UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~

~~[X]~~

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~March 31, 2021

~~[ ]~~

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to _________

Commission file number 001-32420

~~TRUE DRINKS~~CHARLIE’S HOLDINGS, INC.

~~(Exact~~ (Exact Name of Registrant as Specified in Its Charter)

Nevada		84-1575085
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

~~4 Executive Circle, Suite 280~~1007 Brioso Drive, Costa Mesa, CA 92627

~~Irvine, CA 92614~~

~~(Address~~ (Address of Principal Executive Offices)

(949) ~~203-3500~~531-6855

~~(Registrant’s~~ (Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer	[ ]	Accelerated filer	[ ]
Non-accelerated filer	[ ]X]	Smaller reporting company	[X]
		Emerging growth company	[ ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-12 of the Exchange Act). Yes [ ] No [X]

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class	Trading Symbol(s)	Name of each exchange on which registered

The number of shares of the registrant’s Common Stock, ~~$0.001~~ par value $0.001 per share, issued and outstanding on ~~November 14, 2017~~May 5, 2021 was ~~216,151,590.~~20,004,598,424.

~~TRUE DRINKS HOLDINGS,~~CHARLIE’S HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2021

~~IND~~EXINDEX


PART I. FINANCIAL INFORMATION			Page

	ITEM 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2021 (unaudited) and December 31, ~~2016~~2020	1
		Condensed Consolidated Statements of Operations for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (unaudited)	2
		Condensed Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2021 and 2020 (unaudited)	3
		Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and ~~2016~~2020 (unaudited)	34
		Notes to Condensed Consolidated Financial Statements (unaudited)	4
			5
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1416
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	1923
	ITEM 4.	Controls and Procedures	1923

PART II. OTHER INFORMATION

	ITEM 1.	Legal Proceedings	1924
	ITEM 1A.	Risk Factors	1924
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2537
	ITEM 3.	Defaults Upon Senior Securities	2537
	ITEM 4.	Mine Safety Disclosures	2538
	ITEM 5.	Other Information	2538
	ITEM 6.	Exhibits	2638

SIGNATURES			39

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PA~~PART~~RT I

ITEM 1. FINANCIAL STATEMENTS

~~TRUE DRINKS~~CHARLIE’S HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30,
2017

December 31,
2016

ASSETS

(Unaudited)

Current Assets:

Cash and cash equivalents
$217,474
$15,306
Accounts receivable, net
  263,480
  536,817
Inventory, net
  488,761
  318,912
Prepaid expenses and other current assets
  183,225
  127,258
Total Current Assets
  1,152,940
  998,293



Restricted Cash
  -

  209,570
Property and Equipment, net
  7,130
  11,064
Patents, net
  160,000
  250,000
Goodwill
  3,474,502
  3,474,502
Total Assets
$4,794,572
$4,943,429



LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)





Current Liabilities:


Accounts payable and accrued expenses
$1,588,255
$1,258,252
Debt, short-term
  514,353
  109,682
Derivative liabilities
  67,528
  5,792,572
Total Current Liabilities
  2,170,136
  7,160,506



Debt, long-term
  1,570,963
  -



Total Liabilities
  3,741,099
  7,160,506



Commitments and Contingencies (Note 5)





Stockholders’ Equity (Deficit):


Common Stock, $0.001 par value, 300,000,000 shares authorized, 214,622,929 and 119,402,009 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
  214,623
  119,402
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,500,000 shares authorized, 1,285,585 and 1,292,870 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
  1,285
  1,293
Preferred Stock – Series C (liquidation preference $100 per share), $0.001 par value, 200,000 and 150,000 shares authorized, 105,704 and 109,352 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
  106
  109
Preferred Stock – Series D (liquidation preference $100 per share), $0.001 par value, 50,000 and 0 shares authorized, 38,750 and 0 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively
  39
  -
Additional paid in capital
  42,625,878
  33,456,325
Accumulated deficit
  (41,788,458)
  (35,794,206)



Total Stockholders’ Equity (Deficit)
  1,053,473
  (2,217,077)



Total Liabilities and Stockholders’ Equity (Deficit)
$4,794,572
$4,943,429
(in thousands, except share and per share amounts)

	March 31,	December 31,
	2021	2020
	(Unaudited)
ASSETS
Current assets:
Cash	$3,455	$1,422
Accounts receivable, net	1,081	1,258
Inventories, net	1,591	1,593
Prepaid expenses and other current assets	354	450
Total current assets	6,481	4,723

Non-current assets:
Property, plant and equipment, net	500	531
Right-of-use asset, net	1,087	1,200
Other assets	71	71
Total non-current assets	1,658	1,802

TOTAL ASSETS	$8,139	$6,525

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses	$2,187	$2,525
Derivative liability	24,546	4,444
Lease liabilities	462	456
Notes payable	-	1,400
Dividends payable	1,560	1,650
Deferred revenue	442	268
Total current liabilities	29,197	10,743

Non-current liabilities:
Notes payable, net of current portion	985	1,016
Lease liabilities, net of current portion	641	762
Total non-current liabilities	1,626	1,778

Total liabilities	30,823	12,521

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, 178,690 and 203,811 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	-	-
Series B, 1,500,000 shares designated, 0 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	-	-
Common stock ($0.001 par value); 50,000,000,000 shares authorized; 19,929,645,221 shares and 18,990,752,596 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively	19,930	18,991
Additional paid-in capital	(12,814)	(15,324)
Accumulated deficit	(29,800)	(9,663)
Total stockholders' deficit	(22,684)	(5,996)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$8,139	$6,525

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

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~~TRUE DRINKS H~~CHARLIE’SOL~~DINGS,~~HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Net Sales
$1,030,008
$961,949
$4,494,713
$2,028,216





Cost of Sales
  720,080
  628,195
  2,918,945
  1,884,309





Gross Profit
  309,928
  333,754
  1,575,768
  143,907





Operating Expenses




Selling and marketing
  1,913,814
  558,899
  4,864,499
  2,696,295
General and administrative
  1,680,234
  956,614
  4,825,983
  3,573,520
Total operating expenses
  3,594,048
  1,515,513
  9,690,482
  6,269,815





Operating Loss
  (3,284,120)
  (1,181,759)
  (8,114,714)
  (6,125,908)





Other (Expense) Income




      Change in fair value of derivative liabilities
  33,347
  3,051,973
  2,272,697
  3,026,433
      Interest (expense) income
  (59,311)
  (10,428)
  (104,229)
  (39,632)
      Other (expense) income

-

  178
  (48,006)
  (18,745)
Total Other (Expense) Income
  (25,964)
  3,041,723
  2,120,462
  2,968,056





NET (LOSS) INCOME
  (3,310,084)
  1,859,964
  (5,994,252)
  (3,157,852)





Declared dividends on Preferred Stock
   66,080
  66,080
  196,085
  198,929





Net (loss) income attributable to common stockholders
$(3,376,164)
$1,793,884
$(6,190,337)
$(3,356,781)





Net (loss) income per common share




      Basic:
$(0.02)
$0.01
$(0.03)
$(0.03)
      Diluted:
$(0.02)
$0.01
$(0.03)
$(0.03)





Weighted average common shares outstanding




      Basic:
208,056,810
  121,989,573
186,111,074
  118,978,522
      Diluted:
208,056,810
  210,146,167
186,111,074
  118,978,522

	For the three months ended
	March 31,
	2021	2020
Revenues:
Product revenue, net	$4,361	$4,405
Total revenues	4,361	4,405
Operating costs and expenses:
Cost of goods sold - product revenue	1,943	1,963
General and administrative	2,218	4,151
Sales and marketing	420	419
Research and development	9	2,223
Total operating costs and expenses	4,590	8,756
Loss from operations	(229)	(4,351)
Other income (expense):
Interest expense	(28)	-
Change in fair value of derivative liabilities	(20,102)	430
Gain on debt extinguishment	217	-
Other income	5	5
Total other income (expense)	(19,908)	435
Net loss	$(20,137)	$(3,916)

Net loss per share, basic and diluted	$(0.00)	$(0.00)
Weighted average number of common shares outstanding	19,514,195,000	18,973,921,000

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

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~~TRUE DRINKS HO~~CHARLILE’S HOLD~~DINGS,~~INGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands)

(Unaudited)

	Series AConvertible Preferred Stock		Common Stock		Additional	Accumulated	Total Stockholders'
	Shares	Par value	Shares	Par value	Paid-in Capital	Deficit	Deficit
Balance at January 1, 2021	204	$-	18,990,753	$18,991	$(15,324)	$(9,663)	$(5,996)
Issuance of common stock to related parties for cash	-	-	351,700	352	2,648	-	3,000
Conversion of Series A convertible preferred stock	(25)	-	566,883	567	(567)	-	-
Issuance of common stock for dividend payment	-	-	20,310	20	70	-	90
Stock compensation	-	-	-	-	359	-	359
Net loss	-	-	-	-	-	(20,137)	(20,137)
Balance at March 31, 2021	179	$-	19,929,646	$19,930	$(12,814)	$(29,800)	$(22,684)

	Series AConvertible Preferred Stock		Common Stock		Additional	Accumulated	Total Stockholders'
	Shares	Par value	Shares	Par value	Paid-in 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 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)

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

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CHARLIE’S HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

~~(Unaudited)~~(in thousands)

(Unaudited)

Nine Months Ended
September 30,

2017

2016

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss
$(5,994,252)
$(3,157,852)
Adjustments to reconcile net loss to net cash used in operating activities


Depreciation
  3,934

  3,557
Amortization
  90,000
  105,882
Accretion of debt discount
  17,846
  -
Provision for bad debt expense
  (18,204)
  140,152
Provision for inventory losses
  -
  110,000
Change in estimated fair value of derivative
  (2,272,697)
  (3,026,433)
Fair value of common stock issued for services
  605,500
  18,000
Stock based compensation
  480,043
  229,858
Change in operating assets and liabilities:


Accounts receivable
  291,541
  1,258,991
Inventory
  (169,849)
  707,364
Prepaid expenses and other current assets
  (55,967)
  (160,523)
Accounts payable and accrued expenses
  1,379,568
  (623,123)
Net cash used in operating activities
  (5,642,537)
  (4,394,127)



CASH FLOWS FROM INVESTING ACTIVITIES


Restricted cash
  209,570
  (158)
Purchase of property and equipment
  -
  (11,775)
Net cash provided by (used in) investing activities
  209,570
  (11,933)



CASH FLOWS FROM FINANCING ACTIVITIES


Proceeds from warrants exercised for cash
  -
  45,000
Proceeds from issuance of Series C Preferred Stock
  -
  6,000,000
Proceeds from issuance of Series D Preferred Stock
  4,562,500
  -
Borrowings on debt
  1,350,000
  94,998

Principal repayment on debt
  (208,602)
  (703,778)
Net borrowing on line-of-credit facility
  (68,763)
  -
Net cash provided by financing activities
  5,635,135
  5,436,220



NET INCREASE IN CASH
  202,168
  1,030,160



CASH AND CASH EQUIVALENTS- beginning of period
  15,306
  376,840



CASH AND CASH EQUIVALENTS- end of period
$217,474
$1,407,000



SUPPLEMENTAL DISCLOSURES


Interest paid in cash
$ 69,885

$41,758
Non-cash financing and investing activities:


Conversion of preferred stock to common stock
$7,131
$1,473
Dividends paid in common stock
$196,086
$198,449
Dividends declared but unpaid
$196,086
$198,929
Debt discount recorded in connection with borrowings on debt
$164,411
$-
Notes payable issued in exchange for accounts payable
$1,049,564
$-
Conversion of notes payable and accrued interest to Series C Preferred Stock
$-
$500,000
Warrants exchanged for common stock
$6,080,278
$-
Issuance of restricted stock
$-
$2,620
Warrants issued in connection with Preferred Offering
$2,627,931
$3,159,721

	For the three months ended
	March 31,
	2021	2020
Cash Flows from Operating Activities:
Net loss	$(20,137)	$(3,916)
Reconciliation of net loss to net cash provided by (used in) operating activities:
Allowance for (recovery of) doubtful accounts	(12)	134
Depreciation and amortization	50	40
Change in fair value of derivative liabilities	20,102	(430)
Amortization of operating lease right-of-use asset	113	101
Stock based compensation	359	1,853
Gain from debt extinguishment	(217)	-
Subtotal of non-cash charges	20,395	1,698
Changes in operating assets and liabilities:
Accounts receivable	189	(792)
Inventories	2	(123)
Prepaid expenses and other current assets	96	41
Accounts payable and accrued expenses	(336)	1,038
Deferred revenue	174	(17)
Lease liabilities	(115)	(101)
Net cash provided by (used in) operating activities	268	(2,172)
Cash Flows from Investing Activities:
Purchase of property, plant and equipment	(19)	(43)
Net cash used in investing activities	(19)	(43)
Cash Flows from Financing Activities:
Proceeds from issuance of common stock to related parties	3,000	-
Proceeds from issuance of notes payable	184	-
Repayment of notes payable	(1,400)	-
Net cash provided by financing activities	1,784	-
Net increase (decrease) in cash	2,033	(2,215)

Cash, beginning of the period	1,422	2,448
Cash, end of the period	$3,455	$233

Supplemental disclosure of cash flow information
Cash paid for interest	$150	$-
Cash paid for income taxes	$-	$-

Supplemental disclosure of cash flow information
Conversion of Series A convertible preferred stock	$567	$8
Issuance of common stock for dividend payment	$90	$-
Reclassification of liability awards to equity	$-	$1,638
Gain from debt extinguishment	$217	$-

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

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~~TRUE DR~~CHIA~~NKS~~RLIE’S HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~September 30, 2017~~

NOTE 1 ~~— ORGANIZATION~~– 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, ingestible 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.

The Company's Common Stock, par value $0.001 per share (the "Common Stock"), trades under the symbol "CHUC" on the OTC: PINK market.

Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management’s Plan of Operation

The accompanying condensed consolidated 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 was required to apply for approval from the United States Food and Drug Administration ("FDA") 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 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, 2021, the Company has incurred losses from operations of approximately $229,000 and a consolidated net loss of approximately $20,137,000, and the Company has a stockholders’ deficit of approximately $ 22,684,000 as of March 31, 2021. 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 date, to complete the Premarket Tobacco Application (“PMTA”) registration process. On March 23, 2021, The Company closed a $3,000,000 capital raise through the private sale of 351,669,883 shares of its common stock to the Company’s founders Brandon Stump and Ryan Stump. The Company intends to use the proceeds to fund future growth, increase working capital, retire outstanding debt, and for other general corporate purposes. However, it’s possible that the Company may require additional financing in the future should the FDA require additional testing for one, or several, of the Company’s PMTA submissions. 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 the Company’s best interests.

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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 seeking to obtain marketing authorization for certain of its nicotine-based e-liquid products. Our applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its approved products in the United States. There is no assurance that regulatory approval to sell our products will be granted or that we would be able to raise additional financing if required, which 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 has caused a decline in sales, and if disruptions from the COVID-19 outbreak are prolonged, it will continue to have an adverse impact on our business.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Organization and Business~~

~~Overview~~

~~True Drinks Holdings, Inc. (the “Company”, “~~us~~” or “~~we~~”) was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks~~”), a beverage company incorporated in the state of Delaware in January 2012 that specializes in all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall® Naturally Flavored Water, a zero-sugar, zero-calorie, preservative-free, vitamin-enhanced, naturally flavored water drink. We distribute AquaBall® nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed online and through our existing database of customers.

Our principal place of business is 4 Executive Circle, Suite 280, Irvine, California, 92614. Our telephone number is (949) 203-3500. Our corporate website address is http://www.truedrinks.com. Our common stock, par value $0.001 per share (“~~Common Stock”), is currently listed for quotation on the OTC Pink Marketplace under the symbol “TRUU".~~

Basis of Presentation ~~and~~ ~~Going Concern~~

The accompanying condensed consolidated balance sheet as of December 31, 2016, which has been derived from audited financial statements included in the Company’s Form 10-K for the year ended December 31, 2016, and the accompanyingunaudited interim condensed consolidated financial statements have been prepared ~~by management~~ pursuant to the rules and regulations of the Securities and Exchange Commission (“(the “SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary to fairly present the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America (“~~GAAP~~”). Operating results for the nine-month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been omitted ~~in accordance with the~~pursuant to such SEC rules and ~~regulations of the SEC, although~~regulations; nevertheless, the Company believes that the disclosures ~~made~~ are adequate to make the information presented in this Quarterly Report on Form 10-Q (this “Report”) not misleading. ~~The accompanying~~

Amounts related to disclosure of December 31, 2020 balances within the interim condensed consolidated financial statements ~~should be read in conjunction with the~~were derived from audited ~~consolidated~~ financial statements and notes thereto ~~contained~~included in the ~~Company's Annual Report on~~Company’s Form 10-K for the ~~fiscal~~ year ended December 31, ~~2016 filed with the SEC on March 31, 2017.~~

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern. As of and for the nine months ended September 30, 2017, the Company had a net loss of $5,994,252, negative working capital of $1,017,196, and an accumulated deficit of $41,788,458. The Company had $217,474 in cash at September 30, 2017. The Company currently requires additional capital to execute its business plan, marketing and operating plan, and therefore sustain operations, which capital may not be available on favorable terms, if at all. The accompanying condensed consolidated financial statements do not include any adjustments that will result if the Company is unable to secure the capital necessary to execute its business, marking or operating plan.

~~Principles of Consolidation~~

The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries True Drinks, Inc., Bazi, Inc. and GT Beverage Company, LLC. All inter-company accounts and transactions have been eliminated in the preparation of these condensed consolidated financial statements.2020.

Use of Estimates

The preparation of financial statements in conformity with ~~accounting principles generally accepted in the United States~~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 ~~date~~dates of the financial statements and the reported amounts of revenues and ~~expenses~~expense during the reporting period. Significant estimates made by management include, among others, derivative liabilities, provision for losses on accounts receivable, allowances for obsolete and slow moving inventory, stock compensation, deferred tax asset valuation allowances, and the realization of long-lived and intangible assets, including goodwill.periods. Actual results could differ from those estimates.

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Significant Accounting Policies

~~Restricted Cash~~ There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2020 Annual Report.

Recent Accounting Standards Not Yet Adopted

~~At September 30, 2017,~~In December 2019, the ~~Company did not have any restricted cash. The Company had a letter of credit~~FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which ~~matured on August 31, 2017, originally issued as part of the contractual obligations~~is intended to simplify various aspects related to ~~the Licensing Agreement entered into with Disney Consumer Products, Inc. (“Disney~~”) during the quarter ended September 30, 2015. Currently, the Company’s renewed licensing agreement with Disney is secured by a letter of credit, which letter is secured by the Company's largest investor.

~~Accounts Receivable~~

~~The Company records its trade accounts receivable at net realizable value. This value includes an appropriate allowance~~accounting for ~~estimated sales returns and allowances, and uncollectible accounts to reflect any losses anticipated and charged~~income taxes. ASU 2019-12 removes certain exceptions to the ~~provision~~general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for doubtful accounts. Credit is extended to our customers based on an evaluation of their financial condition; generally, collateral is not required. An estimate of uncollectible amounts is made by management based upon historical bad debts, current customer receivable balances, age of customer receivable balances, the customer’s financial conditionfiscal years, and ~~current economic trends, all of which are subject to change. Actual uncollected amounts have historically been consistent~~interim periods within those fiscal years, beginning after December 15, 2020, with the Company’s expectations. Receivables are charged off against the reserve for doubtful accounts when, in management’s estimation, further collection efforts would not result in a reasonable likelihood of receipt, or later as proscribed by statutory regulations.

~~Concentrations~~

early adoption permitted. The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with two financial institutions. There are funds in excess of the federally insured amount, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.

~~All production of AquaBall® is done by Niagara Bottling, LLC (“Niagara”), under the terms and conditions of the bottling agreement first executed by the Company and Niagara in October 2015, and subsequently amended (the “Niagara Agreement~~”). Niagara handles all aspects of production, including the procurement of all raw materials necessary to produce AquaBall®. We currently utilize a separate facility to handle all repackaging of AquaBall®~~into six packs or 15-packs for club customers.~~

~~During the three months ended September 30, 2017, we relied significantly on one supplier for 100% of our purchases of certain raw materials for Bazi®. Bazi, Inc. has sourced these raw materials from~~adopted this ~~supplier since 2007 and does not anticipate any issues with the supply of these raw materials.~~

No customer made up more than 10% of accounts receivable at September 30, 2017 or December 31, 2016. No customer made up more than 10% of net sales for each of the three or the nine-month periods ended September 30, 2017 and September 30, 2016.

~~A significant portion of our revenue comes from sales of AquaBall~~®~~Naturally Flavored Water.~~For the three months ended September 30, 2017 and 2016, sales of AquaBall® accounted for 92% and 97% of the Company’s total revenue, respectively. For the nine months ended September 30, 2017 and 2016, sales of AquaBall® accounted for 96% and 93% of the Company’s total revenue, respectively.

