DEFR14A: Charlies Holdings, Inc. Details 2025 Annual Meeting Amidst Rising Losses and Extended Related-Party Debt

Charlies Holdings, Inc. has announced its 2025 Annual Meeting of Stockholders to address director elections and auditor ratification, while revealing increasing net losses and continued reliance on high-interest related-party debt with extended maturity dates.

Summary

• The 2025 Annual Meeting of Stockholders for Charlies Holdings, Inc. will be held on Thursday, August 7, 2025, at 2:00 PM Pacific Time, at the Company's offices in Costa Mesa, California.
• Stockholders of record as of June 18, 2025, are entitled to vote at the Annual Meeting.
• Key proposals include the election of five director nominees (Ryan Stump, Scot Cohen, Jeffrey Fox, Dr. Edward Carmines, Michael D. King) and the ratification of Urish Popeck & Co., LLC as the independent registered certified public accounting firm for fiscal year 2025.
• As of June 18, 2025, there were 259,946,903 shares of common stock and 122,368 shares of Series A preferred stock outstanding, totaling 287,561,798 potential votes.
• The company reported a net loss of $4,159,000 for fiscal year 2024, an increase from a net loss of $2,093,000 in 2023 and $1,592,000 in 2022.
• Executive officers Henry Sicignano III (President), Ryan Stump (COO), and Matthew P. Montesano (Interim CFO) voluntarily reduced their base salaries in late 2022 and early 2023.
• Matthew P. Montesano resigned as CFO on February 10, 2023, to pursue other opportunities but agreed to serve as interim CFO indefinitely at a reduced annual salary of $100,000.
• Non-employee directors received a $50,000 cash retainer in 2024, but cash compensation was suspended beginning November 2024.
• The company continues to engage in significant related-party transactions, including a corporate headquarters lease ($275,280 paid in 2024) and multiple high-interest promissory notes with executives and major stockholders.
• A $1,000,000 secured promissory note from Michael King (a director and large stockholder) with a 20% interest rate had its maturity date extended multiple times, most recently to April 28, 2026, after a $420,000 payment and further modification on April 28, 2025.
• A $300,000 loan from Ryan Stump (COO and Director) with a 10% interest rate had its maturity date extended six times, with the full amount of approximately $308,000 paid on April 28, 2025.
• Unsecured promissory notes totaling $1,400,000 from executives and large stockholders (including Ryan Stump and Henry Sicignano III) with a 21% interest rate had $400,000 outstanding as of December 31, 2024, and were modified on April 28, 2025, to a 10% interest rate with monthly payments and a maturity date of April 28, 2026.
• Audit fees for Urish Popeck & Co., LLC were $140,000 in 2024, up from $124,240 in 2023.

Sentiment

Score: 2

Explanation: The sentiment is highly negative due to increasing net losses, executive salary reductions, suspension of director compensation, and heavy reliance on high-interest related-party debt with repeated maturity extensions, all indicating significant financial distress and operational challenges.

Positives

• The Board of Directors includes members with diverse experience in high-growth companies, investment, brand building, and regulatory navigation within the nicotine industry.
• The company maintains a 401(k) retirement savings plan and comprehensive health and welfare benefits for employees, including named executive officers.
• The Audit Committee is composed of independent directors, with one member qualifying as an audit committee financial expert, and adheres to pre-approval policies for audit and non-audit services.
• The company has a formal policy for reviewing and approving related person transactions, ensuring oversight by the Board of Directors.

Negatives

• Net losses significantly increased from $1,592,000 in 2022 to $4,159,000 in 2024, indicating deteriorating financial performance.
• Executive officers voluntarily reduced their base salaries, and the Interim CFO accepted a significantly reduced salary after resigning, suggesting financial strain.
• Cash compensation for non-employee directors was suspended starting November 2024, further indicating financial challenges.
• The company relies heavily on high-interest related-party debt, with interest rates as high as 20% and 21%, which can be a significant financial burden.
• Multiple extensions of maturity dates for related-party loans suggest difficulty in repaying debt on original terms.
• Total Shareholder Return (TSR) based on a $100 investment decreased from $106.21 in 2023 to $49.82 in 2024, indicating poor stock performance.

Risks

• Continued increasing net losses pose a significant risk to the company's financial viability and sustainability.
• Heavy reliance on related-party debt, particularly with high interest rates and repeated maturity extensions, indicates potential liquidity issues and dependence on specific individuals/entities.
• The ongoing and evolving nature of the nicotine industry presents regulatory risks, which could impact product offerings and market access.
• The voluntary salary reductions of key executives and the interim CFO's reduced compensation may signal concerns about the company's financial health and could impact executive retention.
• The suspension of cash compensation for non-employee directors could affect the company's ability to attract and retain qualified independent board members in the future.
• The company's ability to secure alternative debt financing or sufficient PMTA strategic partnership funds is crucial for repaying existing loans, and failure to do so could lead to further financial distress.

Future Outlook

The document primarily focuses on corporate governance and executive compensation for past fiscal years, with limited explicit forward-looking statements regarding business operations or financial performance. It indicates that the Board and management do not intend to present any matters at the Annual Meeting other than those outlined in the notice. The company's ability to secure alternative debt financing or PMTA strategic partnership funds is mentioned as a condition for earlier repayment of certain loans, suggesting an ongoing need for capital.

