Charlie’s Holdings Reports Third Quarter 2019 Results

Newly Introduced CBD Wellness Products Generated $920,000 Revenue and Gross Margins of 54.8%

COSTA MESA, CA / ACCESSWIRE / November 15, 2019 / Charlie’s Holdings, Inc. (OTC Pink:CHUC) (“Charlie’s”, “we”, “us”, “our” or the “Company”), an industry leader in premium, nicotine-only, e-cigarette and hemp-derived CBD wellness products, announced today the Company’s financial results for the third quarter ended September 30, 2019.

Key Financial Highlights for Q3 2019

  • Revenue increased 7% year over year to $5,590,000.
  • Gross Margins of 54.8 %
  • Recently launched CBD wellness products generated revenue of $920,000

Key Business Highlights for Q3 2019

  • Sales through all top five domestic vape specialty retailers totaling 350+ retail locations and nine of the top ten largest vape e-commerce platforms
  • Opened new 11,000 square foot dedicated warehouse facility in Huntington Beach, California
  • Continued progress with FDA Premarket Tobacco Application process, utilizing industry leading contracted research organizations for analysis and testing
  • Addition of key distribution accounts for our hemp-derived CBD wellness products
  • Increasing internal e-commerce direct-to-consumer efforts

Management Commentary

“We are very pleased with our recent results and accomplishments to date. Recent industry headwinds and negative effects from nationwide vaping concerns have impacted our third quarter results.However, we believe that we are startegically positioned differently than most vaping companies currently under pressure and our current operating plans, including growing our CBD sales and product offerings, taking advatage of our internatioanl vaping distribution network and upcoming PMTA registrations, will allow us to prosper during this period of uncertain regulation,”commented Brandon Stump, Chief Executive Officer of Charlies’s.

Mr. Stump continued, “Recently, these concerns were more clearly identified by the Center for Disease Control as having been possibly linked to an additive which is not included in the formulation of our products. Charlie’s Holdings will continue to be a pioneer in the industries in which we operate and we fully support prudent governmental regulations.”

“Our CBD wellness product line demonstrated great success from our initial launch in June of this year, and we plan to further diversify this product line and continue to create products that our customers will enjoy. We will continue to pursue the business opportunities associated with the nicotine-only, e-cigarette and hemp-derived CBD wellness products. Charlie’s is well-positioned and strategically prepared for future growth.” Mr. Stump concluded.

Financial Results for the Three Months Ended September 30, 2019

Revenue for the three months ended September 30, 2019 was $5,590,000, a 7% increase as compared to $5,223,000 for the three months ended September 30, 2018. The increase was primarily due to an increase in sales from our newly launched CBD wellness products business of $920,000. This was partially offset by a $556,000 decrease in our nicotine based e-liquid sales directly related to the current regulatory and health related news stories surrounding the vaping industry.

Gross profit for the three months ended September 30, 2019 was $3,065,000, compared to $3,038,000 for the three months ended September 30, 2018. The resulting gross margin was 54.8% for the three months ended September 30, 2019, compared to 58.2% for the three months ended September 30, 2018.

General and administrative expenses for the three months ended September 30, 2019 were $3,567,000, an increase of $2,800,000 or 365%, compared to $767,000 for the three months ended September 30, 2018. The increase primarily related to the completion of our stock exchange transaction on April 26, 2019 (the “Share Exchange”), including $599,000 of non-cash stock-based compensation expense. The remaining $2,200,000 increase is primarily due to professional fees and increased salaries associated with conducting business as a public company and certain step-up costs related to new business activities, including the launch of our CBD products.

Sales and marketing expenses for the three months ended September 30, 2019 were $688,000, an increase of $303,000 or 79%, compared to $385,000 for the three months ended September 30, 2018. The increase in sales and marketing relates to enhanced marketing efforts for the launch of our CBD wellness products.

Operating loss for the three months ended September 30, 2019 was $1,190,000, as compared to operating income of $1,866,000 for the three months ended September 30, 2018.

Net income for the three months ended September 30, 2019 was $1,557,000, a decrease of $329,000, compared to $1,886,000 for the three months ended September 30, 2018. The decrease was primarily related to increased general and administrative expenses, which were offset by a non-cash gain on the change in fair value of derivative liabilities of $2,747,000. There were no derivative liabilities outstanding on September 30, 2018.

Cash and cash equivalents balance at September 30, 2019 was approximately $4,166,000 with common shares issued and outstanding at approximately 18.97 billion.

Financial Results for the Nine Months Ended September 30, 2019

Revenue for the nine months ended September 30, 2019 was $19,056,000, an 18% increase as compared to $16,142,000 for the nine months ended September 30, 2018. The increase in revenue related to the release of additional e-liquid flavors and formats, growth in customer base and sales territories and improved traction with existing customers. In addition, in June 2019, we introduced several CBD product lines which generated approximately $1,942,000 in revenue during the nine months ended September 30, 2019. However, we did experience a decline in sales of our nicotine based e-liquid products during the latter part of the nine month period ended September 30, 2019 due to the current regulatory and health related news stories surrounding the vaping industry.

Gross profit for the nine months ended September 30, 2019 was $10,935,000, compared to $9,737,000 for the nine months ended September 30, 2018. The resulting gross margin was 57.4% for the nine months ended September 30, 2019, compared to 60.3% for the nine months ended September 30, 2018.

General and administrative expenses for the nine months ended September 30, 2019 were $11,255,000, an increase of $8,992,000 or 397%, compared to $2,263,000 for the nine months ended September 30, 2018. The increase resulted primarily from the completion of the Share Exchange on April 26, 2019, which included $3,700,000 of non-cash stock-based compensation and $1,700,000 of employee bonuses. The remaining $3,600,000 increase is primarily due to professional fees and increased salaries associated with conducting business as a public company and certain step-up costs related to new business activities, including the launch of CBD products.