~~Inventory~~

~~The Company contracts for the manufacturing, for resale, of a vitamin-enhanced flavored water beverage and a liquid dietary supplement.~~

Inventories are stated at the lower of cost (based on the first-in, first-out method) or market (net realizable value). Cost includes shipping and handling fees and costs, which are subsequently expensed to cost of sales. The Company provides for estimated losses from obsolete or slow-moving inventories, and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based on inventory on hand, historical sales activity, industry trends, the retail environment and the expected net realizable value.

~~The Company maintained inventory reserves of $110,000~~standard as of ~~September 30, 2017 and December 31, 2016.~~

~~Inventory is comprised of the following:~~

September 30,
2017

December 31,
2016

Purchased materials
$37,775
$89,358
Finished goods
  560,986
  339,554
Allowance for obsolescence reserve
  (110,000)
  (110,000)
Total
$488,761
$318,912

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~~Long-Lived Assets~~

The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. No impairment was deemed necessary during the quarter ended September 30, 2017.

~~Goodwill and identifiable intangible assets~~

As a result of acquisitions, we have goodwill and other identifiable intangible assets. In business combinations, goodwill is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Accounting for acquired goodwill in accordance with GAAP requires significant judgment with respect to the determination of the valuation of the acquired assets and liabilities assumed in order to determine the final amount of goodwill recorded in business combinations. Goodwill is not amortized, rather, it is evaluated for impairment on an annual basis, or more frequently when a triggering event occurs between annual tests that would more likely than not reduce the fair value of the reporting unit below its carrying value. Such impairment evaluations compare the reporting unit’s estimated fair value to its carrying value.

Identifiable intangible assets consist primarily of customer relationships recognized in business combinations. Identifiable intangible assets with finite lives are amortized over their estimated useful lives, which represent the period over which the asset is expected to contribute directly or indirectly to future cash flows. Identifiable intangible assets are reviewed for impairment whenever events and circumstances indicate the carrying value of such assets or liabilities may not be recoverable and exceed their fair value. If an impairment loss exists, the carrying amount of the identifiable intangible asset is adjusted to a new cost basis. The new cost basis is amortized over the remaining useful life of the asset. Tests for impairment or recoverability require significant management judgment, and future events affecting cash flows and market conditions could adversely impact the valuation of these assets and result in impairment losses.

During the year ended December 31, 2016, we recognized impairment on identifiable intangible assets of $679,411 related to the interlocking spherical bottle patent acquired in the acquisition of GT Beverage Company, Inc., and adjusted the carrying value of this patent to $250,000 as of December 31, 2016. As of September 30, 2017, no additional impairment had been recognized on identifiable intangible assets.

~~Income Taxes~~

As the Company’s calculated provision (benefit) for income tax is based on annual expected tax rates, no income expense was recorded for the three and nine-month periods ended September 30, 2017 and 2016. At September 30, 2017, the Company had tax net operating loss carryforwards and a related deferred tax asset, which had a full valuation allowance.

~~Stock-Based Compensation~~

~~For the nine-month periods ended September 30, 2017 and 2016, general and administrative expenses included stock based compensation expense of $480,043 and $229,858, respectively.~~

~~The Company uses a Black-Scholes option-pricing model (the “~~January 1, 2021.~~Black-Scholes Model~~”) to estimate the fair value of outstanding stock options and warrants not accounted for as derivatives. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Company’s stock price over the contractual term of the option or warrant. The expected life is based on the contractual term of the option or warrant and expected exercise and, in the case of options, post-vesting employment termination behavior. Currently, our model inputs are based on the simplified approach provided by Staff Accounting Bulletin (“~~SAB”) 110. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant.~~

~~The fair value for restricted stock awards is calculated based on the stock price on the date of grant.~~

~~Fair Value of Financial Instruments~~

~~The Company does not have any assets or liabilities carried at fair value on a recurring or non-recurring basis, except for derivative liabilities.~~

The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, and debt. Management believes that the carrying amount of these financial instruments approximates their fair values, due to their relatively short-term nature.

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~~Derivative~~In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments,

~~A derivative~~ which supersedes current guidance requiring recognition of credit losses when it is probable that a loss has been incurred. The standard requires the establishment of an ~~instrument whose value~~allowance for estimated credit losses on financial assets, including trade and other receivables, at each reporting date. The ASU will result in earlier recognition of allowances for losses on trade and other receivables and other contractual rights to receive cash. This standard is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (“~~embedded derivatives~~”)effective for fiscal years, and ~~for hedging activities. As a matter of policy, the~~interim periods within those fiscal years, beginning after December 15, 2022. Early adoption is permitted. The Company does not ~~invest in financial derivatives or engage in hedging transactions. However,~~believe the Company has entered into complex financing transactions that involve financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. Derivatives and embedded derivatives, if applicable, are measured at fair value using the binomial lattice (“~~Binomial Lattice”) pricing model and marked~~impact of adopting this standard will be material to ~~market and reflected on our condensed~~its consolidated statement of operations as other (income) expense at each reporting period. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements ~~upon conversion of the underlying instrument into some other security.~~and related disclosures.

~~Basic and Diluted (loss) Income per share~~

~~Our computation of earnings per share (“EPS~~”) includes basic and diluted EPS. Basic EPS is measured as the (loss) income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted (loss) income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the (loss) income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted (loss) income per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

(Loss) income per common share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding during the respective periods. Basic and diluted (loss) per common share is the same for periods in which the Company reported an operating loss because all warrants and stock options outstanding are anti-dilutive. At September 30, 2017 and 2016, we excluded 119,187,105 and 106,713,737~~, respectively,shares of Common Stock equivalents as their effect would have been anti-dilutive.~~

~~Research and Development~~

~~Research and development costs are expensed as incurred. During the three and nine months ended September 30, 2017 and 2016, we did not incur any costs associated with research and development.~~

~~Recent Accounting Pronouncements~~

Except as noted below, the Company has reviewed all recently issued, but not yet effective accounting pronouncements and has concluded that there are no recently issued, but not yet effective pronouncements that may have a material impact on the Company’s future financial statements.

~~In May 2014,~~August 2020, the FASB issued ASU No. ~~2014-09, Revenue from~~2020-06 , Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts ~~with Customers: Topic 606. This~~in Entity’s Own Equity. ASU ~~outlines a single comprehensive model~~2020-06 eliminates the beneficial conversion and cash conversion accounting models for ~~entities to use in~~convertible instruments. It also amends the accounting for ~~revenue arising from~~certain contracts ~~with customers~~in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, ASU 2020-06 modifies how particular convertible instruments and ~~supersedes most current revenue recognition guidance. This accounting standard is~~certain contracts that may be settled in cash or shares impact the diluted EPS computation. The amendments in ASU 2020-06 are effective for ~~annual~~smaller reporting ~~periods~~companies as defined by the SEC for fiscal years beginning after December 15, ~~2017,~~2023, including interim ~~reporting~~ periods within ~~that reporting period.~~those fiscal years. Early adoption is permitted, ~~for annual reporting periods~~but no earlier than fiscal years beginning after December 15, ~~2016.~~2020. The Company is currently evaluating the impact ~~this accounting standard will have~~of ASU 2020-06 on its condensed financial statements.

Reclassifications

Prior period financial statement amounts are reclassified as necessary to conform to the current period presentation. These prior period reclassifications did not affect the Company’s net loss, loss per share, stockholders’ deficit or working capital.

NOTE 3 – 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 ~~Company's financial statements.~~measurement date.

~~The Company has elected to adopt the guidance beginning~~Level 2 - Quoted prices in ~~fiscal 2018 using the full retrospective approach,~~markets that are not active or inputs which applies the standard to all periods presented. The Company is performing a preliminary assessment of the impact of adoption of this guidance, including required disclosures, and does not expect a significant impact on processes, systemsare either directly or ~~controls. The Company will continue to evaluate the impact of adoption of this guidance.~~
indirectly observable.

~~On February 25, 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU~~”) 2016-2, “Leases” (Topic 842), which is intended to improve financial reporting for lease transactions. This ASU will require organizations that lease assets, such as real estate, airplanes and manufacturing equipment, to recognize on their balance sheet the assets and liabilitiesLevel 3 - Unobservable inputs for the ~~rights to use those assets for~~instrument requiring the ~~lease term~~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, 2021 and obligations to make lease payments created by those leases that have terms of greater than 12 months. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as finance or operating lease. This ASU will also require disclosures to help investors and other financial statement users better understand the amount and timing of cash flows arising from leases. These disclosures will include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The ASU is effective for the Company for the year ending December 31, ~~2019 and interim reporting periods within that year, and early adoption is permitted. Management has not yet determined the effect of this ASU on the Company's financial statements.~~2020 (amounts in thousands):

	Fair Value at March 31, 2021
	Total	Level 1	Level 2	Level 3
Liabilities:
Derivative liability - Warrants	24,546	-	-	24,546
Total liabilities	$24,546	$-	$-	$24,546

	Fair Value at December 31, 2020
	Total	Level 1	Level 2	Level 3
Liabilities:
Derivative liability - Warrants	4,444	-	-	4,444
Total liabilities	$4,444	$-	$-	$4,444

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~~In August 2016, FASB issued ASU No. 2016-15, “Statement~~There were no transfers between Level 1, 2 or 3 during the three-month period ended March 31, 2021.

The following table presents changes in Level 3 liabilities measured at fair value for the three-month period ended March 31, 2021. Both observable and unobservable inputs were used to determine the fair value of ~~Cash Flows: Classification of Certain Cash Receipts~~positions that the Company has classified within the Level 3 category. Unrealized gains and ~~Cash Payments,” (“ASU 2016-15”) which eliminates~~losses associated with liabilities within the ~~diversity~~Level 3 category include changes in ~~practice related~~fair value that were attributable to ~~the classification of certain cash receipts~~both observable (e.g., changes in market interest rates) and payments. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for someunobservable (e.g., changes in unobservable long- dated volatilities) inputs (amounts in thousands).

	Derivative liability - Warrants
Balance at January 1, 2021	$4,444
Change in fair value	20,102
Balance at December 31, 2020	$24,546

A summary of the ~~amendments,~~weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in ~~which case those amendments would be prospectively adopted~~the Monte Carlo simulation measuring the Company’s derivative liabilities that are categorized within Level 3 of the fair value hierarchy as of ~~the earliest date practicable. ASU 2016-15~~March 31, 2021 and December 31, 2020 is effective for the Company’s annual and interim reporting periods beginning January 1, 2018. The Company is currently evaluating the effect this guidance will have on our financial statements and related disclosures.as follows:

	March 31,	December 31,
	2021	2020
Exercise price	$0.0044	$0.0044
Contractual term (years)	3.07	3.32
Volatility (annual)	85.0%	75.0%
Risk-free rate	0.4%	0.2%
Dividend yield (per share)	0%	0%

On April 26, 2019 (the ~~In November 2016,~~“Closing Date”), the ~~FASB issued ASU No. 2016-18, Statement~~Company entered into a Securities Exchange Agreement (“Share Exchange”) with each of ~~Cash Flows (Topic 230): Restricted Cash (“~~the former members (“Members”~~ASU 2016-18~~”)~~. ASU 2016-18 requires that a statement~~ of ~~cash flows explain the change during the period~~Charlie’s, and certain direct investors in the ~~total~~Company (“Direct Investors”), pursuant to which the Company acquired all outstanding membership interests of ~~cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. ASU 2016-18 will become effective~~Charlie’s beneficially owned by the Members in exchange for the issuance by the Company ~~beginning January 1, 2019, or fiscal 2019. ASU 2016-18 is required~~of units. Immediately prior to, ~~be applied retrospectively. Upon~~and in connection with, the ~~adoption, amounts described as restricted cash will be included~~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”). In conjunction with ~~cash and cash equivalents when reconciling~~ the ~~beginning-of-period and end-of-period amounts shown on~~Share Exchange, the ~~statements~~Company issued to holders of ~~cash flows.~~its Series A Convertible Preferred Stock (“Series A Preferred”

~~NOTE 2 — SHAREHOLDERS’ EQUITY~~

~~Securities~~

~~Our authorized capital stock currently consists~~) warrants to purchase an aggregate of ~~300.0 million~~3,102,899,493 shares of Common Stock ~~and 5.0 million shares of preferred stock, $0.001 par value per share, of which 2.75 million shares have been designated as Series B Convertible Preferred Stock (“~~(the “Investor Warrants”~~Series B Preferred”), 200,000 shares have been designated as Series C Convertible Preferred Stock (“Series C Preferred~~”) and ~~50,000 shares have been designated as Series D Convertible Preferred Stock (“Series D Preferred”). Below is a summary~~to its placement agent Katalyst Securities LLC warrants to purchase an aggregate of ~~the rights and preferences associated with each type of security.~~

~~Common Stock. The holders of Common Stock are entitled to receive, when and as declared by the Board of Directors, dividends payable either in cash, in property or in~~930,869,848 shares of Common Stock (the “Placement Agent Warrants”). Both the Investor Warrants and Placement Agent Warrants have a five-year term and a strike price of $0.0044313 per share. In accordance with ASC 815, the ~~Company. Dividends have no cumulative rights~~Company has recorded the Investor Warrants and ~~dividends will not accumulate if~~Placement Agent Warrants as derivative instruments on its condensed consolidated balance sheet. ASC 815 requires derivatives to be recorded on the ~~Board of Directors does not declare such dividends.~~balance sheet as an asset or liability and to be measured at fair value. Changes in fair value are reflected in the Company’s earnings for each reporting period.

~~Series B Preferred. Each share of the Company’s~~ ~~Series B Preferred Convertible Stock (“Series B Preferred~~”) ~~has a stated value of $4.00 per share (“Stated Value”~~) and accrued annual dividends equal to 5% of the Stated Value, payable by the Company in quarterly installments, in either cash or shares of Common Stock. Each share of Series B Preferred is convertible, at the option of the holder, into that number of shares of Common Stock equal to the Stated Value, divided by $0.25 per share (the “~~Series BConversion Shares~~”). The Company also has the option to require the conversion of the Series B Preferred into Series B Conversion Shares in the event: (i) there were sufficient authorized shares of Common Stock reserved as Series B Conversion Shares; (ii) the Series B Conversion Shares were registered under the Securities Act of 1933, as amended (the “~~Securities Act~~”), or the Series B Conversion Shares were freely tradable, without restriction, under Rule 144 of the Securities Act; (iii) the daily trading volume of the Company's Common Stock, multiplied with the closing price, equaled at least $250,000 for 20 consecutive trading days; and (iv) the average closing price of the Company's Common Stock was at least $0.62 per share for 10 consecutive trading days.NOTE 4 - PROPERTY AND EQUIPMENT

~~During~~Property and equipment details as of March 31, 2021 and December 31, 2020 are as follows (amounts in thousands):

	March 31,	December 31,
	2021	2020	Estimated Useful Life
Machinery and equipment	$38	$38	5 years
Trade show booth	171	171	5 years
Office equipment	424	405	5 years
Leasehold improvements	380	380	Lesser of lease term or estimated useful life
	1,013	994
Accumulated depreciation	(513)	(463)
	$500	$531

Depreciation and amortization expense totaled $50,000 and $40,500, respectively, during the three months ended September 30, 2017, the Company declared $66,080 in dividends on outstanding shares of its Series B Preferred. During the nine months ended September 30, 2017, the Company declared $196,085 in dividends on outstanding shares of its Series B Preferred. As of September 30, 2017, there remained $66,080 in cumulative unpaid dividends on the Series B Preferred. These dividends were paid by issuing 528,661 shares of the Company’s Common Stock in October 2017.

~~Series C Preferred. Each share of Series C Preferred has a stated value of $100 per share,~~March 31, 2021 and ~~is convertible, at the option of each respective holder, into that number of shares of Common Stock equal to $100, divided by $0.15 per share (the “Series CConversion Shares”).~~The Company also has the option to require conversion of the Series C Preferred into Series C Conversion Shares in the event: (i) there are sufficient authorized shares of Common Stock reserved as Series C Conversion Shares; (ii) the Series C Conversion Shares are registered under the Securities Act of 1933, or the Series C Conversion Shares are freely tradable, without restriction, under Rule 144 of the Securities Act; and (iii) the average closing price of the Company's Common Stock is at least $0.62 per share for 10 consecutive trading days.

~~Series D Preferred~~. Each share of Series D Preferred has a stated value of $100 per share, and, following the expiration of the 20 day calendar day period set forth in Rule 14c-2(b) under the Exchange Act, commencing upon the distribution of an Information Statement on Schedule 14C to the Company's stockholders, each share of Series D Preferred is convertible, at the option of each respective holder, into that number of shares of the Company’s Common Stock equal to the stated value, divided by $0.15 per share (the “~~Series D Conversion Shares”~~). The Certificate of Designation also gives the Company the option to require the conversion of the Series D Preferred into Series D Conversion Shares in the event: (i) there are sufficient authorized shares of Common Stock reserved as Series D Conversion Shares; (ii) the Series D Conversion Shares are registered under the Securities Act, or the Series D Conversion Shares are freely tradable, without restriction, under Rule 144 of the Securities Act; and (iii) the average closing price of the Company's Common Stock is at least $0.62 per share for 10 consecutive trading days.2020.

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~~Issuances~~NOTE 5 - CONCENTRATIONS

Vendors

The Company’s concentration of ~~Securities~~purchases is as follows:

	For the three months ended
	March 31,
	2021	2020
Vendor A	37%	-%
Vendor B	-%	31%
Vendor C	-%	20%
Vendor D	14%	15%
Vendor F	-%	12%

During the three months ended March 31, 2021 and 2020, purchases from four vendors represented 51% and 78%, respectively, of total inventory purchases.

As of March 31, 2021, and December 31, 2020, amounts owed to these vendors totaled $21,000 and $270,000 respectively, which are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Accounts Receivable

The Company’s concentration of accounts receivable is as follows:

	March 31,	December 31,
	2021	2020
Customer A	13%	-%
Customer B	-%	17%
Customer C	-%	10%

One customer made up 13% of net accounts receivable at March 31, 2021. Two customers made up 27% of net accounts receivable at December 31, 2020. Customer A owed the Company a total of $140,000, representing 13% of net receivables at March 31, 2021. Customer B owed the Company a total of $210,000, representing 17% of net receivables at December 31, 2020. Customer C owed the Company a total of $127,000, representing 10% of net receivables at December 31, 2020. No customer exceeded 10% of total net sales for the three months ended March 31, 2021 and 2020, respectively.

NOTE 6 – 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.

~~Between February 8, 2017~~We evaluate our ownership, contractual and ~~August 21, 2017,~~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 still considered a VIE of the Company. Since the Company ~~issued an aggregate total~~has been determined to be the primary beneficiary of ~~45,625 shares of Series D Preferred for $100 per share in a series of private placement transactions (the “Series D Financing”). As additional consideration, investors~~Don Polly, we have included Don Polly’s assets, liabilities, and operations in the ~~Series D Financing received warrants to purchase up to 60,833,353 shares of Common Stock, an amount equal to 200%~~accompanying condensed consolidated financial statements of the Series D Conversion Shares issuable upon conversion of shares of Series D Preferred purchased under the Series D Financing, exercisable for $0.15 per share. In accordance with the terms and conditions of the Securities Purchase Agreement executed in connection with the Series D Financing, all warrants issued were exchanged for shares of Common Stock pursuant to the Warrant Exchange Program (defined below). During the nine months ended September 30, 2017, 6,875 shares of Series D Preferred were converted to Common Stock.Company since April 25, 2019.

~~Beginning on February 8, 2017~~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 ~~holders~~25% of ~~outstanding Common Stock purchase warrants (the “Outstanding Warrants~~”) entered into Warrant Exchange Agreements pursuant to which each holder agreed to cancel their respective Outstanding Warrants in exchange for one-half of a share of Common Stock for every share of Common Stock otherwise issuable upon exercise of Outstanding Warrants (the “~~Warrant Exchange Program”). As~~net income from the service agreement; therefore, as the Company receives 100% of the ~~date of this Quarterly Report on Form 10-Q, the Company has issued 79,040,135 shares of Common Stock, in exchange for the cancellation of 158,080,242 Outstanding Warrants.~~

~~NOTE 3 — WARRANTSAND STOCK BASED COMPENSATION~~

~~Warrants~~

~~On July 26, 2017, the Company commenced an offering of Senior Secured Promissory Notes (the “SecuredNotes”) in the aggregate principal amount of up to $1.5 million to certain accredited investors (the “SecuredNote Financing”). As additional consideration for participating in the Secured Note Financing, investors received five-year warrants, exercisable for $0.15 per share, to purchase that number of shares~~net income or incurs 100% of the ~~Company’s Common Stock equal to 50%~~net loss of the principal amount of the Secured Note purchased, divided by $0.15 per share. Between July 26, 2017 and September 30, 2017, the Company offered and sold Secured Notes in the aggregate principal amount of $1,350,000 and issued Warrants to purchase up to 4,500,001 shares of Common Stock to participating investors.

