Charlie's Holdings Reports Third Quarter 2020 Results

Highlighted by Filing Initial PMTA Submission for FDA Approval and Notice that it is Sufficiently Complete to Enter the Substantive Review Phase of the Process

COSTA MESA, CA / ACCESSWIRE / November 16, 2020 / Charlie's Holdings, Inc. (OTC PINK:CHUC) ("Charlie's" or the "Company"), an industry leader in both the premium, nicotine-only, e-cigarette space and the hemp-derived, CBD wellness space, announced today the Company's financial results for the third quarter ended September 30, 2020.

Filed Initial PMTA Submission for FDA Approval

On August 31, 2020, Charlie's Chalk Dust ("CCD") announced the filing of its initial Premarket Tobacco Application ("PMTA") submission with the United States Food and Drug Administration ("FDA"), as it remains committed to being a leader in responsible manufacturing and promoting the highest standards of regulatory compliance. The submission marks the first of these applications that CCD intends to take through FDA's approval process as it seeks to create a long-term, robust product portfolio.

As a further measure to demonstrate the quality of CCD's application, human clinical trials are being performed on our products to help detect the biomarkers of exposure associated with smoking combustible cigarettes and determine the nicotine delivery efficiency of the product via pharmacokinetic studies. A large team of doctors, scientists, biostatisticians, and data analysts are conducting these time intensive clinical trials. We believe that this kind of study will significantly set our application apart from those that are relying solely on the literature-based approach to this critical "in human" assessment of product performance.

The FDA's Center for Tobacco Products informed us that our PMTA has received a valid submission tracking number, passed the filing review phase, and recently entered the substantive review phase. To date, Charlie's has invested over $5 million for our initial PMTA submission. We have engaged a team of more than 200 professionals, including doctors, scientists, biostatisticians, data analysts, and numerous contract research organizations to create our comprehensive PMTA submission. This news highlights our progress toward achieving full regulatory compliance and our goal of providing customers with a trusted product portfolio. We are confident that during the substantive review phase of the PMTA process, the FDA will recognize that our submission is both distinguished and suitable for approval.

Management Commentary

"While we have experienced adversity, with the vapor industry having its share of ups and downs during the past few years, from unfavorable news in late 2019 and the ensuing regulatory uncertainty, to the advent of a global pandemic during 2020, we as an industry have collectively overcome many challenges," stated Brandon Stump, Chief Executive Officer of Charlie's.

Stump, continued, "At Charlie's, we have always been at the forefront of change creating innovative products, helping to shape regulation, and acting as industry stewards. Charlie's has been able to find creative ways to work with our customers and help them to find continued success during these trying times. We believe it is incumbent upon us as an industry leader to work with our customers to help shoulder the burden of economic uncertainty. The team at Charlie's has been diligently working to ensure its customers will have access to high quality, safe products for decades to come. We took the premium, rather than the discounted approach, having already invested $5 million on the highest quality application available to us."

Stump, concluded, "It is with great pleasure that we can announce to our customers and shareholders that the FDA's Center for Tobacco Products has informed us that our PMTA is sufficiently complete to enter the substantive review phase of the process. This news is worthy of celebration as it highlights our progress towards achieving full regulatory compliance and providing our customers with a trusted product portfolio. It is a reflection of our relentless hard work and meticulousness in the pursuit of precision. We are confident that during the substantive review process the FDA will recognize that our submission is both distinguished and suitable for approval. Charlie's is optimistic we will find a path toward full compliance and will have the ability to provide a safer alternative to combustible tobacco products for years to come."

Financial Results for the Three Months Ended September 30, 2020

Revenue for the three months ended September 30, 2020 was $3,894,000, a decrease of $1,696,000, or 30%, compared to $5,590,000 for the three months ended September 30, 2019. The decrease was due to a $1,181,000 decrease in our nicotine-based product sales and a $515,000 decrease in sales of our CBD wellness products.

Gross profit for the three months ended September 30, 2020 was $2,228,000, a decrease of $837,000, or 27%, compared to $3,065,000 for the three months ended September 30, 2019. The resulting gross margin was 57% for the three months ended September 30, 2020, compared to 55% for the three months ended September 30, 2019. For the three months ended September 30, 2020, cost of goods sold, as a percent of revenue, decreased 200 basis points due to a favorable mix of higher margin sales for both Charlie's and Don Polly, but was slightly offset by the effects of distributors and retailers participating in volume incentive rebate programs, as well as lower fixed cost absorption.

General and administrative expense for the three months ended September 30, 2020 was $2,073,000, a decrease of $1,205,000, or 37%, compared to $3,278,000 for the three months ended September 30, 2019. This decrease is comprised of reductions of approximately $825,000 of non-cash, stock-based compensation, employee bonus and other transaction related costs as well as $628,000 of other general and administrative expenses. The reduction in transaction related costs includes $218,000 in additional non-cash, stock-based compensation, $362,000 of employee bonuses and $245,000 of other expenses incurred as a result of our Share Exchange in 2019. The decrease was offset by an increase of approximately $248,000 in various other general and administrative expenses, primarily comprised of rent, software and fees due to our directors.

Sales and marketing expenses for the three months ended September 30, 2020 was $335,000, a decrease of $642,000, or 66%, compared to $977,000 for the three months ended September 30, 2019. The decrease was primarily due to lower commissions paid for reduced sales and curtailed spending on several marketing programs and trade shows due to uncertainty in the global economy.

Research and development expense for the three months ended September 30, 2020 was $741,000, an increase of $741,000, compared to $0 for the three months ended September 30, 2019. The increase was primarily due to incurring costs associated with our PMTA registrations.

