based products are produced, marketed and sold through, Don Polly, 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” or “CCD”), 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 in its current form.
Acquisition of True Drinks Holdings, Inc.
On April 26, 2019 (the “Closing Date”), we entered into a Securities Exchange Agreement with each of the former members (“Members”) of Charlie’s, and certain direct investors in the Company (“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 on an as-converted basis (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 Charlie’s 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 930,869,848 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 86.1% of the Company’s outstanding voting securities immediately after the Share Exchange, and the Company’s current stockholders beneficially owning approximately 13.9% of the issued and outstanding voting securities, which includes the Advisory Shares. Following the Share Exchange, Ryan Stump and Brandon Stump, the founders of Charlie’s and the Company’s Chief Executive Officer and Chief Operating Officer, respectively, held in excess of 50% of the Company’s issued and outstanding voting securities.
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 at the consummation 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 were replaced by the Company's historical financial statements including the comparative prior periods. All references in the consolidated financial statements to the number of shares and per-share amounts of common stock have been retroactively restated to reflect the exchange rate.
Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management’s Plan of Operation
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company operates in a rapidly changing legal and regulatory environment; new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs. Additionally, the Company is required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States. There is significant cost associated with the application process and there can be no assurance the FDA will approve the application(s). In addition, the recent outbreak of coronavirus (“COVID-19”) in March 2020 has had a negative impact on the global economy and markets which has impacted the Company’s supply chain and sales. For the three months ended March 31, 2020, the Company has incurred losses from operations of $4,351,000 and a consolidated net loss of approximately $3,916,000, and the Company has negative stockholders’ equity of $2,294,000. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations.
Management's plans depend on its ability to increase revenues and continue its business development efforts, including the expenditure of approximately $4,400,000 to complete the PMTA registration process. The Company does not anticipate that its current cash position will be sufficient to meet its working capital requirements, to continue its sales and marketing efforts and complete the PMTA registration process. The Company is currently seeking debt and/or equity financing in order to ensure that it have sufficient cash to operate for the next 12 months. There can be no assurance that such financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in its best interests.
Risks and Uncertainties
The Company operates in an environment that is subject to rapid changes and developments in laws and regulations that could have a significant impact on the Company’s ability to sell its products. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and several states and municipalities are considering implementing similar restrictions. Federal, state, and local governmental bodies across the United States have indicated that flavored e-cigarette liquid, vaporization products and certain other consumption accessories may become subject to new laws and regulations at the federal, state and local levels. The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating flavored e-cigarette liquid and products used for the vaporization of nicotine could significantly limit the Company’s ability to sell such products, result in additional compliance expenses, and/or require the Company to change its labeling and/or methods of distribution. Any ban of the sale of flavored e-cigarettes directly limits the markets in which the Company may sell its products. In the event the prevalence of such bans and/or changes in laws and regulations increase across the United States, or internationally, the Company’s business, results of operations and financial condition could be adversely impacted. In addition, the Company is presently in the process of submitting PMTA applications for some of its nicotine-based e-liquid products. The applications are due in September 2020, which if approved, will allow the Company to continue to sell its products in the United States. This application deadline was previously May 2020 and recently has been extended and there is no assurance that there will not be further extensions. The Company is also seeking additional financing in order to complete the application process. There is no assurance that regulatory approval to sell our products will be granted or that we can raise the additional financing required, and if not, this could have a significant impact on our sales.
On March 11, 2020, the World Health Organization designated the ongoing and evolving COVID-19 outbreak as a pandemic. The outbreak has caused substantial disruption in international and U.S. economies and markets as it continues to spread. The outbreak is having a temporary adverse impact on our industry as well as our business, with regards to certain supply chain disruptions and sales volume. While the disruption from COVID-19 is currently expected to be temporary, there is uncertainty around the duration. The financial impact from COVID-19 on our business cannot be reasonably estimated at this time, however recent sales activity has shown a decline in sales of our CBD products and, if disruptions from the COVID-19 outbreak are prolonged, it will continue to have an adverse impact on our business.
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STOCK OPTIONS |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
Share-based Payment Arrangement [Abstract] | |
STOCK OPTIONS | The True Drinks Holdings, Inc. 2013 Stock Incentive Plan (the “Prior Plan”) was first approved in December 2013 and was approved by a majority of the stockholders in October 2014. The Prior Plan originally authorized 20.0 million shares of common stock for issuance as equity-based awards, which amount was increased to 120.0 million in January 2018 by authorization of the Board of Directors at that time (the “Prior Plan Amendment”). As of the date of the Share Exchange, April 26, 2019, a total of approximately 91.7 million awards were issued under the Prior Plan and the Prior Plan Amendment, consisting entirely of outstanding stock options. As of March 31, 2020, approximately 61.8 million of these stock options remain vested and exercisable under this plan.
The Company will not grant any additional awards or shares of common stock under the Prior Plan beyond those that are currently outstanding.
On May 8, 2019, our Board of Directors approved the Charlie’s Holdings, Inc. 2019 Omnibus Incentive Plan (the “2019 Plan”), and the 2019 Plan was subsequently approved by holders of a majority of our outstanding voting securities on the same date. The 2019 Plan will supersede and replace the Prior Plan and no new awards will be granted under the Prior Plan. Any awards outstanding under the Prior Plan on the date of stockholder approval of the 2019 Plan will remain subject to and be paid under the Prior Plan, including those granted under the Prior Plan Amendment, and any shares subject to outstanding awards under the Prior Plan that subsequently expire, terminate, or are surrendered or forfeited for any reason without issuance of shares will automatically become available for issuance under the 2019 Plan. Up to 1,107,254,205 shares of common stock may be granted under the 2019 Plan. The shares of common stock issuable under the 2019 Plan will consist of authorized and unissued shares, treasury shares, and shares purchased on the open market or otherwise.
As of March 31, 2020, there was approximately $715,700 of total unrecognized compensation expense related to non-vested share-based compensation arrangements granted under the 2019 Plan. That cost is expected to be recognized over a weighted average period of 2.5 years. For the three months ended March 31, 2020, the Company recorded compensation expense of $249,200 related to the issuance of stock options.
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DON POLLY, LLC. |
3 Months Ended |
---|---|
Mar. 31, 2020 | |
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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STOCK OPTIONS (Details Narrative) |
3 Months Ended |
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Mar. 31, 2020
USD ($)
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Share-based Payment Arrangement [Abstract] | |
Unrecognized compensation expense | $ 715,700 |
Unrecognized compensation expense period of recognition | 2 years 6 months |
Compensation expense related to the issuance of stock options | $ 249,200 |
FAIR VALUE MEASUREMENTS (Details 2) - $ / shares |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
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Fair Value Disclosures [Abstract] | ||
Exercise price | $ .0044 | $ .0044 |
Contractual term (years) | 4 years 25 days | 4 years 3 months 25 days |
Volatility (annual) | 75.00% | 70.00% |
Risk-free rate | 0.30% | 1.70% |
Dividend yield (per share) | 0.00% | 0.00% |
CONCENTRATIONS (Details 1) |
3 Months Ended | 12 Months Ended |
---|---|---|
Mar. 31, 2020 |
Dec. 31, 2019 |
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Accounts Receivable | Customer A | ||
Concentration risk | 7.00% | 23.00% |
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