~~A summary of the Company’s warrant activity for the three and nine months ended September 30, 2017 is presented below:~~

Warrants
Outstanding

Weighted Average
Exercise Price

Outstanding, December 31, 2016
  101,396,416
$0.16
Granted
  50,000,010
  0.15
Exercised
  -
  -
Expired
  -
  -
Exchanged
  (146,212,905)
  0.15
Outstanding, March 31, 2017
  5,183,521
$0.20
Granted
  3,000,002
  0.15
Exercised
  -
  -
Expired
  -
  -
Exchanged
  (3,000,002)
  0.15
Outstanding, June 30, 2017
  5,183,521
$0.20
Granted
  11,733,340
  0.15
Exercised
  -
  -
Expired
  -
  -
Exchanged
  (7,267,333)
  0.15
Outstanding, September 30, 2017
  9,649,528
$0.18
VIE, no non-controlling interests are recorded.

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~~As of September 30, 2017, the Company had the following outstanding warrants to purchase shares of its Common Stock:~~NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Warrants Outstanding

Weighted Average
Exercise Price Per Share

Weighted Average
Remaining Life (Yrs.)

  7,747,459
$0.15
  3.30
  427,633
$0.19
  2.97
  737,218
$0.25
  0.44
  737,218
$0.38
  0.44
  9,649,528
$0.18
  2.85
Accounts payable and accrued expenses as of March 31, 2021 and December 31, 2020 are as follows (amounts in thousands):

	March 31,	December 31,
	2021	2020
Accounts payable	$356	$629
Accrued compensation	1,481	1,420
Other accrued expenses	350	476
	$2,187	$2,525

NOTE 8 – NOTES PAYABLE

Red Beard Holdings, LLC Note Payable

On April 1, 2020, the Company, Charlie's and its VIE, Don Polly, issued a secured promissory note (the ~~Stock-Based Compensation~~"Red Beard Note") to one of the Company's largest stockholders, Red Beard Holdings, LLC ("Red Beard") in the principal amount of $750,000 (the "Principal Amount"), requiring a guaranteed minimum interest amount of $75,000 (“Minimum Interest”), which Red Beard 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 Red Beard (the "Red Beard Note Financing"). Red Beard Note was subsequently amended on August 27, 2020, September 30, 2020, October 29, 2020, December 1, 2020, and January 19, 2021, ultimately increasing Principal Amount to $1,400,000 and Minimum Interest to $150,000.

On March 24, 2021, the Company and Red Beard entered into a Satisfaction and Release (the "Red Beard Release"), pursuant to which the Company made a payment to Red Beard in the amount of $1,550,000 in exchange for an acknowledgment of satisfaction and full release of the Company by Red Beard from liability and obligations arising under the Red Beard Note.

Small Business Administration Loan Programs

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 "Charlie's 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 "PPP Loan Agreement").

~~Non-Qualified Stock Options~~

~~During~~The Charlie's PPP Loan provides for working capital to CCD in the ~~quarter ended September~~amount of $650,761. The Charlie's PPP Loan will mature on April 30, ~~2017,~~2022 and will accrue interest at a rate of 1.00% per annum. Per the ~~Company granted options to certain employees~~PPP Loan Agreement , payments of principal and each member of the Company’s Board of Directors to purchase an aggregate total of 39,390,782 shares of Common Stock. Each option granted during the quarter ended September 30, 2017 has an exercise price of $0.07 per share, and expires five yearsinterest were deferred for six months from the date of ~~issuance. As further described below, certain of these options were~~the Charlie's PPP Loan, or until November 30, 2020. Interest, however, has continued to accrue during this time. Charlie’s was notified by SBA Lender that all payments, including principal and interest, on all PPP loans issued by the bank have been deferred indefinitely in ~~exchange~~order to allow borrowers adequate time to apply for forgiveness. Charlie’s has applied for forgiveness and is currently awaiting a response. The Company will continue to accrue interest expense relating to the ~~cancellation of previously issued restricted stock awards to our Chief Marketing Officer, Chief Financial Officer and Chief Operating Officer.~~Charlie’s PPP Loan, however there is no anticipated future effect on cash at this time.

~~During~~On April 14, 2020, Don Polly also obtained a loan pursuant to the ~~three~~PPP enacted under the CARES Act (the "Polly PPP Loan" and ~~nine~~together with the Charlie's PPP Loan, the "PPP Loans") from Community Banks of Colorado, a division of NBH Bank (the "Polly Lender"). The Polly PPP Loan obtained by Don Polly provides for working capital to Don Polly in the amount of $215,600. The Polly 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 ~~ended September 30, 2017 and 2016,~~from the ~~Company granted stock options to purchase an aggregate of 31,390,782 and 3,460,000 shares of Common Stock, respectively.The weighted average estimated fair value per share~~date of the ~~stock options at grant date was $0.03 per share. Such fair values were estimated using the Black-Scholes stock option pricing model and the following weighted average assumptions.~~Polly PPP Loan, or until November 14, 2020. Interest, however, will continue to accrue during this time.

	~~2017~~
~~Expected life~~	~~30 months~~
~~Estimated volatility~~	75%
~~Risk-free interest rate~~	~~1.1~~%
~~Dividends~~	-

~~Stock option activity during~~The aforementioned PPP Loans were made under the ~~nine months ended September 30, 2017 is summarized as follows:~~

Options
Outstanding

Weighted Average
Exercise Price

Options outstanding at December 31, 2016
  3,460,000
$0.15
Exercised
  -
  -
Granted
  41,390,782
  0.07
Forfeited
  (1,220,000)
  0.15
Expired
  -
  -
Options outstanding at September 30, 2017
  43,630,782
$0.08

~~Restricted Stock Awards~~

~~During~~PPP enacted by Congress under the ~~quarter ended September 30, 2017, our Chief Marketing Officer, Chief Financial Officer~~CARES Act. The CARES Act (including the guidance issued by SBA and ~~Chief Operating Officer cancelled 10,720,252 previously issued restricted stock awards in exchange for stock options to purchase an aggregate total~~U.S. Department of ~~10,720,252 shares~~the Treasury) provides that all or a portion of ~~Common Stock. In addition,~~ the ~~Company issued a total of 1,302,084 shares of restricted stock to James Greco, our Chief Executive Officer, pursuant~~PPP Loans may be forgiven upon request from the respective borrower to the ~~employment agreement entered into by~~SBA Lender or the ~~Company~~Polly Lender, as the case may be, subject to requirements in the PPP Loans and ~~Mr. Greco in April 2017, and an aggregate total of 2,289,156 shares of restricted stock to our directors as payment of accrued but unpaid board fees.~~

~~During the three and nine months ended September 30, 2017, the Company granted an aggregate total of 3,591,240 restricted stock awards to~~ under the Company’s 2013 Stock Incentive Plan, as amended. The Company did not grant any restricted stock awards during the three and nine months ended September 30, 2016. A summary of the Company’s restricted Common Stock activity during the nine months ended September 30, 2017 is summarized as follows:

	~~Restricted Common Stock Awards~~
~~Outstanding, December 31, 2016~~	~~12,772,229~~
~~Granted~~	~~3,591,240~~
~~Issued~~	~~(2,289,156~~)
~~Forfeited~~	~~(10,720,252~~)
~~Outstanding, September 30, 2017~~	~~3,354,061~~

CARES Act.

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~~NOTE 4 — DEBT~~

~~Line-of-Credit Facility~~

~~The Company entered into~~On February 19, 2021, Don Polly received notice from the Polly Lender, that the Polly PPP Loan was fully repaid, and its promissory note was cancelled as a ~~line-of-credit agreement with a financial institution on June 30, 2014. The terms~~result of the ~~agreement allow~~loan forgiveness process set forth by the U.S. Small Business Administration. There is no further action required on the part of Don Polly to satisfy this liability. For the period ended March 31, 2021, the Company ~~to borrow up to~~recorded a debt extinguishment gain of approximately $217,000, including principal and accrued interest, which is reflected in the ~~lesser of $1.5 million or 85%~~other income section of the ~~sum~~Company’s condensed consolidated statements of eligible accounts receivables. At September 30, 2017, the total outstanding on the line-of-credit was $40,919 and the Company did not have any availability to borrow. The line-of-credit bears interest at Prime rate (5.42% as of September 30, 2017) plus 4.5% per annum, as well as a monthly fee of 0.50% on the average amount outstanding on the line, and is secured by the accounts receivables that are funded against.

~~A summary of the line-of-credit as of September 30, 2017 and December 31, 2016 is as follows:~~

	~~Amount~~
~~Outstanding, December 31, 2016~~	$~~109,682~~
~~Net Borrowings~~	~~(68,763~~)
~~Outstanding September 30, 2017~~	$~~40,919~~

~~Note Payable~~operations.

~~In April 2017, the Company converted approximately $1,050,000 of accounts payable into~~On March 17, 2021, Don Polly obtained a ~~secured note payable agreement with Niagara (the~~ second draw PPP loan (“Polly PPP Loan 2”~~Niagara Note~~”)~~. At September 30, 2017, the total principal amount outstanding~~ under the ~~Niagara Note was approximately $841,000.~~CARES Act from Polly Lender. The Niagara Note calls for monthly payments of principal and interest totaling $25,000 through December 2017, and monthly payments of approximately $52,000 through maturity. The note bears interest at 8% per annum, matures in April 2019 and is securedPolly PPP Loan 2 obtained by ~~the personal guarantee which secures the Niagara Agreement.~~

~~Secured Note Financing~~

~~As disclosed in Note 3 above, on July 26, 2017, the Company commenced an offering of Secured Notes~~Don Polly provides general working capital in the ~~aggregate principal~~ amount of ~~up to $1.5 million to certain accredited investors. Between July 26, 2017~~$184,200. The Polly PPP Loan 2 will mature on March 17, 2026 and September 30, 2017, the Company offered and sold Secured Notes in the aggregate principal amount of $1,350,000 and issued warrants to purchase up to 4,500,001 shares of Common Stock to participating accredited investors. The warrants were valued at $164,411 and were recorded as a discount to notes payable. During the three months ended September 30, 2017, a total of $17,846 of the debt discount was amortized and recorded as interest expense.

~~The Secured Notes (i) bear~~will accrue interest at a rate of 8%1.00% per ~~annum, (ii) have a maturity~~annum. Payments of principal and interest will be deferred for six months from the date of ~~1.5~~the Polly PPP Loan 2, however interest will continue to accrue during this time.

On April 28, 2021, Charlie’s received notice from SBA Lender that the Charlie’s PPP Loan was fully repaid, and its promissory note was cancelled as a result of the loan forgiveness process set forth by the U.S. Small Business Administration. There is no further action required on the part of Charlie’s to satisfy this liability.

On June 24, 2020, SBA authorized (under Section 7(b) of the Small Business Act, as amended) an Economic Injury Disaster Loan (“EID Loan”) to Don Polly in the amount of $150,000. Installment payments, including principal and interest of $731 monthly, will begin twelve months from the date of the EID Loan. The balance of principal and interest will be payable thirty years from the date of ~~issuance,~~the EID Loan and ~~(iii) are subject to a pre-payment and change in control premium of 125% of the principal amount of the Secured Notes~~interest will accrue at the ~~time~~rate of pre-payment or change in control, as the case may be. To secure the Company’s obligations under the Secured Notes, the Company granted to participating investors a continuing security interest in substantially all of the Company’s assets pursuant to the terms and conditions of a Security Agreement (the “~~Security Agreement”).~~3.75% per annum.

~~A summary of~~The following summarizes the ~~note~~Company’s notes payable maturities as of ~~September 30, 2017 and December~~March 31, ~~2016 is as follows:~~2021 (amounts in thousands):

	~~Amount~~
~~Outstanding,~~Remaining months Ending December 31, ~~2016~~2021	$-
~~Conversion of accounts payable into note payable~~Year Ending December 31, 2022	~~1,049,564~~651
~~Borrowings on secured notes~~Year Ending December 31, 2023	~~1,350,000~~-
~~Recording of debt discount on secured notes~~Year Ending December 31, 2024	~~(164,411~~)
~~Amortization of debt discount to interest expense~~	~~17,846~~-
~~Repayments~~Year Ending December 31, 2025	~~(208,602~~-)
~~Outstanding September 30, 2017~~Thereafter	334
Total	$~~2,044,397~~985

NOTE 9 – LOSS PER SHARE APPLICABLE TO COMMON STOCKHOLDERS

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting period. Diluted earnings 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 convertible preferred stock, warrants and vested and unvested stock options.

The following securities were not included in the diluted net loss per share calculation because their effect was anti-dilutive as of the periods presented (in thousands):

	For the three months ended
	March 31,
	2021	2020
Options	750,294	801,325
Series A convertible preferred shares	5,543,986	5,572,758
Warrants	4,033,769	4,033,769
Total	10,328,049	10,407,852

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NOTE ~~5 —~~10 – STOCKHOLDERS’ EQUITY

Series A Preferred Share Dividend

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.

On August 13, 2020, the Company received a formal notice of default from a holder of its Series A Preferred requesting full payment of dividends due and payable with respect to the Series A Preferred held by such holder on or before August 23, 2020 (“Dividend Default”). As of March 31, 2021, approximately $89,000 of the dividend liability has been satisfied, and the Company expects to pay the dividend, in full, during the quarter ending June 30, 2021. As of March 31, 2021, the aggregate amount of dividends due and payable to holders of the Series A Preferred is $1,560,000, which is reflected on the Company’s condensed consolidated balance sheet.

Conversion of Series A Preferred Shares

For the three months ended March 31, 2021, the Company issued approximately 566.9 million shares of Common Stock upon conversion of 25,120 shares of Series A Preferred.

March 2021 Private Placement

On March 19, 2021, the Company entered into Securities Purchase Agreements by and between the Company and certain family trusts in which Mr. Brandon Stump, the Company's Chief Executive Officer, and Mr. Ryan Stump, the Company's Chief Operating Officer are trustees and beneficiaries (the "Purchase Agreements"), for the private placement of an aggregate of 351,699,883 shares of its common stock, par value $0.001 ("Common Stock"), at a purchase price per share of $0.00853 (the "Private Placement"), which Private Placement was consummated on March 22, 2021. The Private Placement resulted in gross proceeds to the Company of approximately $3.0 million. The Private Placement was undertaken pursuant to Rule 506 promulgated under the Securities Act of 1933, as amended, and was consummated in a transaction approved by the Company's independent directors in accordance with Rule 16b-3(d)(1) of the Securities Exchange Act of 1934, as amended.

NOTE 11 – STOCK-BASED COMPENSATION

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, 2021, approximately 56.6 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 the terms in 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 stock options 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.

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Non-Qualified Stock Options

The following table summarizes stock option activities during the three months ended March 31, 2021 (all option amounts are in thousands):

	Stock Options	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Outstanding at January 1, 2021	750,294	$0.01	8.5	$-
Options granted	-	-	-	-
Options forfeited/expired	-	-	-	-
Outstanding at March 31, 2021	750,294	$0.01	8.2	$3,030
Options vested and exercisable at March 31, 2021	355,960	$0.01	7.8	$1,308

As of March 31, 2021, there was approximately $177,000 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 1.8 years. For the three months ended March 31, 2021, the Company recorded compensation expense of approximately $77,000 related to the granting of stock options.

Common Stock Awards

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, 2020 was 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, 2021 and 2020, the Company recorded an expense of $0 and $1,322,000, respectively, for 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 three months ended March 31, 2020.

On February 12, 2020, the Company, entered into a form of Amended and Restated Employment Agreement (together the “Amended Employment Agreements”) 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 of Directors 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 3 above), the Company issued an aggregate of 902.7 million shares of common stock (the “Advisory Shares”), including to a member of the Company’s Board of Directors, pursuant to a subscription agreement. The fair value of a share of common stock was $0.0032 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recorded stock-based compensation of approximately $2.9 million on the grant date.

Prior to the Share Exchange, Charlie’s employees held Member units, which were automatically converted into 7.1 million shares of common stock and 69,815 shares of Series B Convertible Preferred Stock (“Series B Preferred”) (or 698.1 million shares of common stock equivalents) due to the effect of the Share Exchange. The 705.3 million shares of common stock will vest over a two-year period. The fair value of a share of common stock was $0.0032 which is based upon a valuation prepared by the Company on the date of the Share Exchange. The Company recorded stock-based compensation of approximately $282,000 during the three months ended March 31, 2021.

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NOTE 12 – COMMITMENTS AND CONTINGENCIES

During the quarter ended September 30, 2017, we moved our corporate headquarters and entered into a new lease for the facility, which lease will expire on March 31, 2019. Base rent during the term of the lease is $5,331 per month for the first 12 months, and $5,563 for the final six months, and total rent payments on the lease through March 31, 2019, the expiration date, are $97,350. Total rent expense related to our operating lease for the nine months ended September 30, 2017 was $44,981.Leases

The Company ~~maintains employment~~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 ~~certain key~~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, was then formalized on November 1, 2019 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 ~~management.~~ the Board, and executed by Mr. David Allen, the Company’s former Chief Financial Officer, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. The ~~agreements provide~~total amount paid to related parties for ~~minimum base salaries, eligibility for stock options, performance bonuses~~the three months ended March 31, 2021 and ~~severance payments.~~2020 was $69,510 and $68,820, respectively.

At March 31, 2021, the Company had operating lease liabilities of approximately $1,100,000 and right of use assets of approximately $1,100,000, which were included in the condensed consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases for the three months ended March 31, 2021 and 2020 (amounts in thousands):

	For the three months ended
	March 31,
	2021	2020
Operating leases
Operating lease cost	$149	$149
Variable lease cost	-	-
Operating lease expense	149	149
Short-term lease rent expense	-	-
Total rent expense	$149	$149

	For the three months ended
	March 31,
	2021	2020
Operating cash flows from operating leases	$113	$101
Weighted-average remaining lease term – operating leases (in years)	2.15	3.60
Weighted-average discount rate – operating leases	12.0%	12.0%

Maturities of our operating leases as of March 31, 2021, excluding short-term leases, are as follows (amounts in thousands):

Remaining Months Ending December 31, 2021	$427
Year Ending December 31, 2022	399
Year Ending December 31, 2023	275
Year Ending December 31, 2024	206
Total	1,307
Less present value discount	(204)
Operating lease liabilities as of December 31, 2020	$1,103

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Legal Proceedings

From time to time, ~~claims are made against~~ the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Company’s financial position or results of operations.

~~We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.~~

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~~NOTE 6 – FAIR VALUE MEASUREMENTS~~

The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value. FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

- business.~~Level 1: Observable inputs such~~ Other than as ~~quoted prices in active markets;~~

~~Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and~~

~~Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.~~

~~This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value.~~

The Company assesses its recurring fair value measurements as defined by FASB ASC 810. Liabilities measured at estimated fair value on a recurring basis include derivative liabilities. Transfers between fair value classifications occur whenset forth below, there are ~~changes in pricing observability levels. Transfers of financial liabilities among the levels occur~~no additional pending or threatened legal proceedings at ~~the beginning of the reporting period.~~There were no transfers between Level 1, Level 2 and/or Level 3 during the nine months ended September 30, 2017. The Company had no Level 1 or 2 fair value measurements at September 30, 2017 or December 31, 2016.

The following table presents the estimated fair value of financial liabilities measured at estimated fair value on a recurring basis included in the Company’s financial statements as of September 30, 2017 and December 31, 2016:

Level 1

Level 2

Level 3

Total carrying value

Quoted market prices in active markets

Internal Models with significant observable market parameters

Internal models with significant unobservable market parameters

Derivative liabilities – September 30, 2017
$67,528
$-
$-
$67,528
Derivative liabilities – December 31, 2016
$5,792,572
$-
$-
$5,792,572

~~The following table presents the changes in recurring fair value measurements included in net loss for the nine-months ended September 30, 2017 and 2016:~~

Recurring Fair Value Measurements

Changes in Fair Value
Included in Net Income

Other Income

Other Expense

Total

Derivative liabilities – September 30, 2017
$2,272,697
$-
$2,272,697
Derivative liabilities – September 30, 2016
$3,026,433
$-
$3,026,433

~~The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the nine months ended September 30, 2017:~~

December 31, 2016

Recorded New Derivative Liabilities

Reclassification of Derivative Liabilities to Additional Paid in Capital

Change in Estimated Fair Value Recognized in Results of Operations

September 30, 2017

Derivative liabilities
$5,792,572
$2,627,931
$(6,080,278)
$(2,272,697)
$67,528

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~~Table of Contents~~

~~The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the nine months ended September 30, 2016:~~

December 31, 2015

Recorded New Derivative Liabilities

Reclassification of Derivative Liabilities to Additional Paid in Capital

Change in Estimated Fair Value Recognized in Results of Operations

September 30, 2016

Derivative liabilities
$6,199,021
$3,159,721
$-
$(3,026,433)
$6,332,309

~~NOTE 7 – LICENSING AGREEMENTS~~

~~We first entered into licensing agreements with Disney Consumer Products, Inc. (“Disney”) and an 18-month licensing agreement with Marvel Characters, B.V. (“Marvel”) (collectively, the “Licensing Agreements”) in 2012. Each Licensing Agreement allows us to feature popular Disney and Marvel characters on AquaBall~~®~~Naturally Flavored Water, allowing AquaBall~~®to stand out among other beverages marketed towards children. Under the terms and conditions of the Licensing Agreements, we work with the Disney and Marvel teams to create colorful, eye-catching labels that surround the entire spherical shape of each AquaBall®~~. Once the label designs are approved, we work with Disney and Marvel to set retail calendars, rotating the placement of different AquaBall~~®~~designs over the course of the year.~~this time.