Operating loss for the three months ended September 30, 2020 was $921,000, a decrease of $269,000, or 23%, compared to $1,190,000 for the three months ended September 30, 2019.

Net loss for the three months ended September 30, 2020 was $6,824,000, compared to net income of $1,557,000 for the three months ended September 30, 2019.

Net loss is determined by adjusting loss from operations by the following non-cash items:

Change in Fair Value of Derivative Liabilities. For the three months ended September 30, 2020 and 2019, the loss and gain in fair value of derivative liabilities was $5,874,000 and $2,747,000 respectively. The derivative liability is associated with the issuance of Investor Warrants and Placement Agent Warrants in connection with our April 2019 Share Exchange. The loss for the quarter ended September 30, 2020 reflects the effect of the increase in stock price as of September 30, 2020 compared to June 30, 2020. Additionally, the large fluctuation on change in fair value is primarily due to the significant increase in our share price and the amount of warrants outstanding. We had approximately 4,034 million warrants outstanding as of September 30, 2020.

Interest Expense. For the three months ended September 30, 2020 and September 30, 2019, we recorded of interest expense related to notes payable of $29,000 and $0, respectively.

Financial Results for the Nine Months Ended September 30, 2020

Revenue for the nine months ended September 30, 2020 was $12,462,000, a decrease of $6,594,000, or 35%, compared to $19,056,000 for the nine months ended September 30, 2019. The decrease was due to a $6,364,000 decrease in our nicotine-based product sales, and a $230,000 decrease in sales of our CBD wellness products.

Gross profit for the nine months ended September 30, 2020 was $7,101,000, a decrease of $3,834,000, or 35%, compared to $10,935,000 for the nine months ended September 30, 2019. The resulting gross margin was 57% for the nine months ended September 30, 2020, compared to 57% for the nine months ended September 30, 2019. For the nine months ended September 30, 2020, cost of goods sold, as a percent of revenue, remained relatively unchanged due to a more favorable mix of higher margin sales for Charlie's and Don Polly in the most recent quarter, but was offset by the effects of distributors and retailers participating in volume incentive rebate programs and a relatively larger provision for returns and obsolescence.

General and administrative expense for the nine months ended September 30, 2020 was $8,500,000, a decrease of $1,807,000, or 18%, compared to $10,307,000 for the nine months ended September 30, 2019. This decrease is comprised of reductions of approximately $3.2 million of non-cash, stock-based compensation, employee bonus and other transaction costs, as well as $300,000 of other general and administrative expenses. The decrease in transaction related costs includes $959,000 in additional non-cash, stock-based compensation, $2.0 million of employee bonuses and $285,000 of other expenses incurred as a result of our Share Exchange in 2019. The decrease was offset by an increase of approximately $1.7 million in various other general and administrative expenses primarily comprised of salary, software, insurance and other costs related to expansion and operations as a public company.

Sales and marketing expenses for the nine months ended September 30, 2020 was $1,259,000, a decrease of $1,295,000, or 51%, compared to $2,554,000 for the nine months ended September 30, 2019. The decrease was primarily due to lower commissions paid for reduced sales and curtailed spending on several marketing programs due to uncertainty in the global economy.

Research and development expense for the nine months ended September 30, 2020 was $3,372,000, an increase of $3,372,000, compared to $0 for the nine months ended September 30, 2019. The increase was primarily due to incurring costs associated with our PMTA registrations.

Operating loss for the nine months ended September 30, 2020 was $6,030,000, an increase of $4,104,000, or 213%, compared to $1,926,000 for the nine months ended September 30, 2019.

Net loss for the nine months ended September 30, 2020 was $11,384,000, compared to net income of $999,000 for the nine months ended September 30, 2019.

Net loss is determined by adjusting income from operations by the following non-cash items:

Change in Fair Value of Derivative Liabilities. For the nine months ended September 30, 2020 and 2019, the loss and gain in fair value of derivative liabilities was $5,264,000 and $2,925,000 respectively. The derivative liability is associated with the issuance of Investor Warrants and Placement Agent Warrants in connection with our April 2019 Share Exchange. The loss for the nine months ended September 30, 2020 reflects the effect of the increase in stock price as of September 30, 2020 compared to December 31, 2019. Additionally, the large fluctuation on change in fair value is primarily due to the significant increase in our share price and the amount of warrants outstanding. We had approximately 4,034 million warrants outstanding as of September 30, 2020.

Interest Expense. For the nine months ended September 30, 2020 and September 30, 2019, we recorded interest expense related to notes payable of $105,000 and $0, respectively.

About Charlie's Holdings, Inc.

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

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

Safe Harbor Statement

This press release contains "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, including but not limited to statements regarding the Company's overall business, existing and anticipated markets and expectations regarding future sales and expenses. Words such as "expect," "anticipate," "should," "believe," "target," "project," "goals," "estimate," "potential," "predict," "may," "will," "could," "intend," variations of these terms or the negative of these terms and similar expressions are intended to identify these forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, many of which involve factors or circumstances that are beyond the Company's control. The Company's actual results could differ materially from those stated or implied in forward-looking statements due to a number of factors, including but not limited to: the Company's ability to successful increase sales and enter new markets; the Company's ability to manufacture and produce product for its customers; the Company's ability to formulate new products; the acceptance of existing and future products; the complexity, expense and time associated with compliance with government rules and regulations affecting nicotine and products containing cannabidiol; litigation risks from the use of the Company's products; risks of government regulations; the impact of competitive products; and the Company's ability to maintain and enhance its brand, as well as other risk factors included in the Company's most recent quarterly report on Form 10-K, 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:

[email protected]
p949-418-4020

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https://www.accesswire.com/616876/Charlies-Holdings-Reports-Third-Quarter-2020-Results

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