Sales and marketing expenses for the nine months ended September 30, 2019 were $1,606,000, an increase of $201,000, compared to $1,405,000 for the nine months ended September 30, 2018. The increase in sales and marketing relates to enhanced marketing efforts for the launch of our CBD wellness products.

Operating loss for the nine months ended September 30, 2019 was $1,926,000, as compared to operating income of $6,069,000 for the nine months ended September 30, 2018. The decrease in operating income and transition to an operating loss was primarily due to $5,000,000 of transaction related costs, including costs incurred in connection with the Share Exchange, but offset by revenue derived from our branded nicotine-based e-cigarette liquid business and CBD products.

Net income for the nine months ended September 30, 2019 was $999,000, a decrease of $5,070,000, or 84%, compared to $6,069,000 for the nine months ended September 30, 2018. For the nine months ended September 30, 2019 and 2018, the gain in fair value of derivative liabilities was $2,925,000 and $0, respectively. The derivative liability is associated with the issuance of certain investor warrants and placement agent warrants in connection with the Share Exchange and the gain for the nine months ended September 30, 2019 reflects the effect of the change in stock price on the liability associated with the issuance of these warrants. There were no warrants outstanding on September 30, 2018.

About Charlie’s Holdings, Inc.

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

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

Safe Harbor Statement

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

Investors Contact:

IR@charliesholdings.com

p949-418-4020

CHARLIE’S HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(Unaudited)

 
  September 30,     December 31,  
 
  2019     2018  
ASSETS
           
Current assets:
           
Cash
  $ 4,166     $ 304  
Accounts receivable, net
    1,823       711  
Inventories, net
    1,839       658  
Prepaid expenses and other current assets
    820       427  
Total current assets
    8,648       2,100  
 
               
Non-current assets:
               
Property, plant and equipment, net
    374       45  
Right-of-use asset, net
    690        
Other assets
    68       42  
Total non-current assets
    1,132       87  
 
               
TOTAL ASSETS
  $ 9,780     $ 2,187  
 
               
 
               
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable and accrued expenses
  $ 1,936     $ 1,216  
Derivative liability
    4,837        
Lease liabilities
    257        
Deferred revenue
    158       180  
Total current liabilities
    7,188       1,396  
 
               
Non-current liabilities:
               
Lease liabilities, net of current portion
    454        
Total non-current liabilities
    454        
 
               
Total liabilities
    7,642       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 September 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 September 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 September 30, 2019 and December 31, 2018, respectively
    18,936       141  
Additional paid-in capital
    (17,467 )      
Retained earnings
    669       649  
Total stockholders’ equity
    2,138       791  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
  $ 9,780     $ 2,187  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

CHARLIE’S HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 
  For the three months ended     For the nine months ended  
 
  September 30,     September 30,  
 
  2019     2018     2019     2018  
Revenues:
                       
Product revenue, net
  $ 5,590     $ 5,223     $ 19,056     $ 16,142  
Total revenues
    5,590       5,223       19,056       16,142  
Operating costs and expenses:
                               
Cost of goods sold – product revenue
    2,525       2,185       8,121       6,405  
General and administrative
    3,567       767       11,255       2,263  
Sales and marketing
    688       385       1,606       1,405  
Total operating costs and expenses
    6,780       3,337       20,982       10,073  
Income (loss) from operations
    (1,190 )     1,886       (1,926 )     6,069  
Other income:
                               
Change in fair value of derivative liabilities
    2,747             2,925        
Total other income
    2,747             2,925        
Net income
  $ 1,557     $ 1,886     $ 999     $ 6,069  
 
                               
Net earnings per share applicable to common stockholders
                               
Basic
  $ 0.00     $ 0.01     $ 0.00     $ 0.04  
Diluted
  $ 0.00     $ 0.00     $ 0.00     $ 0.00  
Weighted average shares used in computing basic earnings per share
    18,935,746       141,041       7,847,468       141,041  
Weighted average shares used in computing diluted earnings per share
    18,935,746       14,104,089       7,847,468       14,104,089  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

CHARLIE’S HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 
  For the nine months ended  
 
  September 30,  
 
  2019     2018  
Cash Flows from Operating Activities:
           
Net income
  $ 999     $ 6,069  
Reconciliation of net income to net cash (used in) provided by operating activities:
               
Bad debt expense
    573        
Depreciation and amortization
    36       15  
Change in fair value of derivative liabilities
    (2,925 )      
Amortization of operating lease right-of-use asset
    104        
Stock based compensation
    3,359        
Subtotal of non-cash charges
    1,147       15  
Changes in operating assets and liabilities:
               
Accounts receivable
    (1,685 )     (129 )
Inventories
    (1,181 )     (491 )
Prepaid expenses and other current assets
    (393 )     148  
Other assets
    (26 )     (5 )
Accounts payable and accrued expenses
    720       (26 )
Deferred revenue
    (22 )     117  
Lease liabilities
    (83 )      
Net cash (used in) provided by operating activities
    (524 )     5,698  
Cash Flows from Investing Activities:
               
Purchase of property, plant and equipment
    (365 )     (12 )
Net cash used in investing activities
    (365 )     (12 )
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 )     (5,352 )
Net cash provided by (used in) financing activities
    4,751       (5,352 )
Net increase in cash
    3,862       334  
 
               
Cash, beginning of the period
    304       655  
Cash, end of the period
  $ 4,166     $ 989  
 
               
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
  $ 1     $  

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

SOURCE: Charlie’s Holdings, Inc.

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