~~In March 2017,~~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. On November 13, 2020 the Company and ~~Disney entered into~~Robinson reached a ~~renewed Licensing~~Settlement Agreement ~~which extended the Company’s license with Disney through March 31, 2019. The terms of the Disney Agreement entitle Disney to receive a royalty rate of 5% on sales of AquaBall~~and Mutual Release (“®Settlement Agreement~~Naturally Flavored Water adorned with Disney characters, paid quarterly, with a total guarantee of $807,000 over the period from April 1, 2017 through March 31, 2019. In addition,~~”) by which the Company ~~is required to make a ‘common marketing fund’ contribution equal to 1% of sales due annually during the agreement.~~

~~On August 22, 2015, the Company and~~ ~~Marvel~~ ~~entered into a renewed Licensing Agreement to extend the Company's license to feature certain Marvel characters on bottles of AquaBall® Naturally Flavored Water through December 31, 2017. The Marvel Agreement requires the Company~~agreed to pay the total sum of $50,000 in two equal installments of $25,000. The first payment was to ~~Marvel a~~ ~~5% royalty rate~~be due on ~~sales of AquaBall® Naturally Flavored Water adorned with Marvel characters, paid quarterly, through~~or before November 19, 2020 and the second payment was to be due on or before December ~~31, 2017, with a total guarantee of $200,000 over the period from January 1, 2016 through December 31, 2017.~~17, 2020. The Company has ~~decided not to renew~~satisfied its obligations set forth in the ~~Marvel~~Settlement Agreement ~~for another term. The Licensing Agreement will, therefore, terminate at the expiration~~and has been relieved of ~~the current agreement on December 31, 2017.~~any future liability in this matter.

NOTE ~~8 – INCOME TAXES~~13- SUBSEQUENT EVENTS

~~The~~On April 1, 2021, the Board of Directors of the Company ~~does not~~entered into an Employment Agreement (the "Agreement") with Henry Sicignano III, MBA, pursuant to which the Company appointed Mr. Sicignano to serve as President of the Company. Pursuant to the Agreement, Mr. Sicignano will serve as President for an initial period of two years, renewable on an annual basis unless earlier terminated by the Company or Mr. Sicignano. Mr. Sicignano was awarded one hundred fifty million (150,000,000) restricted shares (subject to forfeiture) (“Restricted Shares”) of the Company. Mr. Sicignano will have ~~significant income tax expense or benefit for~~all the ~~nine months ended September 30, 2017 or 2016. Tax net operating loss carryforwards have resulted~~rights of a shareholder of the Company with respect to voting the 150,000,000 restricted shares awarded under this grant and share adjustments, receipt of dividends (if any) and distributions (if any) on such shares. Restricted Shares will be subject to forfeiture in 75,000,000 share increments on April 1, 2022 and April 1, 2023, and will also be subject additional forfeiture-release features set forth in Addendum A to the Employment Agreement of Henry Sicignano, III, included in the Company’s 8-K filed April 6, 2021.

On April 21, 2021, the Company issued a ~~net deferred tax asset with a 100% valuation allowance applied against~~waiver and exchange agreement (“Waiver Agreement”) to shareholders of its Series A Preferred shares (“Stock Payees”) requesting such ~~asset at September 30, 2017~~Stock Payee's respective amount of the dividend payment (each individual Stock Payee's respective amount the "Stock Payee Indebtedness") to be paid in the form of shares of Common Stock (the "Stock Payment") and ~~2016. Such tax net operating loss carryforwards (“NOL”) approximated $35.5 million at September 30, 2017. Some or all~~agreeing to consummate an exchange of such ~~NOL may~~Stock Payee's right to the Stock Payee Indebtedness in cash for shares of Common Stock (the "Exchange"), pursuant to which the entire Stock Payee Indebtedness shall be ~~limited~~exchanged for that number of shares of Common Stock (the “Shares”) equal to the total Stock Payee Indebtedness divided by ~~Section 382~~$0.0044313. On May 2, 2021, the Company commenced payment of ~~the Internal Revenue Code.~~dividends for Stock Payees that elected for delivery of cash payment in satisfaction of their dividend payment.

The ~~income tax effect of temporary differences between financial and tax reporting and net operating loss carryforwards gives rise to a deferred tax asset at September 30, 2017 and 2016 as follows:~~

2017

2016

Deferred tax asset –NOL’s
$15,600,000
$13,500,000
Less valuation allowance
(15,600,000)
(13,500,000)
Net deferred tax asset
$-
$-

~~NOTE 9 – SUBSEQUENT EVENTS~~

On October 19, 2017, we received a notice of breach and request for meet and confer from Niagara with respect to certain past due payment obligations under the Niagara Agreement. Pursuant to the Niagara Agreement, the Company has ~~30 days from~~evaluated events subsequent to March 31, 2021 to assess the ~~date of the notice to bring all amounts due current~~need for potential recognition or ~~negotiate a settlement with Niagara for the amounts owed. Failure to do so may result in an event of default under the Niagara Agreement.~~

~~On October 27, 2017, the Company offered and sold Secured Notes~~disclosure in the ~~aggregate principal amount of $100,000 and issued Warrants to purchase up to 333,334 shares of Common Stock to participating investors.~~

Management has reviewed and evaluated subsequent events and transactions occurring after the balance sheet date through the filing of this Quarterly Report on Form 10-Q and determined that, except as disclosed herein, no subsequent events occurred.

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~~ITEM 2. MANAGEME~~N~~T’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.~~

~~Forward-Looking Statements~~

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend to identify forward-looking statements in this report by using words such as “believes,” “intends,” “expects,” “may,” “will,” “should,” “plan,” “projected,” “contemplates,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or similar terminology. These statements are based on our beliefs as well as assumptions we made using information currently available to us. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. These risks include changes in demand for our products, changes in the level of operating expenses, our ability to expand our network of customers, changes in general economic conditions that impact consumer behavior and spending, product supply, the availability, amount, and cost of capital to us and our use of such capital, and other risks discussed in this report. Additional risks that may affect our performance are discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016.

~~The following discussion of the financial condition and results of operations should be read in conjunction with the~~unaudited condensed consolidated financial ~~statements included elsewhere within this Quarterly Report. Fluctuations in annual and quarterly results may occur as a result of factors affecting demand for our products such as~~statements. Such events were evaluated through the timing of new product introductions by us and by our competitors and our customers’ political and budgetary constraints. Due to such fluctuations, historical results and percentage relationships are not necessarily indicative of the operating results for any future period.

~~Overview~~

True Drinks Holdings, Inc., the holding company for True Drinks, Inc., is a healthy beverage provider which produces several unique products. Our flagship product is AquaBall® Naturally Flavored Water which we believe to be the healthiest children's beverage on the market. True Drinks has licensing agreements with Disney Consumer Products, Inc. (“~~Disney”) and Marvel Characters, B.V. (“Marvel~~”) for use of their characters on bottles of AquaBall®. AquaBall® is a naturally flavored, vitamin-enhanced, zero-calorie, preservative-free, dye-free, sugar-free alternative to juice and soda. AquaBall® is currently available in four flavors: fruit punch, grape, strawberry lemonade and berry. Our target consumers: kids, young adults, and their guardians, are attracted to the product by the entertainment and media characters on the bottle and continue to consume the beverage because of its health benefits and great taste. True Drinks Holdings, Inc. (the “~~Company”, “~~us~~” or “~~we~~”) was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks”), a beverage company incorporated in the state of Delaware in January 2012.~~

We distribute AquaBall® nationally through select retail channels, such as grocery stores, mass merchandisers, convenience stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed online and through our existing database of customers.

True Drinks is continuing to innovate to meet the healthy hydration demands of the American consumer. Health and wellness awareness has increased significantly, resulting in growing demand for beverages with little or no calories and natural ingredients. AquaBall® is directly responsive to this need for children and we plan to increase our offerings for this and other age groups.

Our strategy is to continue to (i) grow our presence - both in store and online - and continue to build out our distribution network, (ii) increase brand awareness though public relations, social media and guerrilla marketing and (iii) expand our platform through line extensions.

Sales of beverages tend to be seasonal with the highest volume typically realized during the summer and warmer months. However, as our sales velocity and distribution has been increasing over the year this trend may not apply to us. As a result, our operating results from one fiscal quarter to the next may not be comparable. Additionally, our operating results are affected by numerous factors, including changes in consumer preference for beverage products, competitive pricing in the marketplace and weather conditions.

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~~Critical Accounting Polices and Estimates~~

Discussion and analysis of our financial condition and results of operations are based upon financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation ofdate these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates; including those related to collection of receivables, inventory obsolescence, sales returns and non-monetary transactions such as stock and stock options issued for services. We base our estimates on historical experience and on various other assumptions that are believedwere available to be ~~reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from~~issued. Based upon this evaluation, other ~~sources. Actual results may differ from these estimates under different assumptions or conditions. We believe~~than as set forth above, there ~~have been~~were no ~~changes to our critical accounting policies subsequent to the filing of our Annual Report on Form 10-K for the year ended December 31, 2016.~~items requiring disclosure.

~~Comparison of the Three Months Ended September 30, 2017 to the Three Months Ended September 30, 2016.~~

~~Net Sales~~

~~Net sales for the three months ended September 30, 2017 were $1,030,008, compared with sales of $961,649~~for the three months ended September 30, 2016, a 7% increase. This increase is primarily the continued result of chain authorizations secured by our sales team for shelf resets at retailers beginning in February 2017 and continuing through June 2017, thus increasing sales based revenues in the three months ended September 30, 2017 compared to the three months ended September 30, 2016.

~~The percentage that each product category represented of our net sales is as follows:~~

~~Product Category~~	~~Three Months Ended~~ ~~September 30, 2017~~ ~~(% of Sales)~~
~~AquaBall®~~	92%
~~Bazi®~~	8%

~~Gross Profit and Gross Margin~~

Gross profit for the three months ended September 30, 2017 was $309,928, compared to gross profit of $333,754 for the three months ended September 30, 2016. Gross profit as a percentage of revenue (gross margin) during the three months ended September 30, 2017 was 30.1%, compared to 34.7% for the same period in 2016.This decrease in gross profit is a result of a small change in our sales mix. We sold more of our lower margin six packs in the three months ended September 30, 2017 than in the three months ended September 30, 2016. While we are updating our packaging to reduce costs on six packs, we are still currently selling the remaining six packs which were produced at higher costs. We anticipate maintaining margins in the 30-40% range.

~~Sales, General and Administrative Expense~~

Sales, general and administrative expense was $3,594,048 for the three months ended September 30, 2017, as compared to $1,515,513 for the three months ended September 30, 2016. This period over period increase of $2,078,535 is the result of an increase of approximately $1.2 million in marketing expenditures composed of direct retailer marketing and brand awareness marketing in the New England region. We also saw increases in stock-based compensation and the issuance of equity to consultants of approximately $400,000.

~~Change in Fair Value of Derivative Liabilities~~

~~The Company recorded a change in fair value of derivative liabilities of a gain of $33,347 for the three months ended September 30, 2017, as compared to a gain of$3,051,973for the change in fair value of derivative liabilities for the three months ended September 30, 2016.~~

~~Interest Expense~~

~~Interest expense for the three months ended September 30, 2017 was $59,311, as compared to interest expense of $10,428 for the three months ended September 30, 2016.~~

~~Income Taxes~~

There is no income tax expense recorded for the three months ended September 30, 2017 and 2016, as the Company’s calculated provision (benefit) for income tax is based on annual expected tax rates. As of September 30, 2017, the Company has tax net operating loss carryforwards and a related deferred tax asset, offset by a full valuation allowance.

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~~Net Loss~~ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of operations of Charlie’s Holdings, Inc. should be read in conjunction with the financial statements and the notes to those statements appearing elsewhere in this Quarterly Report on Form 10-Q (this “Report”). Some of the information contained in this discussion and analysis or set forth elsewhere in this Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section in this Report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

As used in this Report, unless otherwise stated or the context otherwise requires, references to the “Company”, “we”, “us”, “our”, or similar references mean Charlie’s Holdings, Inc. (formerly True Drinks Holdings, Inc.), its subsidiaries and consolidated variable interest entity on a consolidated basis. References to “Charlie’s” and “CCD” refer to Charlie’s Chalk Dust, LLC, a California limited liability company and wholly-owned subsidiary of the Company, and “Don Polly” refers to Don Polly, LLC, 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“(VIE”) for which the Company is the primary beneficiary.

Overview

Our ~~net loss for the three months ended September 30, 2017 was $3,310,084 as compared~~objective is to become a ~~net income of $1,859,964~~for the three months ended September 30, 2016. This year-over-year difference of approximately $5.17 million is primarily due an increase in operating expenses of approximately $2.1 million, and a differencesignificant leader in the ~~change~~rapidly growing, global e-cigarette segment of ~~fair value~~the broader nicotine related products industry. Through Charlie’s, we formulate, market and distribute branded e-cigarette liquid for use in both open and closed e-cigarette and vaping systems. Charlie’s products are mostly produced domestically through contract manufacturers for sale through select distributors, specialty retailers and third-party online resellers throughout the United States, as well as more than 80 countries worldwide. Charlie’s primary international markets include the United Kingdom, Italy, Spain, Belgium, Australia, Sweden and Canada. In June 2019, we launched distribution, through Don Polly, of ~~derivatives of approximately $3.0 million~~certain premium vapor, tincture and topical wellness products containing hemp-derived cannabidiol (“CBD”) and we currently intend to develop and launch additional products containing hemp-derived CBD in ~~other income. On a basic and diluted per share basis, our loss was $0.02 per share for~~ the ~~three months ended September 30, 2017, as compared to income of $0.01 per share for the three months ended September 30, 2016.~~future.

~~Comparison~~Industry Specific Challenges

Beginning in late 2019, our industry experienced significant news stories and health alerts related to flavored nicotine vaping, leading to some states banning the sale of flavored nicotine products and causing the ~~Nine Months Ended September 30, 2017~~Food and Drug Administration (“FDA”) to review its policies on controlling the sale of these products. Initial research indicated that a vitamin E acetate related compound could be causing the health-related issues. On November 8, 2019, officials at the Centers for Disease Control and Prevention (“CDC”) reported a breakthrough in the investigation into the outbreak of vaping-related lung injuries. The CDC's principal deputy director, Dr. Anne Schuchat, in fact stated that "vitamin E acetate is a known additive used to dilute liquid in e-cigarettes or vaping products that contain THC”, suggesting the possible culprit for the series of lung injuries across the U.S. All of Charlie's e-liquid products are tested by third party laboratories which have confirmed that none of our products contain any vitamin E acetate orTetrahydrocannabinol (“THC”).

However, these developments have had a negative effect on our sales since mid-September 2019 (see further discussion below) and therefore, in response to these developments and while government regulators are formulating future polices, management has adopted the following plan of operation.

First, we plan to increase the sales of our CBD related products, including topicals and ingestibles. We feel there is a significant upside in the CBD space, and we have begun to focus on numerous vertical markets for the sale of our isolate, full and broad-spectrum products. These vertical markets include, but aren't limited to the ~~Nine Months Ended September 30, 2016.~~medical and wellness markets. We have also dedicated an internal team as well as additional financial resources to increase direct-to-consumer e-commerce sales of CBD products.

~~Net Sales~~

~~Net~~Secondly, we continue to see a significant opportunity for sales growth in international markets for the nine months ended September 30, 2017 was $4,494,713, compared with sales of $2,028,216 for the nine months ended September 30, 2016, a 122% increase. This increase is primarily the result of chain authorizations secured by our ~~sales team for shelf resets at retailers beginning in February 2017~~e-liquid and continuing through June 2017. These authorizations have also allowed our team to secure distributor partners in 45 states. Many of these distributors received their initial shipments in February and March, with the remaining distributors having received their initial shipments in April through June.

~~The percentage that each product category represented~~other vapor products. Presently, approximately 20% of our ~~net~~vapor product sales ~~is as follows:~~

~~Product Category~~	~~Nine Months Ended~~ ~~September 30, 2017~~ ~~(% of Sales)~~
~~AquaBall™~~	96%
~~Bazi®~~	4%

~~Gross Profit~~come from the international market and ~~Gross Margin~~

~~Gross profit for the nine months ended September 30, 2017 was $1,575,768, compared~~we are well positioned to ~~gross profit of $143,907 for the nine months ended September 30, 2016. Gross profit as a percentage of revenue (gross margin) during the nine months ended September 30, 2017 was 35.1%. This~~ increase in gross profit is a great improvement for our Company, and is a direct result of our relationship with Niagara, who provides finished goods to the Company and bills the Company for the product as it is shipped to customers, reducing our costs and improving product quality. It is also attributable to our shift away from focusing on the low-margin club channel to mainstream grocery and convenience channels. We expect to maintain gross marginsthose sales in the ~~30-40% range moving forward.~~

~~Sales, General~~countries that we presently sell, and ~~Administrative Expense~~

~~Sales, general and administrative expenses were $9,690,482 for the nine months ended September 30, 2017,~~in additional overseas markets, as compared to $6,269,815 for the nine months ended September 30, 2016. This increase in the 2017 period, when compared to the 2016 period, is the result of increased direct selling expenses and marketing expenses at new retailers, each resulting from the first quarter of 2017 being a much more active selling season for AquaBall®. As a percentage of sales, our sales, general and administrative expense was 216% of sales compared to 309% in the same period in 2016.

~~Change in Fair Value of Derivative Liabilities~~

The Company recorded a gain on the change in fair value of derivative liabilities for the nine months ended September 30, 2017 of $2,272,697, as compared to a gain of $3,026,433 for the change in fair value of derivative liabilities for the nine months ended September 30, 2016.

~~Interest Income~~

~~Interest expense for the nine months ended September 30, 2016 was $104,229, as compared to interest expense of $39,632 for the nine months ended September 30, 2016.~~we have already built an international distribution platform.

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~~Income Taxes~~Most importantly, we feel that the e-liquid and other vapor products will continue to be a significant growth opportunity, once all the rightful regulatory changes have been made. We are continuing with our plan to obtain marketing authorization for certain of our products through the completion of a Premarket Tobacco Application ("PMTA"), which we submitted in September 2020. Obtaining a marketing order from the United States Food and Drug Administration (“FDA”) would, in our opinion, help to remediate the disruption caused by any perceived health issues related to vaping, and further position the Company as a trusted, industry leader. We feel that a significant amount of our competitors will not have the resources and/or expertise to complete the extensive and costly PMTA process and that once complete, we will be able to benefit from being one of only a select group of companies operating in the flavored vapor products space.

Recent Developments

March 2021 Private Placement

Red Beard Holdings, LLC Note Payable

On April 1, 2020, the Company, Charlie's and its VIE, Don Polly, issued a secured promissory note (the "Red Beard Note") to one of the Company's largest stockholders, Red Beard Holdings, LLC ("Red Beard") in the principal amount of $750,000 (the "Principal Amount"), requiring a guaranteed minimum interest amount of $75,000 (“Minimum Interest”), which Red Beard 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 Red Beard (the "Red Beard Note Financing"). Red Beard Note was subsequently amended on August 27, 2020, September 30, 2020, October 29, 2020, December 1, 2020, and January 19, 2021, ultimately increasing Principal Amount to $1,400,000 and Minimum Interest to $150,000.

On March 24, 2021, the Company and Red Beard entered into a Satisfaction and Release (the "Red Beard Release"), pursuant to which the Company made a payment to Red Beard in the amount of $1.55 million in exchange for an acknowledgment of satisfaction and full release of the Company by Red Beard from liability and obligations arising under the Red Beard Note.

Small Business Administration Loan Programs

The Charlie's PPP Loan provides for working capital to CCD in the amount of $650,761. The Charlie's 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 Charlie's PPP Loan, or until November 30, 2020. Interest, however, will continue to accrue during this time.

On April 14, 2020, Don Polly also obtained a loan pursuant to the PPP enacted under the CARES Act (the "Polly PPP Loan" and together with the Charlie's PPP Loan, the "PPP Loans") from Community Banks of Colorado, a division of NBH Bank (the "Polly Lender"). The Polly PPP Loan obtained by Don Polly provides for working capital to Don Polly in the amount of $215,600. The Polly 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 Polly PPP Loan, or until November 14, 2020. Interest, however, will continue to accrue during this time.

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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 respective borrower 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 February 19, 2021 Don Polly received notice from the Polly Lender, that the Polly PPP Loan was fully repaid, and its promissory note was cancelled as a result of the loan forgiveness process set forth by the U.S. Small Business Administration. There is no ~~income tax expense recorded~~further action required on the part of Don Polly to satisfy this liability.

On March 17, 2021, Don Polly obtained a second draw PPP loan (“Polly PPP Loan 2”) under the CARES Act from Polly Lender. The Polly PPP Loan 2 obtained by Don Polly provides general working capital in the amount of $184,200. The Polly PPP Loan 2 will mature on March 17, 2026 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 ~~nine~~date of the Polly PPP Loan 2, however interest will continue to accrue during this time.

PMTA

During the quarter ended September 30, ~~2017~~2020, the United States Food and ~~2016,~~Drug Administration's ("FDA") Center for Tobacco Products informed us that our PMTA has received a valid submission tracking number, passed the FDA’s filing review phase, and recently entered the substantive review phase. To date, Charlie’s has invested over $4.4 million for our initial PMTA submission. We 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.

Impact of COVID-19

The outbreak of a novel strain of COVID-19 (“Coronavirus”) has had a negative impact on the global economy and the markets in which we operate. Beginning in March 2020, the Company transitioned nearly all employees to a remote working environment for their safety and to protect the integrity of Company operations. We have updated certain sales, accounting and administrative processes, and corresponding information technology platforms, in an effort to help facilitate the virtual work environment in which we now operate. During 2020, we engaged in periodic, informal testing of our business operations, and we do not believe that our financial position, work efficiency and overall operational integrity have been materially affected. However, we recognize that a certain degree of employee enthusiasm, teamwork, creativity, and support is normally generated by being present at a physical location, and we believe that prolonged remote working may have a negative impact over time on our business, and on employee productivity. Our Denver, CO office and Huntington Beach, CA warehouse locations have fully returned to on premise status, while our corporate headquarters in Costa Mesa, CA remains remote for most employees. We will continue to monitor the COVID-19 situation in all regions we operate and will maintain strict adherence to local health guidelines and mandates. We may have to take further actions that we determine are in the best interests of our employees or as required by federal, state, or local authorities.

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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. 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. Beginning in September 2019, certain states temporarily banned the sale of flavored e-cigarettes, and on January 2, 2020, the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers without prior authorization from the FDA. 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 seeking to obtain marketing authorization for certain of its nicotine-based e-liquid products. Our PMTA applications were submitted in September 2020 on a timely basis, which if approved, will allow the Company to continue to sell its products in the United States. The Company may also require additional financing in the future to support potential PMTA related expenses and general working capital. 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.

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 generally accepted accounting principles in the United States (“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, 2020 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, 2020, filed with the SEC on April 5, 2021. The operating results of Don Polly are also included.

Current Operating Trends and Financial Highlights

Management currently considers the following events, trends and uncertainties to be important in understanding the Company’s results of operations and financial condition for the most recent calendar quarter and full year:

Regarding results from operations for the quarter ended March 31, 2021, we generated revenue of approximately $4,361,000, as compared to revenue of $4,405,000 for the three months ended March 31, 2020. This $44,000 decrease in revenue was due primarily to a $327,000 decrease in sales of our CBD based products, but was offset by a $283,000 increase in sales of nicotine-based e-liquid products.

We generated a net loss for the three months ended March 31, 2021 of approximately $20,137,000, as compared to net loss of approximately $3,916,000 for the three months ended March 31, 2020. The net loss for the three months ended March 31, 2021 includes non-cash stock-based compensation expense of approximately $359,000 and a non-cash loss in fair value of derivative liabilities of $20,102,000.

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A review of the three month period ended March 31, 2021 follows:

	For the three months ended
	March 31,		Change
($ in thousands)	2021	2020	Amount	Percentage
Revenues:
Product revenue, net	$4,361	$4,405	$(44)	-1.0%
Total revenues	4,361	4,405	(44)	-1.0%
Operating costs and expenses:
Cost of goods sold - product revenue	1,943	1,963	(20)	-1.0%
General and administrative	2,218	4,151	(1,933)	-46.6%
Sales and marketing	420	419	1	0.2%
Research and development	9	2,223	(2,214)	-99.6%
Total operating costs and expenses	4,590	8,756	(4,166)	-47.6%
Loss from operations	(229)	(4,351)	4,122	-94.7%
Other income (expense):
Interest expense	(28)	-	(28)	100%
Change in fair value of derivative liabilities	(20,102)	430	(20,532)	-4774.9%
Gain on debt extinguishment	217	-	217	100%
Other income	5	5	-	0.0%
Total other income (expense)	(19,908)	435	(20,343)	-4676.6%
Net loss	$(20,137)	$(3,916)	$(16,221)	414.2%

Results of Operations for the Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020

Revenue

Revenue for the three months ended March 31, 2021 decreased approximately $44,000 or 1%, to approximately $4,361,000, as compared to approximately $4,405,000 for same period in 2020 due to a $283,000 increase in sales of our nicotine-based e-liquid products and a $327,000 decrease in sales of our CBD wellness products. The increase in our nicotine-based e-liquid sales is directly related to the launch of our Pachamama Disposable product line, which offers users a variety of flavors containing tobacco-free nicotine in a compact, disposable format. However, uncertainty surrounding the FDA’s application review timeline, following the PMTA submission deadline, as well as the addition of vapor products to the Prevent All Cigarette Trafficking Act (“PACT Act”) have affected buying patterns in the domestic vape market as customers reduce inventories of non-PMTA submitted products and adjust their business models to suit recent changes in regulation. Beginning in late February 2020, sales of our CBD wellness products began to experience a decrease as the effects of the global COVID-19 pandemic caused disruptions in the global economy and altered buying patterns for certain consumer discretionary goods. We have begun to streamline our CBD wellness product offering and narrow our sales and marketing focus, targeting our highest value customer types with the most desired product offerings.

Cost of Revenue

Cost of revenue, which consists of direct costs of materials, direct labor, third party subcontractor services, and other overhead costs decreased approximately $20,000, or 1%, to approximately $1,943,000, or 44.6% of revenue, for the three months ended March 31, 2021, as compared to approximately $1,963,000, or 44.6% of revenue, for the same period in 2020. This cost, as a percent of revenue, remained unchanged due to a favorable mix of higher margin sales for both Charlie’s and Don Polly, but was marginally offset by a higher provision for obsolescence.

General and Administrative Expenses

For the three months ended March 31, 2021, total general and administrative expense decreased approximately $1,948,000 to $2,203,000 as compared to approximately $4,151,000 for the same period in 2020. This decrease is comprised of reductions of approximately $1,494,000 of non-cash, stock-based compensation, $262,000 in non-commission-based salary and benefits as well as $98,000 in other general and administrative expenses. The reduction in non-cash, stock-based compensation is primarily due to the ~~Company's net losses. As~~forfeiture of ~~September 30, 2017,~~stock awards by Brandon Stump and Ryan Stump pursuant to the ~~Company has tax net operating loss carryforwards~~adoption of the Amended Employment Agreements entered into February 12, 2020. The $262,000 decrease of non-commission-based salary and ~~a related deferred tax asset,~~benefits, and the $98,000 decrease of other general administrative expenses were the result of headcount reduction, compensation adjustments and overall cost-cutting measures.

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Sales and Marketing Expense

For the three months ended March 31, 2021, total sales and marketing expense increased approximately $16,000, or 3.8%, to approximately $435,000 as compared to approximately $419,000 for the same period in 2020, which was primarily due to slightly lower commissions paid for reduced sales, but was offset by increased spending on several marketing programs in support of customer retention and product launches.

Research and Development Expense

For the three months ended March 31, 2021, total research and development expense decreased approximately $2,214,000, to approximately $9,000 as compared to $2,223,000 for the same period in 2020, which was primarily due to reduced costs associated with our PMTA registrations.

Loss from Operations

We had operating losses of approximately $229,000 for the three months ended March 31, 2021, due primarily to a ~~full valuation allowance.~~$327,000 decrease in sales for our CBD products. We incurred certain general and administrative expenses that contributed to the loss from operations including a $359,000 of expenses related to non-cash, stock-based compensation. Net loss is determined by adjusting loss from operations by the following items:

●

Change in Fair Value of Derivative Liabilities. For the three months ended March 31, 2021 and 2020, the loss and gain in fair value of derivative liabilities was $20,102,000 and $430,000 respectively. The derivative liability is associated with the issuance of the Investor Warrants and the Placement Agent Warrants (as defined in Note 3 of this Report) in connection with the Share Exchange. The loss for the quarter ended March 31, 2021 reflects the effect of the significant increase in stock price as of March 31, 2021 compared to December 31, 2020. During the quarter ended March 31, 2021, we experienced a substantial increase in trading volume for our stock, which may persist in the future. Due to the limited supply of shares freely trading, this could cause price volatility and therefore, considerable fluctuations in the value of our warrant derivative liability in the future. We had 4,033,769,341 warrants outstanding as of March 31, 2021.

●

Interest Expense. For the three months ended March 31, 2021 and 2020, we recorded interest expense related to notes payable of $28,000 and $0, respectively.

●

Other Income. For the three months ended March 31, 2021 and 2020, we recorded other income of $222,000 and $5,000, respectively. The increase was primarily related to a debt extinguishment gain of $217,000, including principal and accrued interest, related to the forgiveness of the Don Polly PPP Loan.

Net Loss

~~Our net loss for~~For the ~~nine~~three months ended ~~September 30, 2017 was $5,994,252 as compared to~~March 31, 2021, we had a net loss of ~~$3,157,852~~$20,137,000 as compared to net loss of $3,916,000 for the ~~nine months ended September 30, 2016. This year-over-year difference of approximately $2.8 million~~same period in ~~net income is due to an increase in operating expenses of about $3.4 million, offset by increase in gross profit of approximately $1.4 million and $0.8 million in other income. On abasic and diluted~~ ~~per share basis, our loss was $0.03 per share for the nine months ended September 30, 2017 and 2016.~~2020.

We expect to continue to incur a net loss in subsequent periods, and plan to fund our operations using proceeds received from capital raising activities until our operations become profitable. Although we anticipate a continued growth in sales and gross margins as a resultEffects of ~~increased velocity, distribution and brand awareness these increases may not occur, may take longer than anticipated, or may not be sufficient to produce net income in any subsequent quarters.~~Inflation

Inflation has not had a material impact on our business.

Liquidity and Capital Resources

~~Our auditors have included a paragraph in their report on our consolidated financial statements, included in our Annual Report on Form 10-K for the fiscal year ended December~~As of March 31, 2016, indicating that there is substantial doubt as to the ability of the Company to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. For the nine months ended September 30, 2017, the Company2021, we had ~~a net loss of $5,944,252,~~ negative working capital of ~~$1,017,196,~~approximately $22,716,000, which consisted of current assets of approximately $6,481,000 and ~~an accumulated deficit~~current liabilities of ~~$41,788,458. Although, during the year ended~~approximately $29,197,000. This compares to negative working capital of approximately $6,020,000 at December 31, ~~2016~~2020. The current liabilities, as presented in the condensed consolidated balance sheet at March 31, 2021 included elsewhere in this Report primarily include approximately $2,187,000 of accounts payable and accrued expenses, approximately $442,000 of deferred revenue associated with product shipped but not yet received by customers, approximately $462,000 of lease liabilities, dividends payable of $1,560,000 and $24,546,000 of derivative liability associated with the ~~nine-months ended September 30, 2017~~Investor Warrants and Placement Agent Warrants (the derivative liability of $24,546,000 is included in determining the ~~Company raised approximately $6.7 million from financing activities, including sale~~negative working capital of ~~shares of Series C Convertible Preferred Stock and Series D Convertible Preferred Stock, as well as Senior Secured Promissory Notes (described below), additional capital~~$22,716,000 but is ~~necessary~~not expected to ~~advance~~use any cash to ultimately satisfy the ~~marketability~~liability). In addition, the effect of the ~~Company's products to the point at which the Company can sustain operations. Management's plans are to focus~~COVID-19 pandemic may have a negative impact on ~~raising~~our liquidity and capital through equity and/or debt offerings to execute the Company’s business plan, while continuing to contain expenses. The accompanying condensed consolidated financial statements do not include any adjustments that will result in the event the Company is unsuccessful in securing the capital necessary to execute our business plan.

The Company has financed its operations through sales of equity and debt securities, and, to a lesser extent, cash flow provided by sales of its products. Despite recent sales of preferred stock and the issuance of Senior Secured Promissory Notes, funds generated from sales of our securities, and cash flow provided by sales are insufficient to fund our operating requirements for the next twelve months. As a result, we require additional capital to continue operating as a going concern. No assurances can be given that we will be successful. In the event we are unable to obtain additional financing, we may not be able to fund our working capital requirements, and therefore may be unable to continue as a going concern.reserves.

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~~Recent Capital Raising Activity~~Our cash and cash equivalents balance at March 31, 2021 was approximately $3,455,000.

~~Series D Offering~~For the three months ended March 31, 2021, net cash provided by operating activities was approximately $268,000, resulting from a net loss of $20,137,000, partially offset by $359,000 of share-based compensation, $20,102,000 of change in fair value of derivative liabilities and ~~Warrant Exchange. On February~~$10,000 changes in our operating assets and liabilities.

For the three months ended March 31, 2021, we used cash for investment activities of approximately $19,000 as compared to $43,000 for the same period in 2020. The cash used for investment activities is primarily for the on-going development and configuration of enterprise resource planning software during the three months ended March 31, 2021.

For the three months ended March 31, 2021 we generated approximately $1,784,000 cash from financing activities as compared to $0 for the same period in 2020. In the 2021 period, we generated cash from financing activities from the Polly PPP Loan 2 (as defined in Note 8 ~~2017,~~of Item 1, Part 1 of this Report) and the Private Placement (as defined in Note 10 of Item 1, Part 1 of this Report).

Going Concern Uncertainty Regarding the Legal and Regulatory Environment, Liquidity and Management’s plan of operation.

Our financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and ~~certain accredited investors entered into Securities Purchase Agreements,~~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 was required to apply for FDA approval to continue selling and marketing its products used for the ~~private placement~~vaporization of ~~up to 50,000 shares of Series D Convertible Preferred Stock (“Series D Preferred”) for $100 per share. As additional consideration for participation~~nicotine in the ~~private placement, investors received warrants to purchase up to 200%~~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 COVID-19 in March 2020 has had a negative impact on the ~~shares of Common Stock issuable upon conversion of shares of Series D Preferred purchased, with an exercise price of $0.15 per share (the “Series D Financing”).~~

~~In February 2017,~~global economy and markets which has negatively impacted the ~~Company issued an aggregate total of 31,750 shares of Series D Preferred, as well as warrants to purchase up to an aggregate total of 42,333,341 shares of Common Stock. Between February 2017~~Company’s supply chain and sales. For the three months ended March 2017, the Company issued an additional 5,000 shares of Series D Preferred and warrants to purchase up to an aggregate total of 6,666,669 shares of Common Stock. Between April 1, 2017 and August 21, 2017,31, 2021, the Company has ~~issued an additional 8,875~~incurred losses from operations of $229,000 and a consolidated net loss of approximately $20,137,000 and the Company has a stockholders’ deficit of $22,684,000 as of March 31, 2021. 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.

Our plans and growth depend on our ability to increase revenues and continue our business development efforts, including the expenditure of approximately $4,400,000 to date, to complete our PMTA registration process. On March 23, 2021, we closed a $3 million capital raise through the private sale of 351,669,883 shares of ~~Series D Preferred~~our common stock to the Company’s founders Brandon Stump and ~~warrants~~Ryan Stump (see Recent Developments). We intend to ~~purchase up to an aggregate total of 11,833,343 shares of Common Stock. The issuance of~~use the ~~shares of Series D Preferred during the nine months ended September 30, 2017 resulted in gross~~ proceeds to ~~the Company of $4.56 million. Each warrant issued during the Series D Financing contains a price protection feature that adjusts the exercise price~~fund future growth, increase working capital, retire outstanding debt, and for other general corporate purposes. If in the ~~event of certain dilutive issuances of securities. Such price protection feature is determined~~future our plans or assumptions change or prove to be inaccurate, or there is a ~~derivative liability and, as such, the value of all such warrants issued during the nine months, totaling $2,627,931, was recorded to derivative liabilities.~~

~~Warrant Exchange.Beginning on February 8, 2017, the Company and certain holders of outstanding Common Stock purchase warrants (the “Outstanding Warrants~~”), entered into Warrant Exchange Agreements, pursuant to which each holder agreed to cancel their respective Outstanding Warrants in exchange for one-half of a share of Common Stock for every share of Common Stock otherwise issuable upon exercise of Outstanding Warrants. The Company expects to issue up to 79.0 million shares of Common Stock in exchange for the cancellation of 158.0 million Outstanding Warrants, including the Warrants issued in connection with the Series D Financing, over the course of the Warrant Exchange Program.

~~During the nine months ended September 30, 2017, the Company issued 79,040,135 shares of Common Stock in exchange for the cancellation of 158,080,242 Outstanding Warrants.~~

~~Secured Note Financing.~~ ~~On July 26, 2017, we commenced an offering of Senior Secured Promissory Notes (the “SecuredNotes~~”)significant change in the ~~aggregate principal amount~~regulatory environment or the recent outbreak of upCOVID-19 continues to ~~$1.5 million~~impact the global economy, we will need to ~~certain accredited investors (the “SecuredNote Financing”). As~~raise additional ~~consideration for participating~~funds through public or private debt or equity offerings, financings, corporate collaborations, or other means. 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 ~~the Secured Note Financing, investors received five-year warrants, exercisable for $0.15 per share, to purchase that number of shares of the~~ our Common Stock equal to 50% of the principal amount of the Secured Note purchased, divided by $0.15 per share. Between July 26, 2017 and September 30, 2017, we offered and sold Secured Notes in the aggregate principal amount of $1,350,000 and issued Warrants to purchase up to 4.5 million shares of Common Stock to participating investors.

The Secured Notes (i) bear interest at a rate of 8% per annum, (ii) have a maturity date of 1.5 years from the date of issuance, and (iii) are subject to a pre-payment and change in control premium of 125% of the principal amount of the Secured Notes at the time of pre-payment or change in control, as the case may be. To secure the Company’s obligations under the Secured Notes, the Company granted to participating investors a continuing security interest in substantially all of the Company’s assets pursuant to the terms and conditions of a Security Agreement (the “~~Security Agreement”).~~best interests.

Off-Balance Sheet ~~Items~~Arrangements

~~We had~~The Company has no off-balance sheet ~~items as~~arrangements other than operating lease commitments.

Critical Accounting Policies

The condensed consolidated financial statements are prepared in conformity with U.S. GAAP, which require the use of ~~September 30, 2017.~~estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of expense in the periods presented. We believe that the accounting estimates employed are appropriate and resulting balances are reasonable; however, due to inherent uncertainties in making estimates, actual results could differ from the original estimates, requiring adjustments to these balances in future periods. The critical accounting estimates that affect the consolidated financial statements and the judgments and assumptions used are consistent with those described under Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

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ITEM ~~3. Q~~U3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not ~~a required~~applicable.

ITEM 4 - CONTROLS AND PROCEDURES

(a) Evaluation of disclosure ~~for smaller reporting companies.~~controls and procedures.

~~ITEM 4. CONTROLS AND PROCEDURES~~

~~(a)~~

~~Evaluation of disclosure controls and procedures.~~

~~We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act~~”)) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that this information is accumulated and communicated to our management, including our principal executive and financial officers, to allow timely decisions regarding required disclosure.

Our management, with the participation ~~and supervision~~ of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this ~~Quarterly Report on Form 10-Q.~~Report. In designing and evaluating the disclosure controls and procedures, management ~~recognized~~recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Based on ~~that~~our evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2020, our disclosure controls and procedures ~~were not~~are designed at a reasonable assurance level and are effective ~~based on~~to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our ~~material weakness in the form of lack of segregation of duties, which stems from~~management, including our ~~early stage status and limited capital resources to hire additional financial and administrative staff.~~

~~(b)~~

~~Changes in internal controls over financial reporting.~~

~~The Company’s~~ Chief Executive Officer and Chief Financial Officer, ~~have determined that there have been no changes,~~as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.

PAR~~T II~~

~~ITEM 1. LEGAL PROCEEDINGS~~

~~From time to time, claims are made against~~During the year ended December 31, 2020, the Company took extensive measures towards remediating the material weaknesses disclosed in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Company’s ~~financial position or results of operations.~~

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, or our Common Stock in which an adverse decision could have a material adverse effect.

~~ITEM 1A. R~~IS~~K FACTORS~~

Investing in our securities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K ~~filed with the Securities and Exchange Commission~~ for the ~~fiscal~~ year ended December 31, ~~2016 before investing~~2018, and other periodic reports filed with the SEC. These measures include, among other things, additional hiring in the accounting department to ensure appropriate segregation of duties, strengthening its controls over IT reporting and management, and the ongoing refinement of our ~~securities. The~~enterprise resource planning system. We determined that the design of internal control over financial statement processes is effective in relation to identified inherent risks ~~described below are not~~for all significant processes, based on review of controls in whole, and testing of each control individually for effectiveness in meeting control objectives. As a result, it has been determined that there were no material weaknesses of internal control over financial reporting for the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected.

quarter ended March 31, 2021.

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PART II - OTHER INFORMATION

ITEM 1. 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. On November 13, 2020 the Company and Robinson reached a Settlement Agreement and Mutual Release (“Settlement Agreement”) by which the Company agreed to pay the total sum of $50,000 in two equal installments of $25,000. The first payment was to be due on or before November 19, 2020 and the second payment was to be due on or before December 17, 2020. The Company has satisfied its obligations set forth in the Settlement Agreement and has been relieved of any future liability in this matter.

ITEM 1A. RISK FACTORS

We are subject to various risks that could have a negative effect on the Company and its financial condition. These risks could cause actual operating results to differ from those expressed in certain “forward looking statements” contained in this Quarterly Report on Form 10-Q as well as in other communications.

Risks Related to the Company

~~We have a history~~Our operations are now primarily dependent on the business of ~~operating losses~~Charlie’s, and ~~despite consummation of recent financings, we require additional financing~~our ability to ~~satisfy~~achieve positive cash flow under our ~~current contractual obligations and execute our~~new business ~~plan.~~plan is uncertain.

~~We have not been profitable since inception. We had~~ As a result of the Share Exchange (see Note 3 of Part 1, Item 1 of this Report), our continued operations are now primarily dependent on the business of Charlie’s. Although Charlie’s generated net ~~loss~~revenue of ~~$5,994,252 and $5,445,563 for~~approximately $4.4 million during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2021 and $16.7 million during the year ended December 31, ~~2016, respectively. Additionally, sales of AquaBall™ Naturally Flavored Water are significantly below levels necessary~~2020, there can be no guarantee that the Company can continue to grow revenue or achieve positive cash ~~flow.~~flow in the future.

Our operating results in the past will not reflect our operating results in the future, which makes it difficult to evaluate our future business, prospects, and forecast revenue.

Until recently, our business was comprised primarily of the development, marketing, sale and distribution of all-natural, vitamin-enhanced drinks. As a result of our decision to consummate the Share Exchange, our future revenue will substantially differ from past revenue, and our operating results will vary significantly compared to past operating results. It is too early to predict whether consumers will accept, and continue to use on a regular basis, our new products, due in part to the fact that we have had limited recent operating history as a combined entity with Charlie’s. Factors that will significantly affect our operating results include, without limitation, the following:

●

the expected increase in revenue due to the addition of those products developed and marketed by Charlie’s prior to the Share Exchange, as well as any products that we may release in the future, to our revenue stream;

●

the restructuring of substantially all of our previously outstanding debt and shares of Preferred Stock on April 26, 2019, in connection with the Share Exchange.

Our cash resources are currently insufficient to submit each of our anticipated PMTA applications with the FDA, and otherwise satisfy our projected short-term liquidity and capital requirements.

~~Although~~As of December 31, 2020, we ~~have recently consummated equity and debt financings that have resulted in aggregate gross proceeds~~had negative working capital of approximately ~~$6.7~~$6,020,000, which consisted of current assets of approximately $4,723,000 and current liabilities of approximately $10,743,000. In addition, the cost associated with the preparation and submission of Premarket Tobacco Applications ("PMTAs") with the FDA is approximately $4.4 million ~~for~~to date. As a result, in March 2021 we issued shares of the ~~nine months ended September 30, 2017,~~Company’s Common Stock worth $3.0 million, which provided additional financing in order to reduce debt, further invest in the PMTA application process, and otherwise carry out our cash position was approximately $215,000 at September 30, 2017, and we used approximately $5,463,000 of cash for operations during the nine months ended September 30, 2017. To continue as a going concern, and to satisfy our contractual obligations under the bottling agreement executed bybusiness plan. There can be no assurance that the Company ~~and Niagara Bottling, LLC (“Niagara”) in October 2015 (the “Niagara Agreement”), we need to secure proceeds from the sale of~~will not require additional ~~debt or equity securities, whether in a private or public offering,~~financing in the ~~near term. No assurances~~future, or that the financing will be available on acceptable terms, or at all, and there can be ~~given~~no assurance that ~~we will~~any such arrangement, if required or otherwise sought, would be ~~successful~~available on terms deemed to be commercially acceptable and in our attempts to generate proceeds to fund our operations. In the event we are unable to raise additional capital through the issuance of additional debt or equity securities, we will be unable to continue as a going concern.best interests.

~~We are currently in breach~~

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The failure of the ~~Niagara Agreement, which could, in turn, have~~Company to pay a ~~materially adverse effect~~required one-time dividend on ~~our business, financial condition and results~~its Series A Preferred, or obtain a waiver of ~~operation. No assurances can be given that we can cure~~such payment or consent to amend the ~~breach or otherwise satisfy our remaining obligation.~~

~~On October 19, 2017, we received a notice of breach and request for meet and confer from Niagara with respect~~Series A Preferred to ~~certain past due payment obligations under the Niagara Agreement. Pursuant to the Niagara Agreement,~~allow the Company ~~has 30 days from the date~~to pay such dividend in shares of ~~the notice to bring all amounts due current or negotiate a settlement with Niagara for the amounts owed. Failure to do so~~its Common Stock, may ~~result in an event of default under the Niagara Agreement, which would~~ have a material adverse effect on ~~our business,~~the Company’s financial ~~condition and results of operations.~~

~~We may not be able to satisfy recently incurred debt obligations when due.~~condition.

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 $1,560,000 (“~~We recently~~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 ~~Senior Secured Promissory Notes (the “~~and outstanding (“Required Holders~~Secured Notes~~”) consent to an amendment to the Series A Preferred to allow the Company to pay such Dividend Amount in shares of the ~~aggregate principal amount~~Company’s Common Stock. To date, the Company has not obtained such consent from the Required Holders. In the event the Company is unable to obtain consents from the Required Holders to pay the Dividend Amount in shares of ~~$1,500,000, which Secured Notes will mature~~Common Stock in ~~January 2019. Additionally, we granted~~lieu of cash, or does not otherwise pay such Dividend Amount in cash or obtain a waiver, any claims asserted by the holders of the ~~Secured Notes a continuing security interest in substantially all of our assets to secure our obligations under the Secured Notes.~~

If we are unable to successfully execute our business and marketing plan, we may not achieve profitability, and may not be able to satisfy our obligations under the Secured Notes when due, or otherwise satisfy the debt covenants. We may seek additional financing to satisfy our obligations, which financing may not be available on a timely basis, on terms that are acceptable or at all. Failure to meet our obligations under the Secured Notes, including paying off the Secured Notes when it becomes due and payable would result in a default of the Secured Notes, which default wouldSeries A Preferred could have a material adverse effect ~~our business, results of operations and~~on the Company’s financial ~~condition, and therefore threaten our financial viability.~~condition.

~~Substantially all~~On August 13, 2020, the Company received a formal notice of ~~our assets are pledged~~default from a holder of its Series A Preferred requesting full payment of dividends due and payable with respect to ~~secure obligations under our outstanding indebtedness~~the Series A Preferred held by such holder on or before August 23, 2020 (“Dividend Default”). As disclosed, the aggregate amount of dividends due and payable to holders of the Series A Preferred is $1,560,000.

WeOur auditors have ~~granted~~issued a ~~continuing security interest~~going concern opinion on our financial statements as of December 31, 2020.

Ourfinancial 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 ~~substantially all~~the normal course of ~~our assets~~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 outbreak of a novel strain of COVID-19 (“Coronavirus”) which was identified in Wuhan, China around December 2019 and continues to spread globally, has had a negative impact on the global economy and markets which could impact the Company’s supply chain and/or sales. For the three months ended March 31, 2021, the Company has incurred losses from operations of $229,000, and a consolidated net loss of approximately $20,137,000. The Company has negative stockholders’ equity of $22,684,000 at March 31, 2021. 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 ~~holders~~carrying amount and classification of recorded assets and liabilities should the ~~Secured Notes~~Company be unable to continue operations.

Our business is difficult to evaluate because we ~~issued in July 2017 as security for~~have recently significantly modified our obligations under the Secured Notes. If we default on any of our obligations under the Secured Notes, the holders of the Secured Notes will be entitled to exercise remedies available to them resulting from such default, including increasing the applicable interest rate on all amounts outstanding under the Secured Notes, declaring all amounts due thereunder immediately dueproduct offerings and ~~payable, assuming control of the pledged assets. Our results of operations and financial condition would be materially harmed as~~customer base.

As a result of the ~~Secured Note holders’ exercise of their remedies~~Share Exchange, we have recently modified our operations, engaging in the ~~event~~sale of new products in a ~~default.~~

~~We face substantial uncertainties in executing our business plan.~~

~~We must attain certain objectives in order to successfully execute our business plan over, including certain sales~~new market through new distributors and ~~distribution~~new lines of AquaBall® Naturally Flavored Water required by the minimum volume requirements for each 12-month period under the Niagara Agreement. Failure to sustain sales sufficient to meet our Annual Commitment to Niagara will havebusiness. There is a ~~material adverse impact on our business, and no assurances can be given~~risk that ~~we will be successful in our efforts.~~

We believe that, in order to execute our business plan and achieve sales growth, we must, among other things, successfully recruit additional personnel in key positions, develop a larger distribution network, establish a broader customer base and increase awareness of our brand name. In order to implement any of these initiatives, we will be required to materially increase our operating expenses, which may require additional working capital. If we are unable to secure additional working capital, we will be unable to ~~accomplish~~successfully integrate the newly acquired businesses with our ~~objectives,~~current structure. Our estimates of capital, personnel and equipment required for our newly acquired businesses are based on the historical experience of management and businesses they are familiar with. Our management has limited direct experience in operating a business of our current size, as well as one that is publicly traded.

Our products could fail to attract or retain users or generate revenue and profits.

As a result of the Share Exchange, our customer base has changed significantly. Our ability to develop, increase, and engage our new customer base and to increase our revenue depends heavily on our ability to continue to evolve our existing products and to create successful new products, both independently and in conjunction with developers or other third parties. We may introduce significant changes to our existing products or acquire or introduce new and unproven products, including using technologies with which we have little or no prior development or operating experience. If new or enhanced products fail to engage our customers, or if we are ~~unable~~unsuccessful in our monetization efforts, we may fail to ~~accomplish one~~attract or ~~more of these objectives,~~retain customers or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may ~~fail.~~be adversely affected.

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Our ~~licensing agreements are critical components of the marketing of the AquaBall® line, and there is no guarantee the licensing agreements will be renewed at the end of each agreement’s term.~~

We currently have licensing agreements with Disney Consumer Products, Inc. and Marvel Characters, B.V. that allow us to place popular Disney and Marvel characters on labels of AquaBall® Naturally Flavored Water. The use of these characters, including Disney Princesses and other Disney characters, is critical to making AquaBall™ stand out among our competitors. These licensing agreements have varying terms, the Disney Agreement expires on March 31, 2017 and the Marvel Agreement expires on December 31, 2017, and there is no guarantee we will renew these agreements upon expiration, nor are we able to guarantee that we will have licensing agreements with other companies when the Disney Agreement and Marvel Agreement expire.

~~Certain large shareholders~~significant stockholders may have certain personal interests that may affect the Company.

~~As a result~~Together, Brandon Stump and Ryan Stump, the founders of ~~securities held by Mr. Vincent C. Smith, the Vincent C. Smith, Jr. Annuity Trust 2015-1 (the “Smith Trust”),~~Charlie’s and ~~Red Beard, an entity affiliated with Mr. Smith, Mr. Smith may be deemed the beneficial owner~~our Chief Executive Officer and Chief Operating Officer, respectively, collectively own approximately 39% of ~~in the aggregate, approximately 49% of the Company’s~~our issued and outstanding voting securities. As a result, ~~Mr. Smith,~~Ryan Stump and Brandon Stump have the ~~Smith Trust and/or Red Beard has the potential~~ ability to exert influence over both the actions of ~~the~~our Board of Directors, ~~and~~ the outcome of issues requiring approval by our stockholders, as well as the ~~Company’s shareholders.~~execution of management’s plans. This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other ~~shareholders~~stockholders or preventing transactions in which ~~shareholders~~stockholders might otherwise recover a premium for their shares over current market prices.

~~Our limited operating history makes it difficult~~The loss of one or more of our key personnel or our failure to ~~evaluate~~attract and retain other highly qualified personnel in the future, could harm our ~~prospects.~~business.

We currently depend on the continued services and performance of key members of our management team, in particular, Brandon Stump and Ryan Stump, Charlie’s founders and our Chief Executive Officer and Chief Operating Officer, respectively, Matt Montesano, our Chief Financial Officer, and Henry Sicignano our President. If we cannot call upon them or other key management personnel for any reason, our operations and development could be harmed. We have not yet developed a succession plan. Furthermore, as we grow, we will be required to hire and attract additional qualified professionals such as accounting, legal, finance, production, market and sales experts. We may not be able to locate or attract qualified individuals for such positions, which will affect our ability to grow and expand our business.

We rely on contractual arrangements with Don Polly, our consolidated variable interest entity for our CBD-related business operations, which may not be as effective as direct ownership in providing operational control.

We have relied and expect to continue to rely on contractual arrangements with Don Polly and its shareholders, consisting of entities controlled by Brandon Stump and Ryan Stump, for the operation of our CBD-related operations. These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated variable interest entity. For example, Don Polly and its shareholders could breach their contractual arrangements with us by, among other things, failing to conduct their operations, including maintaining our website and using the domain names and trademarks, in an acceptable manner or taking other actions that are detrimental to our interests.

If we had direct ownership of Don Polly, we would be able to exercise our rights as a ~~limited operating history~~shareholder to effect changes in the board of directors of Don Polly, which in turn could implement changes, subject to any applicable fiduciary obligations, at the management and operational level. However, under the current contractual arrangements, we rely on the performance by Don Polly, and its shareholders of their obligations under the contracts. The shareholders of Don Polly may not act in the best interests of our Company or may not perform their obligations under these contracts. Such risks exist throughout the period in which we intend to ~~evaluate~~operate our business through the contractual arrangements with Don Polly. Therefore, our contractual arrangements with Don Polly, our consolidated variable interest entity ("VIE"), may not be as effective in ensuring our control over the relevant portion of our business operations as direct ownership would be.

The shareholders of Don Polly, our consolidated variable interest entity, may have potential conflicts of interest with us, which may materially and adversely affect our business and ~~prospects. Our current flagship product, AquaBall™ Naturally Flavored Water, was formulated~~financial condition.

The equity interests of Don Polly, our consolidated VIE, are held by entities controlled by Brandon Stump, our Chief Executive Officer, and ~~introduced~~Ryan Stump, our Chief Operating Officer. Their interests in Don Polly may differ from the interests of our company as a whole. These shareholders may breach, or cause Don Polly to breach, the existing contractual arrangements we have with them and Don Polly, which would have a material adverse effect on our ability to effectively control Don Polly and receive economic benefits from it. For example, the shareholders may be able to cause our agreements with Don Polly to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor.

Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and the Company. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Don Polly, we would have to rely on legal proceedings, which could result in the disruption of our business and subject us to substantial uncertainty as to the ~~public~~outcome of any such legal proceedings.

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We have no commercial manufacturing capacity and rely on third-party contract manufacturers to produce commercial quantities of our products.

We do not have the facilities, equipment or personnel to manufacture commercial quantities of our products and therefore must rely on qualified third-party contract manufactures with appropriate facilities and equipment to contract manufacture commercial quantities of products. Any performance failure on the part of our contract manufacturers could delay commercialization of any of our products, depriving us of potential product revenue.

Failure by our contract manufacturers to achieve and maintain high manufacturing standards could result in product recalls or withdrawals, delays or failures in testing or delivery, cost overruns or other problems that could materially adversely affect our business. Contract manufacturers may encounter difficulties involving production yields, quality control and quality assurance. If for ~~sale~~some reason our contract manufacturers cannot perform as agreed, we may be required to replace them. Although we believe there are a number of potential replacements, we may incur added costs and delays in ~~2012. Our other product, Bazi® All Natural Energy, has had limited market success. There can be no assurance that~~identifying and obtaining any such replacements.

The inability of a manufacturer to ship orders of our products in a timely manner or to meet quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect as our revenue would decrease and we ~~will achieve significant sales~~would incur net losses as a result of ~~us focusing our~~ sales ~~efforts on~~of the ~~AquaBall®~~ product, ~~or that our new~~if any sales ~~model with~~could be ~~successful.~~made.

We are subject to cyber-security risks, including those related to customer, employee, vendor or other company data and including in connection with integration of acquired businesses and operations.

We use information technologies to securely manage operations and various business functions. We rely on various technologies, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, including reporting on our business and interacting with customers, vendors and employees. In addition, we collect and store certain data, including proprietary business information, and may have access to confidential or personal information that is subject to privacy and security laws, regulations and customer-imposed controls. Our systems are subject to repeated attempts by third parties to access information or to disrupt our systems. Despite our security design and controls, and those of our third-party providers, we may become subject to system damage, disruptions or shutdowns due to any number of causes, including cyber-attacks, breaches, employee error or malfeasance, power outages, computer viruses, telecommunication or utility failures, systems failures, service providers, natural disasters or other catastrophic events. It is possible for such vulnerabilities to remain undetected for an extended period. We may face other challenges and risks as we upgrade and standardize our information technology systems as part of our integration of acquired businesses and operations. We have contingency plans in place to prevent or mitigate the impact of these events, however, these events could result in operational disruptions or the misappropriation of sensitive data, and depending on their nature and scope, could lead to the compromise of confidential information, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions and exposure to liability. Such disruptions or misappropriations and the resulting repercussions, including reputational damage and legal claims or proceedings, may adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock.

This risk is enhanced in certain jurisdictions with stringent data privacy laws. For example, California recently adopted the California Consumer Privacy Act of 2018 (“CCPA”), which provides new data privacy rights for consumers and new operational requirements for businesses. The CCPA includes a statutory damages framework and private rights of action against businesses that fail to comply with certain CCPA terms or implement reasonable security procedures and practices to prevent data breaches. The CCPA went into effect in January 2020.

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The business that we conduct outside the United States may be adversely affected by international risk and uncertainties.

Although our operations are based in the United States, we conduct business outside of the United States and expect to continue to do so in the future. Any business that we conduct outside of the United States is subject to additional risks that may have a material adverse effect on our ability to continue conducting business in certain international markets, including, without limitation:

●

Potentially reduced protection for intellectual property rights;

●

Unexpected changes in tariffs, trade barriers and regulatory requirements;

●

Economic weakness, including inflation or political instability, in particular foreign economies and markets;

●

Business interruptions resulting from geo-political actions, including war and terrorism or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires; and

●

Failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act (“FCPA”).

These factors or any combination of these factors may adversely affect our revenue or our overall financial performance.

The outbreak of COVID-19, or coronavirus, has adversely affected our business.

In the event of a pandemic, epidemic or outbreak of an infectious disease, our business may be adversely affected. In December 2019, a novel strain of COVID-19 was identified in Wuhan, China which continues to spread globally to, among other countries, the United States. Such events may result in a period of business and travel disruption, and in reduced sales and operations, any of which could materially affect our business, financial condition and results of operations. For example, the spread of COVID-19 in the United States has resulted in travel restrictions impacting our sales professionals and is causing disruptions to our manufacturing supply chain. These conditions have negatively affected our sales and revenue, although the magnitude of such a negative impact cannot be determined at this time. However, if repercussions of the outbreak are prolonged, it will have a further adverse impact on our business.

The outbreak and persistence of COVID-19 in international markets that we have targeted for our international expansion have also delayed the preparation for and launch of such expansion efforts. The spread of COVID-19 has resulted in the inability of certain of our products being delivered and distributed to the overseas markets on a timely basis. If there were a shortage or halt in distribution of our products, the cost of these materials or components may ~~not~~increase which could harm our ability to provide our products on a timely and cost-effective basis.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be ~~successful~~predicted. The Company will continue to closely monitor new information as it emerges and adjust our operations and sales accordingly.

Regulatory and Market Risks

Our business is primarily involved in ~~addressing~~the sales of products that contain nicotine and/or CBD, which faces significant regulation and actions that may have a material adverse effect on our business.

As a result of the Share Exchange, our current business is primarily involved in the sale of products that contain nicotine and/or CBD. The general market in which our products are sold faces significant governmental and private sector actions, including efforts aimed at reducing the incidence of use in minors and efforts seeking to hold the makers and sellers of these products responsible for the adverse health effects associated with them. More broadly, new regulatory actions by the FDA and other ~~operating challenges,~~federal, state or local governments or agencies, may impact the consumer acceptability of or access to our products, including regulations promulgated by the FDA which will require us to file PMTA(s) for any of our products that are identified as “Deemed Tobacco Products” by the FDA that we intend to market and sell after September 9, 2020. See "-The regulation of tobacco products by the FDA in the United States and the issuance of Deeming Regulations may materially adversely affect the Company." Additionally, on January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA. According to the FDA, it is expected that the new policy will have minimal impact on small manufacturers, such as ~~developing brand awareness~~vape shops, that sell non-cartridge based products. We believe that any ban on flavored e-cigarettes, or similar enforcement action by the FDA, would have a significant adverse impact on Charlie’s products, which would, in turn, have a material adverse impact on our overall business material.

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Additional regulatory challenges may come in future months and ~~expanding~~years, including the FDA’s publication of new product standards or additional rule making that may impact vape shops or other small manufacturers, limit adult consumer choices, delay or prevent the launch of new or modified risk tobacco products or products with claims of reduced risk, require the recall or other removal of certain products from the marketplace, restrict communications including marketing, advertising, and educational campaigns regarding the product category to adult consumers, restrict the ability to differentiate products, create a competitive advantage or disadvantage for certain companies, impose additional manufacturing, labeling or packaging requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business, or restrict or prevent the use of specified products in certain locations or the sale of products by certain retail establishments. Any of these actions may also have a material adverse effect on our ~~market presence through retail sales and our direct-to-consumer and online sales strategy. Our prospects for profitability must be considered in light~~business. Each of our ~~evolving business model. These factors make it difficult~~products are also subject to ~~assess~~intense competition and changes in adult consumer preferences, which could have a material adverse effect on our ~~prospects.~~business.

We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar other constraints, which can make compliance costly and subject us to enforcement actions by governmental agencies.

The formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising and sale of our products are affected by extensive laws, governmental regulations and policies, administrative determinations, court decisions and similar constraints at the federal, state and local levels, both within the United States and in any country where we conduct business. Moreover, the current trend is toward increasing regulation of the tobacco industry, which is likely to differ between the various U.S. states in which we currently conduct the majority of our business. Extensive and inconsistent regulation by multiple states and at different governmental levels could prove to be particularly disruptive to our business as we may be unable to accommodate such regulations in a cost-effective manner that allows us to continue to compete in an economically viable way. Regulations are often introduced without the tobacco industry’s input and have been a significant reason behind reduced industry sales volumes and increased illicit trade.

There can be no assurance that we, or our independent distributors, will be in compliance with all of these regulations. A failure by us or our distributors to comply with these laws and regulations could lead to governmental investigations, civil and criminal prosecutions, administrative hearings and court proceedings, civil and criminal penalties, injunctions against product sales or advertising, civil and criminal liability for ~~the Company~~us and/or ~~its~~our principals, bad publicity, and tort claims arising out of governmental or judicial findings of fact or conclusions of law adverse to ~~the Company~~us or ~~its~~our principals. In addition, the adoption of new regulations and policies or changes in the interpretations of existing regulations and policies may result in significant new compliance costs or discontinuation of product sales, and may adversely affect the marketing of our products, resulting in decreases in ~~revenues.~~revenue.

~~Our ability to increase sales is dependent~~In 1986, federal legislation was enacted regulating smokeless tobacco products (including dry and moist snuff and chewing tobacco) by, among other things, requiring health warnings on ~~growing in our existing markets as well as expanding into new markets in other countries. As we expand into foreign markets, we will become~~smokeless tobacco packages and prohibiting the advertising of smokeless tobacco products on media subject to ~~different political, cultural, exchange rate, economic, legal~~the jurisdiction of the Federal Communications Commission (“FCC”). Since 1986, other proposals have been made at the federal, state, and ~~operational risks. We may invest significant amounts~~local levels for additional regulation of tobacco products. It is likely that additional proposals will be made in ~~these expansions~~the coming years. For example, the Prevent All Cigarette Trafficking Act (“PACT Act”) initially prohibited the use of the U.S. Postal Service to mail cigarette and smokeless tobacco products and also amended the Jenkins Act, which established cigarette sales reporting requirements for state excise tax collection, to require individuals and businesses that make interstate sales of certain cigarette or smokeless tobacco comply with ~~little success.~~

~~We currently are focusing our marketing efforts in~~state tax laws. The PACT Act was recently amended expanding the definition of “cigarette” to include “electronic nicotine delivery systems,” or "ENDS", and requires that the United States Postal Service ("USPS") promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS. This amendment to the PACT Act applies to certain products manufactured and ~~to a lesser extent, Canada. We believe that our future growth will come from both~~sold by the ~~markets that we are currently operating in~~Company, which has impacts at the federal and other international markets. We do not have any history of international expansion, and therefore have no assurance that any efforts will result in increased revenue. Additionally, we may need to overcome significant regulatory and legal barriers in order to sell our products, and we cannot give assurance as to whether our distribution method will be accepted. These markets may require that we reformulate our productstate levels. Failure to comply with ~~local customs~~the PACT Act could result in significant financial or criminal penalties. To the extent we are unable to respond to, or comply with, these new requirements, there could be a material adverse effect on our business, results of operations and ~~laws. However, there is no guarantee that the reformulated product will be approved for sale by these regulatory agencies or attract local distributors.~~financial condition.

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On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “Tobacco Control Act”) granted the FDA regulatory authority over tobacco products. The Act also amended the Federal Cigarette Labeling and Advertising Act, which governs how cigarettes can be advertised and marketed, as well as the Comprehensive Smokeless Tobacco Health Education Act (“CSTHEA”), which governs how smokeless tobacco can be advertised and marketed. In addition to the FDA and FCC, we are subject to regulation by numerous other federal agencies, including the Federal Trade Commission (“FTC”), the Department of Justice (“DOJ”), the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), the U.S. Environmental Protection Agency (“EPA”), the U.S. Department of Agriculture (“USDA”), the Consumer Product Safety Commission (“CPSC”), the U.S. Customs and Border Protection (“CBP”) and the U.S. Center for Disease Control and Prevention’s (“CDC”) Office on Smoking and Health. There have also been adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry, which we believe have received widespread public attention. The FDA has, and other governmental entities have, expressed concerns about the use of flavors in tobacco products and an interest in significant regulation of such use, up to and including de facto bans in certain products. There can be no assurance as to the ultimate content, timing or effect of any regulation of tobacco products by governmental bodies, nor can there be any assurance that potential corresponding declines in demand resulting from negative media attention would not have a material adverse effect on our business, results of operations and financial condition.

The regulation of tobacco products by the FDA in the United States and the issuance of Deeming Regulations may materially adversely affect the Company.

The “Deeming Regulations” issued by the FDA in May 2016 require any e-liquid, e-cigarettes, and other vaping products considered to be Deemed Tobacco Products that were not commercially marketed as of the grandfathering date of February 15, 2007, to obtain premarket approval by the FDA before any new e-liquid or other vaping products can be marketed in the United States. However, any Deemed Tobacco Products such as certain products from our Charlie's Chalk Dust and Pachamama product lines that were on the market in the United States prior to August 8, 2016 have a grace period to continue to market such products, ending on September 9, 2020 whereby a premarket application, likely though the PMTA pathway, must be completed and filed with the FDA. Upon submission of a PMTA, products would then be able to be marketed pending the FDA’s review of the submission. Without obtaining marketing authorization by the FDA prior to September 9, 2020 or having submitted a PMTA by such date, non-authorized products would be required to be removed from the market in the United States until such authorization could be obtained, although such products may continue to be sold if a PMTA is pending as of the September 9, 2020 deadline.

As at the date of this Report, we have submitted PMTAs for certain of our traditional nicotine vapor products, including, but not limited to menthol and/or tobacco products with the assistance of Avail, pursuant to the terms of the Avail Agreement. The costs to date associated with these PMTAs are approximately $4.4 million in total. We are ~~currently dependent on a single manufacturer for~~also evaluating the ~~production of AquaBall®,~~potential market perception and clinical studies that may be required in connection with each PMTA. If we do not ~~independently analyze~~submit a PMTA for any Charlie’s products considered to be Deemed Tobacco Products prior to the lapse of the grace period or if any PMTA submitted by the Company is denied, we will be required to cease the marketing and distribution of such Charlie’s products, which, in turn, would have a material adverse effect on the Company’s business, results of operations and financial condition. Furthermore, there can be no assurance that if the Company were to complete a PMTA for any of the affected Charlie's products, that any application would be approved by the FDA.

Certain of our products ~~before distribution.~~contain nicotine, which is considered to be a highly addictive substance.

Certain of our products contain nicotine, a chemical found in cigarettes, e-cigarettes, certain other vapor products and other tobacco products, which is considered to be highly addictive. The Family Smoking Prevention and Tobacco Control Act empowers the FDA to regulate the amount of nicotine found in vapor products, but may not require the reduction of nicotine yields of a vapor product to zero. Any FDA regulation may require us to reformulate, recall and or discontinue certain of the products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, financial condition, results of operations, cash flows and or future prospects.

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Recent bans on the sales of flavored e-cigarettes directly impacts the markets in which we may sell Charlie’s products, and significant increases in state and local regulation of Charlie's products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

On January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA. There has been increasing activity on the state and local levels with respect to scrutiny of Charlie's products, and many states, provinces, and some cities have passed laws restricting or banning the sale of e-cigarettes and certain other nicotine vaporizer products, including flavored e-liquids. State and local governmental bodies across the U.S. have indicated Charlie's products may become subject to new laws and regulations at the state and local levels. Further, some states and cities, have enacted regulations that require obtaining a tobacco retail license in order to sell electronic cigarettes and vaporizer products. If one or more states from which we generate or anticipate generating significant sales of Charlie's products bring actions to prevent us from selling Charlie's products unless we obtain certain licenses, approvals or permits, and if we are not able to ~~ensure timely product deliveries, potential distributors~~obtain the necessary licenses, approvals or permits for financial reasons or otherwise and/or any such license, approval or permit is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect on our business, results of operations and financial condition.

Certain states and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke-free venues, imposed excise taxes, or limited sales of flavored Charlie's products. Additional city, state or federal regulators, municipalities, local governments and private industry may enact additional rules and regulations restricting electronic cigarettes and vaporizer products. Because of these restrictions, our customers may reduce or otherwise cease using Charlie's products, which could have a material adverse effect on our business, results of operations and financial condition. Changes to the application of existing laws and regulations, and/or the implementation of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating or banning flavored e-cigarette liquid and products used for the vaporization of nicotine would materially limit our ability to sell such products, result in additional compliance expenses, and require us to change our labeling and methods of distribution, any of which would have a material adverse effect on our business, results of operations and financial condition.

There is substantial concern regarding the effect of long-term use of vaping products. Despite the recent outbreak of vaping-related lung injuries, the medical profession does not ~~order~~yet definitively know the cause of such injuries. Should vapor products, such as Charlie’s products, be determined conclusively to pose long-term health risks, including a risk of vaping-related lung injury, our business will be negatively impacted.

Because vapor products have been developed and commercialized recently, the medical profession has not yet had a sufficient period of time to fully realize the long-term health effects attributable to vapor product use. On November 8, 2019 officials at the CDC reported a breakthrough in the investigation into the outbreak of vaping-related lung injuries. The CDC's principal deputy director, Dr. Anne Schuchat, stated that "vitamin E acetate is a known additive used to dilute liquid in e-cigarettes or vaping products that contain THC”, suggesting the possible culprit for the series of lung injuries across the U.S. As a result, there is currently no way of knowing whether or not vapor products are safe for their intended use. If the medical profession were to determine conclusively that vapor product usage poses long-term health risks, the use of such products, including Charlie’s products, could decline, which could have a material adverse effect on our business, results of operations and financial condition.

The market for vapor products is a niche market, subject to a great deal of uncertainty, and is still evolving.

Vapor products, having recently been introduced to market, are still at an early stage of development, represent a niche market, are evolving rapidly and are characterized by an increasing number of market entrants. Our future sales and any future profits are substantially dependent upon the widespread acceptance and use of vapor products. Rapid growth in the use of, and interest in, vapor products is recent, and may not continue on a lasting basis. The demand and market acceptance for these products is subject to a high level of uncertainty. Therefore, we are subject to all of the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure of widespread market acceptance of vapor products, in general or, specifically our products, failure to establish business relationships and ~~our revenues may decrease. In addition, any errors in our product manufacturing could result in product recalls, significant legal exposure,~~competitive disadvantages as against larger and ~~reduced revenues and the loss of distributors.~~more established competitors.

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Possible yet unanticipated changes in federal and state law could cause any of our current products, as well as products that we intend to launch, containing hemp-derived CBD oil to be illegal, or could otherwise prohibit, limit or restrict any of our products containing CBD.

We ~~rely entirely~~recently launched and commenced distribution of certain premium vapor products containing hemp-derived CBD, and we currently intend to develop and launch additional products containing hemp-derived CBD in the future. Until 2014, when 7 U.S. Code §5940 became federal law as part of the Agricultural Act of 2014 (the “2014 Farm Act”), products containing oils derived from hemp, notwithstanding a minimal or non-existing THC content, were classified as Schedule I illegal drugs. The 2014 Farm Act expired on ~~Niagara~~September 30, 2018, and was thereafter replaced by the Agricultural Improvement Act of 2018 on December 20, 2018 (the “2018 Farm Act”), which amended various sections of the U.S. Code, thereby removing hemp, defined as cannabis with less than 0.3% THC, from Schedule 1 status under the Controlled Substances Act, and legalizing the cultivation and sale of industrial-hemp at the federal level, subject to ~~manufacture~~compliance with certain federal requirements and state law, amongst other things. THC is the psychoactive component of plants in the cannabis family generally identified as marihuana or marijuana. There is no assurance that the 2018 Farm Act will not be repealed or amended such that our ~~flagship product, AquaBall® Naturally Flavored Water.~~products containing hemp-derived CBD would once again be deemed illegal under federal law.

The 2018 Farm Act delegates the authority to the states to regulate and limit the production of hemp and hemp derived products within their territories. Although many states have adopted laws and regulations that allow for the production and sale of hemp and hemp derived products under certain circumstances, no assurance can be given that such state laws may not be repealed or amended such that our intended products containing hemp-derived CBD would once again be deemed illegal under the laws of one or more states now permitting such products, which in turn would render such intended products illegal in those states under federal law even if the federal law is unchanged. In the event ~~Niagara~~of either repeal of federal or of state laws and regulations, or of amendments thereto that are adverse to our intended products, we may be restricted or limited with respect to those products that we may sell or distribute, which could adversely impact our intended business plan with respect to such intended products.

Additionally, the FDA has indicated its view that certain types of products containing CBD may not be permissible under the FDCA. The FDA’s position is ~~unable~~related to ~~satisfy~~its approval of Epidiolex, a marijuana-derived prescription medicine to be available in the United States. The active ingredient in Epidiolex is CBD. On December 20, 2018, after the passage of the 2018 Farm Act, FDA Commissioner Scott Gottlieb issued a statement in which he reiterated the FDA’s position that, among other things, the FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce and that the FDCA prohibits introducing into interstate commerce food products containing added CBD, and marketing products containing CBD as a dietary supplement, regardless of whether the substances are hemp-derived. Although we believe our ~~supply requirements, manufacture~~existing and planned CBD product offerings comply with applicable federal and state laws and regulations, legal proceedings alleging violations of such laws could have a material adverse effect on our business, financial condition, and results of operations.

Sources of hemp-derived CBD depend upon legality of cultivation, processing, marketing and sales of products ~~on a timely basis, fill~~derived from those plants under state law.

Hemp-derived CBD can only be legally produced in states that have laws and ~~ship~~regulations that allow for such production and that comply with the 2018 Farm Act, apart from state laws legalizing and regulating medical and recreational cannabis or marijuana, which remains illegal under federal law and regulations. We purchase all of our ~~orders promptly, provide services at competitive costs or offer reliable products~~hemp-derived CBD from licensed growers and ~~services, our revenues and relationships with our independent distributors and customers would be adversely impacted. In~~processors in states where such production is legal. As described in the preceding risk factor, in the event ~~Niagara becomes unable~~of repeal or ~~unwilling~~amendment of laws and regulations which are now favorable to ~~continue to provide us with products~~the cannabis/hemp industry in ~~required volumes and at suitable quality levels,~~such states, we would be required to ~~identify~~locate new suppliers in states with laws and ~~obtain acceptable replacement manufacturing sources.~~regulations that qualify under the 2018 Farm Act. If we were to be unsuccessful in arranging new sources of supply of our raw ingredients, or if our raw ingredients were to become legally unavailable, our intended business plan with respect to such products could be adversely impacted.

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Because our distributors may only sell and ship our products containing hemp-derived CBD in states that have adopted laws and regulations qualifying under the 2018 Farm Act, a reduction in the number of states having such qualifying laws and regulations could limit, restrict or otherwise preclude the sale of intended products containing hemp-derived CBD.

The interstate shipment of hemp-derived CBD from one state to another is legal only where both states have laws and regulations that allow for the production and sale of such products and that qualify under the 2018 Farm Act. Therefore, the marketing and sale of our intended products containing hemp-derived CBD is limited by such factors and is restricted to such states. Although we believe we may lawfully sell any of our finished products, including those containing CBD, in a majority of states, a repeal or adverse amendment of laws and regulations that are now favorable to the distribution, marketing and sale of finished products we intend to sell could significantly limit, restrict or prevent us from generating revenue related to our products that contain hemp-derived CBD. Any such repeal or adverse amendment of now favorable laws and regulations could have an adverse impact on our business plan with respect to such products.

Due to recent expansion into the CBD industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability.

Insurance that is otherwise readily available, such as general liability, and directors and officer’s insurance, may become more difficult for us to find, and more expensive, due to our recent launch of certain products containing hemp-derived CBD. There isare no ~~assurance~~guarantees that we ~~would~~will be able to obtain alternative manufacturing sources on a timely basis. Additionally, Niagara sources the raw materials for AquaBall®, and if we were to use alternative manufacturers we may not be able to duplicate the exact taste and consistency profile of the product from Niagara. An extended interruptionfind such insurances in the ~~supply of~~future, or that the cost will be affordable to us. If we are forced to go without such insurances, it may prevent us from entering into certain business sectors, may inhibit our ~~products would result in decreased product sales~~growth, and ~~our revenues would likely decline.~~

~~Although we require Niagara~~may expose us to verify the accuracy of the contents of our products, we do not have the expertise or personnel to directly monitor the production of products. We rely exclusively, without independent verification, on certificates of analysis regarding product content provided by Niagaraadditional risk and limited safety testing by them. We cannot be assured that Niagara will continue to supply products to us reliably in the compositions we require. Errors in the manufacture of our products could result in product recalls, significant legal exposure, adverse publicity, decreased revenues, and loss of distributors and endorsers.financial liabilities.

We face significant competition from existing suppliers of products similar to ours. If we are not able to compete with these companies effectively, we may not be able to achieve profitability.

We face intense competition from numerous resellers, manufacturers and wholesalers of ~~liquid nutrition drinks~~e-liquids similar to ~~ours,~~those developed and sold by us, from both retail and online providers. We ~~consider~~face competition from direct and indirect competitors, which arguably includes “big tobacco”, “big pharma”, and other known and established or yet to be formed vapor product manufacturing companies, each of whom pose a competitive threat to our current business and future prospects. We compete against “big tobacco”, who offers not only conventional tobacco cigarettes and electronic cigarettes, but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. “Big tobacco” has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands. Furthermore, we believe that “big tobacco” is likely to devote more attention and resources to developing and offering electronic cigarettes or other vapor products as the ~~significant competing products~~market for electronic cigarettes grows. Because of their well-established sales and distribution channels, marketing depth, financial resources, and proven expertise navigating complex regulatory landscapes, “big tobacco” is better positioned than small competitors like us to capture a larger share of the vapor markets. We also face competition from companies in the ~~U.S.~~vapor market ~~for the AquaBall® to be Capri-Sun, Good to Grow, Bug Juice,~~that are much larger, better funded, and ~~other alternatives marketed towards children, and for Bazi® to be Red Bull®, Monster®, RockStar®, and 5 Hour Energy®. Most of our competitors have longer operating histories,~~more established ~~brands in the marketplace, revenues significantly greater than ours and better access to capital~~ than us. ~~We expect that these competitors may use their resources to engage in various business activities that could result in reduced sales of our products.~~

Companies with greater capital and research capabilities could re-formulate existing products or formulate new products that could gain wide marketplace acceptance, which could have a depressive effect on our future sales. In addition, aggressive advertising and promotion by our competitors may require us to compete by lowering prices because we do not have the resources to engage in marketing campaigns against these competitors, and the economic viability of our operations likely would be diminished.

Adverse publicity associated with our products or ingredients, or those of similar companies, could adversely affect our sales and ~~revenues.~~revenue.

Adverse publicity concerning any actual or purported failure ~~of our Company~~by us to comply with applicable laws and regulations regarding any aspect of our business could have an adverse effect on the public perception of ~~our~~the Company. This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors or retailers for ~~the AquaBall® and/or Bazi®,~~our products, which would have a material adverse effect on our ability to generate sales and ~~revenues.~~revenue.

Our distributors’ and customers’ perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others. Adverse publicity, whether or not accurate, that associates consumption of our products or any similar products with illness or other adverse effects, will likely diminish the public’s perception of our products. Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and ~~revenues.~~revenue.

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Our products may not meet health and safety standards or could become contaminated.

We have adopted various quality, environmental, health and safety standards. We do not have control over all of the third parties involved in the manufacturing of our products and their compliance with government health and safety standards. Even if our products meet these standards, they could otherwise become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our ~~bottlers,~~manufacturers, distributors or suppliers. This could result in expensive production interruptions, recalls and liability claims. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.

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The sale of our products involves product liability and related risks that could expose us to significant insurance and loss ~~expenses.~~expense.

We face an inherent risk of exposure to product liability claims if the use of our products results in, or is believed to have resulted in, illness or injury. ~~Most of our~~Our products contain combinations of ingredients, and there is little long-term experience with the effect of these combinations. In addition, interactions of these products with other products, prescription medicines and over-the-counter drugs have not been fully explored or understood and may have unintended consequences. While our third-party manufacturers perform tests in connection with the formulations of our products, these tests are not designed to evaluate the inherent safety of our products.

Although we maintain product liability insurance, it may not be sufficient to cover all product liability claims and such claims that may arise, could have a material adverse effect on our business. The successful assertion or settlement of an uninsured claim, a significant number of insured claims or a claim exceeding the limits of our insurance coverage would harm us by adding further costs to our business and by diverting the attention of our senior management from the operation of our business. Even if we successfully defend a liability claim, the uninsured litigation costs and adverse publicity may be harmful to our business.

Any product liability claim may increase our costs and adversely affect our ~~revenues~~revenue and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, which, if adversely determined, could subject us to substantial monetary damages.

The success of our business will depend upon our ability to create and expand our brand awareness.

The market ~~for functional beverages~~we compete in is ~~already~~ highly competitive, with many well-known brands leading the industry. Our ability to compete effectively and generate revenue will be based upon our ability to create and expand awareness of our products distinct from those of our competitors. It is imperative that we are able to convey to consumers the benefits of our products. However, advertising and packaging and labeling of such products will be limited by various regulations. Our success will be dependent upon our ability to convey to consumers that our products are superior to those of our competitors.

We must ~~continue to~~ develop and introduce new products to succeed.

~~The functional beverage and nutritional supplement~~Our industry is subject to rapid change. New products are constantly introduced to the market. Our ability to remain competitive depends in part on our ability to enhance existing products, ~~continue~~ to develop and manufacture new products in a timely and ~~cost effective~~cost-effective manner, to accurately predict market transitions, and to effectively market our products. Our future financial results will depend to a great extent on the successful introduction of several new products. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products.

The success of new product introductions depends on various factors, including, without limitation, the following:

●

proper new product selection;

●

successful sales and marketing efforts;

●

timely delivery of new products;

●

availability of raw materials;

●

pricing of raw materials;

●

regulatory allowance of the products; and

●

customer acceptance of new products.

~~We may from time to time write off obsolete inventories resulting in higher expenses and consequently greater net losses.~~

As we sometimes produce product adorned with characters on a promotional schedule, over production of a certain character set could result in write-downs of our inventories. A change in ingredients or labeling requirements could also result in the obsolescence of certain inventory. Write-downs of this type could make it more difficult for us to achieve profitability. We incurred write-downs against inventory of $0 and $576,559 for the nine months ended September 30, 2017 and the year ended December 31, 2016, respectively.

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~~Product returns could require us to incur significant additional expenses, which would make it difficult for us to achieve profitability.~~

We have not established a reserve in our financial statements for product returns. However, we may experience product returns as we focus on the AquaBall® line of products and expand our market presence nationwide. We will continue to analyze our returns to determine if a reserve is necessary. If our reserves prove to be inadequate, we may incur significant expenses for product returns. As we gain more operating experience, we may need to establish a reserve for product returns.

If we are not able to adequately protect our intellectual property, then we may not be able to compete effectively, and we may not be profitable.

Our existing proprietary rights may not afford remedies and protections necessary to prevent infringement, reformulation, theft, misappropriation and other improper use of our products by competitors. We own the formulations ~~contained in~~for our products and we consider these product formulations our critical proprietary property, which must be protected from competitors. We do not currently have any patents for our product ~~formulations because we do not believe they are necessary to protect our proprietary rights.~~formulations. Although trade secret, trademark, copyright and patent laws generally provide ~~such~~a certain level of protection, and we attempt to protect ourselves through contracts with manufacturers of our products, we may not be successful in enforcing our rights. In addition, enforcement of our proprietary rights may require lengthy and expensive litigation. We have attempted to protect some of the trade names and trademarks used for our products by registering them with the ~~U.S.~~United States Patent and Trademark Office, but we must rely on common law trademark rights to protect our unregistered trademarks. Common law trademark rights do not provide the same remedies as are granted to federally registered trademarks, and the rights of a common law trademark are limited to the geographic area in which the trademark is actually used. Our inability to protect our intellectual property could have a material adverse impact on our ability to compete and could make it difficult for us to achieve a profit.

Compliance with changing corporate governance regulations and public disclosures may result in additional risks and exposures.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new regulations from the SEC, have created uncertainty for public companies such as ours. These laws, regulations, and standards are subject to varying interpretations in many cases, and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations, and standards have resulted in, and are likely to continue to result in, increased ~~expenses~~expense and significant management time and attention.

~~Loss of key personnel could impair our ability to operate.~~

Our success depends on hiring, retaining and integrating senior management and skilled employees. We are currently dependent on certain current key employees, specifically James Greco, our Chief Executive Officer, and Kevin Sherman, our Chief Marketing Officer, each of who are vital to our ability to grow our business and achieve profitability. As with all personal service providers, our officers can terminate their relationship with us at will. Our inability to retain these individuals may result in our reduced ability to operate our business.

Risks Related to Our Common Stock

A limited trading market currently exists for our securities, and we cannot assure you that an active market will ever develop, or if developed, will be sustained.

There is currently a limited trading market for our ~~securities~~Common Stock on the OTC Pink ~~Marketplace. An~~Marketplace and an active trading market for our Common Stock may not develop. Consequently, we cannot assure you when and if an active-trading market in our shares will be established, or whether any such market will be sustained or sufficiently liquid to enable holders of shares of our Common Stock to liquidate their investment in our ~~company.~~Company. If an active public market should develop in the future, the sale of unregistered and restricted securities by current ~~shareholders~~stockholders may have a substantial impact on any such market.

~~If, and when, then shares~~Sales of ~~Common Stock underlying our outstanding derivative securities are issued, our shareholders will experience immediate and~~a substantial ~~dilution in the book value of their investment.~~

We currently have 216,151,590 shares of Common Stock issued and outstanding. If, and when, holders of our outstanding derivative securities, which securities include Series B Convertible Preferred Stock (“~~Series B Preferred~~”), Series C Preferred, Series D Preferred and any warrants that remain outstanding after the completion of the Warrant Exchange Program, decide to exercise or convert those securities into Common Stock, the number of shares of our Common Stock, ~~issued~~or the perception that such sales may occur, may adversely impact the price of our Common Stock.

Sales of a substantial number of shares of our Common Stock in the public market could occur at any time. These sales, or the perception that such sales may occur, may adversely impact the price of our Common Stock, even if there is no relationship between such sales and the performance of our business. As of March 31, 2021, we had 19,929,645,221 shares of Common Stock outstanding, as well as outstanding options to purchase an aggregate of 750,293,786 shares of our Common Stock at a weighted average exercise price of $0.0044313 per share, up to 5,543,986 shares of Common Stock issuable upon conversion of outstanding shares of Series A Preferred and outstanding ~~could increase by as much as 78%. Conversion~~warrants to purchase up to an aggregate of ~~all or a portion~~4,033,769,340 shares of our Common Stock at a weighted average exercise price of $0.0044313 per share. The exercise and/or conversion of such outstanding derivative securities ~~would have a substantial and material dilutive effect on~~may result in further dilution to our ~~existing stockholders and on our earnings per share.~~stockholders.

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If we issue additional shares of Common Stock in the future, it will result in the dilution of our existing ~~shareholders.~~stockholders.

Our ~~Articles of Incorporation authorize~~Charter currently authorizes the issuance of up to ~~300.0 million~~50.0 billion shares of Common ~~Stock.~~Stock, of which approximately 19.930 billion shares are currently issued and outstanding. In addition, we have reserved approximately 10.3 billion shares for issuance upon conversion and/or exercise of our outstanding shares of Series A Preferred, warrants and stock options, as well as for issuance as awards under our 2019 Omnibus Incentive Plan. The issuance of any ~~such~~additional shares of our Common Stock, including those shares issuable upon conversion and/or exercise of our outstanding derivative securities, will result in significant dilution to our stockholders and a reduction in value of our outstanding Common Stock. ~~If we do issue any such additional shares of Common Stock, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders.~~ Further, any such issuance may result in a change of control of our corporation.

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Holders of Series A Convertible Preferred have substantial rights and ranks senior to our Common Stock.

Our Common Stock ranks junior as to dividend rights, redemption rights, conversion rights and rights in any liquidation, dissolution or winding-up of the Company to the Series A Preferred. Upon liquidation, dissolution or winding-up of the Company, the holders of the Series A Preferred are entitled to a liquidation preference equal to the original purchase price of Series A Preferred prior to and in preference to any distribution to the holders of our Common Stock. In addition, the holders of the Series A Preferred are also entitled to an annual 8% dividend payable in cash or shares of our Common Stock. Such rights could cause dilution of our Common Stock or limit our cash.

Our outstanding Series A Preferred contains anti-dilution provisions that, if triggered, could cause substantial dilution to our then-existing holders of Common Stock which could adversely affect our stock price.

Our outstanding Series A Preferred contains certain anti-dilution provisions that benefit the holders thereof. As a result, if we, in the future, issue Common Stock or grant any rights to purchase our Common Stock or other securities convertible into our Common Stock for a per share price less than the then existing conversion price of the Series A Preferred, an adjustment to the then current conversion price would occur. This reduction in the conversion price could result in substantial dilution to our then-existing holders of Common Stock as well as give rise to a beneficial conversion feature reported on our statement of operations. Either or both of which could adversely affect the price of our Common Stock.

The price of our securities could be subject to wide fluctuations and your investment could decline in value.

The market price of the securities of a company such as ours with little name recognition in the financial community ~~and without significant revenues~~ can be subject to wide price swings. The market price of our ~~securities~~Common Stock may be subject to wide changes in response to quarterly variations in operating results, announcements of new products by us or our competitors, reports by securities analysts, volume trading, or other events or factors. In addition, the financial markets have experienced significant price and volume fluctuations for a number of reasons, including the failure of certain companies to meet market expectations. These broad market price swings, or any industry-specific market fluctuations, may adversely affect the market price of our securities.

Companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were to become the subject of securities class action litigation, it could result in substantial costs and a significant diversion of our management’s attention and resources.

Because our Common Stock may be classified as “penny ~~stock,”~~stock”, trading may be limited, and the share price could decline. Moreover, trading of our Common Stock, if any, may be limited because broker-dealers would be required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving our Common Stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our Common Stock.

We have issued ~~preferred stock~~Preferred Stock with rights senior to our Common Stock, and may issue additional ~~preferred stock~~Preferred Stock in the ~~future, in order to consummate a merger or other transaction necessary to continue as a going concern.~~future.

Our ~~Articles of Incorporation~~Charter authorizes the issuance of up to 5.0 million shares of ~~preferred stock, par value $0.001 per share,~~Preferred Stock without ~~shareholder~~stockholder approval and on terms established by our ~~directors,~~Board of Directors, of which ~~2.75~~300,000 shares have been designated as Series A Preferred and 1.5 million shares have been designated as Series B ~~Preferred, 200,000 shares have been designated as Series C Preferred and 50,000 shares have been designated as Series D~~ Preferred. We may issue additional shares of ~~preferred stock~~Preferred Stock in the future in order to consummate a financing or other transaction, in lieu of the issuance of shares of our Common Stock. The rights and preferences of any such class or series of ~~preferred stock~~Preferred Stock would be established by our ~~board~~Board of ~~directors~~Directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of the Common Stock.

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Our Amended and Restated Bylaws designate courts within the state of Nevada as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our Amended and Restated Bylaws (“Bylaws”) require that, to the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, a state court located within the State of Nevada (or, if no state court located within the State of Nevada has jurisdiction, the federal district court for the District of Nevada), will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

●

any derivative action or proceeding brought on behalf of the Company;

●

any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Company to the Company or the Company’s stockholders;

●

any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the Nevada Revised Statutes or the Company’s Amended and Restated Articles of Incorporation, as amended, or the Amended and Restated Bylaws; or

●

any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine.

Because the applicability of the exclusive forum provision is limited to the extent permitted by law, we believe that the exclusive forum provision would not apply to suits brought to enforce any duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction, and that federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act of 1933, as amended (“Securities Act”). We note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Although we believe this provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers.

You may not be able to hold our securities in your regular brokerage account.

In the case of publicly traded companies, it is common for a broker to hold securities on your behalf, in “street name” (meaning the broker is shown as the holder on the issuer’s records and then you show up on the broker’s records as the person the broker is holding for). Due to regulatory uncertainties, certain brokers may not agree to hold securities of companies whose products include hemp-derived CBD for their customers, meaning that you may not be able to take advantage of the convenience of having all your holdings reflected in one place.

You should not rely on an investment in our Common Stock for the payment of cash dividends.

Because of our previous significant operating losses and because we intend to retain future profits, if any, to expand our business, we have never paid cash dividends on our Common Stock and do not anticipate paying any cash dividends in the foreseeable future. You should not make an investment in our Common Stock if you require dividend income. Any return on investment in our Common Stock would only come from an increase in the market price of our stock, which is uncertain and unpredictable.

~~ITE~~MITEM 2. ~~UNR~~E~~GISTERED~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~No unregistered securities were issued during the three months ended March 31, 2021 that were not previously reported.

ITEM3. DEF~~AULTS~~DEFAULTS UPON SENIOR SECURITIES

~~None.~~No other unregistered securities were issued during the three months ended March 31, 2021 that were not previously reported.

~~ITEM 4.MINE S~~A~~FETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EX~~HIBITS~~EXHIBITS

(a)		~~EXHIBITS~~Exhibits
10.1		Form of ~~Senior Secured Promissory Note, incorporated by reference from Exhibit~~Securities Purchase Agreements, dated March 19, 2021 (Exhibit 10.1 to the Current Report on Form 8-K, filed ~~on August 1, 2017~~March 23, 2021).
10.2		~~Form of Warrant, incorporated~~Employment Agreement, dated April 1, 2021, by ~~reference from Exhibit 10.2~~and between Charlie's Holdings, Inc. and Henry Sicignano III (Exhibit 10.1 to the Current Report on Form 8-K, filed ~~on August~~April 1, ~~2017~~
~~10.3~~		~~Form of Security Agreement, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed on August 1, 2017~~2021).
31.1		Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a).
31.2		Certification of the Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) and 15d-14(a).
32.1		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~~2002.
32.2		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~~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

~~-26-~~-38-

Table of Contents

SISIGNAGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: ~~November 14, 2017~~May 17, 2021	~~TRUE DRINKS~~CHARLIE’S HOLDINGS, INC.

	By:	/s/ ~~James J. Greco~~Brandon Stump
		Brandon Stump Chief Executive Officer and Chair of the Board (Principal Executive Officer)

		~~James J. Greco~~ ~~Chief Executive Officer and Director~~ ~~(Principal Executive Officer)~~

~~Date: November 14, 2017~~	~~By:~~	/s/ ~~Daniel Kerker~~	Matthew P. Montesano
		~~Daniel Kerker~~Matthew P. Montesano Chief Financial Officer (Principal Financial and Accounting Officer)

~~-27-~~-39-

	September 30, 2017	December 31, 2016
ASSETS	(Unaudited)
Current Assets:
Cash and cash equivalents	$217,474	$15,306
Accounts receivable, net	263,480	536,817
Inventory, net	488,761	318,912
Prepaid expenses and other current assets	183,225	127,258
Total Current Assets	1,152,940	998,293

Restricted Cash	-	209,570
Property and Equipment, net	7,130	11,064
Patents, net	160,000	250,000
Goodwill	3,474,502	3,474,502
Total Assets	$4,794,572	$4,943,429

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities:
Accounts payable and accrued expenses	$1,588,255	$1,258,252
Debt, short-term	514,353	109,682
Derivative liabilities	67,528	5,792,572
Total Current Liabilities	2,170,136	7,160,506

Debt, long-term	1,570,963	-

Total Liabilities	3,741,099	7,160,506

Commitments and Contingencies (Note 5)

Stockholders’ Equity (Deficit):
Common Stock, $0.001 par value, 300,000,000 shares authorized, 214,622,929 and 119,402,009 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	214,623	119,402
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,500,000 shares authorized, 1,285,585 and 1,292,870 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	1,285	1,293
Preferred Stock – Series C (liquidation preference $100 per share), $0.001 par value, 200,000 and 150,000 shares authorized, 105,704 and 109,352 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	106	109
Preferred Stock – Series D (liquidation preference $100 per share), $0.001 par value, 50,000 and 0 shares authorized, 38,750 and 0 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	39	-
Additional paid in capital	42,625,878	33,456,325
Accumulated deficit	(41,788,458)	(35,794,206)

Total Stockholders’ Equity (Deficit)	1,053,473	(2,217,077)

Total Liabilities and Stockholders’ Equity (Deficit)	$4,794,572	$4,943,429

	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016

Net Sales	$1,030,008	$961,949	$4,494,713	$2,028,216

Cost of Sales	720,080	628,195	2,918,945	1,884,309

Gross Profit	309,928	333,754	1,575,768	143,907

Operating Expenses
Selling and marketing	1,913,814	558,899	4,864,499	2,696,295
General and administrative	1,680,234	956,614	4,825,983	3,573,520
Total operating expenses	3,594,048	1,515,513	9,690,482	6,269,815

Operating Loss	(3,284,120)	(1,181,759)	(8,114,714)	(6,125,908)

Other (Expense) Income
Change in fair value of derivative liabilities	33,347	3,051,973	2,272,697	3,026,433
Interest (expense) income	(59,311)	(10,428)	(104,229)	(39,632)
Other (expense) income	-	178	(48,006)	(18,745)
Total Other (Expense) Income	(25,964)	3,041,723	2,120,462	2,968,056

NET (LOSS) INCOME	(3,310,084)	1,859,964	(5,994,252)	(3,157,852)

Declared dividends on Preferred Stock	66,080	66,080	196,085	198,929

Net (loss) income attributable to common stockholders	$(3,376,164)	$1,793,884	$(6,190,337)	$(3,356,781)

Net (loss) income per common share
Basic:	$(0.02)	$0.01	$(0.03)	$(0.03)
Diluted:	$(0.02)	$0.01	$(0.03)	$(0.03)

Weighted average common shares outstanding
Basic:	208,056,810	121,989,573	186,111,074	118,978,522
Diluted:	208,056,810	210,146,167	186,111,074	118,978,522

	September 30, 2017	December 31, 2016
Purchased materials	$37,775	$89,358
Finished goods	560,986	339,554
Allowance for obsolescence reserve	(110,000)	(110,000)
Total	$488,761	$318,912

	Warrants Outstanding	Weighted Average Exercise Price
Outstanding, December 31, 2016	101,396,416	$0.16
Granted	50,000,010	0.15
Exercised	-	-
Expired	-	-
Exchanged	(146,212,905)	0.15
Outstanding, March 31, 2017	5,183,521	$0.20
Granted	3,000,002	0.15
Exercised	-	-
Expired	-	-
Exchanged	(3,000,002)	0.15
Outstanding, June 30, 2017	5,183,521	$0.20
Granted	11,733,340	0.15
Exercised	-	-
Expired	-	-
Exchanged	(7,267,333)	0.15
Outstanding, September 30, 2017	9,649,528	$0.18

Warrants Outstanding	Weighted Average Exercise Price Per Share	Weighted Average Remaining Life (Yrs.)
7,747,459	$0.15	3.30
427,633	$0.19	2.97
737,218	$0.25	0.44
737,218	$0.38	0.44
9,649,528	$0.18	2.85

	Options Outstanding	Weighted Average Exercise Price
Options outstanding at December 31, 2016	3,460,000	$0.15
Exercised	-	-
Granted	41,390,782	0.07
Forfeited	(1,220,000)	0.15
Expired	-	-
Options outstanding at September 30, 2017	43,630,782	$0.08

	Recurring Fair Value Measurements
	Changes in Fair Value Included in Net Income
	Other Income	Other Expense	Total
Derivative liabilities – September 30, 2017	$2,272,697	$-	$2,272,697
Derivative liabilities – September 30, 2016	$3,026,433	$-	$3,026,433

	December 31, 2016	Recorded New Derivative Liabilities	Reclassification of Derivative Liabilities to Additional Paid in Capital	Change in Estimated Fair Value Recognized in Results of Operations	September 30, 2017
Derivative liabilities	$5,792,572	$2,627,931	$(6,080,278)	$(2,272,697)	$67,528

	December 31, 2015	Recorded New Derivative Liabilities	Reclassification of Derivative Liabilities to Additional Paid in Capital	Change in Estimated Fair Value Recognized in Results of Operations	September 30, 2016
Derivative liabilities	$6,199,021	$3,159,721	$-	$(3,026,433)	$6,332,309

	2017	2016
Deferred tax asset –NOL’s	$15,600,000	$13,500,000
Less valuation allowance	(15,600,000)	(13,500,000)
Net deferred tax asset	$-	$-