Management Comments

• Henry Sicignano III, President: "We hope you will be able to attend the meeting, but in any event, we would appreciate your submitting your proxy as promptly as possible."
• Henry Sicignano III, Matthew P. Montesano, and Ryan Stump voluntarily reduced their base salaries on a temporary basis in December 2022, with further reductions in January 2023.
• Matthew P. Montesano notified the Company on February 10, 2023, that he has resigned in order to pursue other opportunities, but agreed to serve as interim CFO until a replacement is secured.

Industry Context

The document highlights the company's involvement in the nicotine industry, particularly through Dr. Edward Carmines' expertise in toxicology and regulatory affairs related to tobacco products. This suggests the company operates in a highly regulated environment, where navigating complex regulatory processes (like PMTAs) is critical. The mention of a hemp-derived products division (Don Polly, LLC) indicates diversification into the broader cannabis/hemp market, which also faces evolving regulatory landscapes. The company's need for 'PMTA strategic partnership funds' underscores the importance of regulatory compliance and market authorization in its sector.

Comparison to Industry Standards

• The increasing net losses from $1.592 million in 2022 to $4.159 million in 2024 are concerning when compared to industry leaders or successful companies in the consumer products or nicotine/vape sectors, which typically aim for profitability or at least a clear path to it.
• The reliance on high-interest related-party debt (20-21% interest rates) and repeated maturity extensions is significantly worse than standard corporate financing practices, where companies typically seek lower-cost, arm's-length debt from institutional lenders.
• The voluntary salary reductions for key executives and the interim CFO's reduced compensation are unusual for healthy companies and suggest internal financial distress, contrasting with competitive compensation packages offered by more stable industry peers.
• The decline in Total Shareholder Return (TSR) from $106.21 in 2023 to $49.82 in 2024 for a $100 investment indicates underperformance compared to broader market indices or successful companies in the consumer goods or e-vapor industries, which would typically show positive or less volatile returns over this period.

Management Changes

Corporate Governance

Related Party Transactions

• Commercial lease for corporate headquarters (1007 Brioso Drive, Costa Mesa, California) with Brandon Stump, Ryan Stump, and Keith Stump (relatives/former CEO). The lease, effective September 1, 2019, was formalized on November 1, 2019, for a five-year term with a base rent of $22,940 per month, subject to annual CPI adjustments. The Company paid $275,280 in both fiscal years 2024 and 2023.
• April 2022 Note Financing: A secured promissory note in the principal amount of $1,000,000 was issued to Michael King (a large individual stockholder and director) on April 6, 2022, bearing 20% simple interest per annum. The maturity date was extended multiple times, most recently to April 28, 2026, with monthly payments of approximately $37,000 after a $420,000 payment on April 28, 2025. $100,000 of debt was converted to equity in May 2024.
• April 2022 Commercial Lease Agreement: A commercial lease agreement for sales and marketing operations in Williamsville, New York, was entered into on April 29, 2022, with Henry Sicignano Jr. (a relative of the Company's President, Henry Sicignano III). The lease has a term of one year and a base rent of $1,650 per month. The Company paid $19,800 in fiscal year 2024.
• August 2022 Note Financing: A loan agreement in the principal amount of $300,000 was entered into with Ryan Stump (Chief Operating Officer and Director) on August 17, 2022, bearing a 10% annual interest rate. The loan's maturity date was extended six times, with the full amount of approximately $308,000 paid on April 28, 2025.
• July 2023 Note Financing: Unsecured promissory notes totaling $1,400,000 were issued to several executives and employees (Ryan Stump, Henry Sicignano III, Keith Stump, Jessica Greenwald) and largest stockholders (Brandon Stump, Red Beard Holdings LLC, Michael King) between July 17, 2023, and August 1, 2023, bearing 21% interest per annum. As of December 31, 2024, $400,000 remained outstanding with Ryan Stump and Henry Sicignano III. On April 28, 2025, they were paid approximately $75,000 each in accrued interest, and the notes were modified to a 10% interest rate with monthly payments of approximately $18,000 and a maturity date of April 28, 2026.

Stakeholder Impact

• Shareholders: Face increasing net losses and a significant decline in Total Shareholder Return (TSR), indicating erosion of shareholder value. The reliance on high-interest related-party debt and repeated extensions may raise concerns about the company's financial stability and future profitability.
• Employees: Executive officers voluntarily reduced salaries, and the Interim CFO accepted a lower salary, which could signal financial challenges within the company and potentially impact employee morale or future compensation expectations.
• Creditors (Related Parties): Those who provided loans (Michael King, Ryan Stump, Henry Sicignano III, Brandon Stump, Red Beard Holdings LLC, etc.) have seen their loan maturity dates repeatedly extended, indicating delayed repayment, though some interest payments and principal reductions have occurred.
• Management: Executives have taken salary reductions and are actively involved in securing and managing related-party financing, indicating a direct impact on their personal compensation and increased responsibility for financial stability.

Next Steps

• Hold the 2025 Annual Meeting of Stockholders on August 7, 2025, to vote on director elections and auditor ratification.
• Announce preliminary voting results at the Annual Meeting and release final results in a Form 8-K within four business days following the meeting.
• Continue to manage and potentially seek alternative financing for outstanding related-party debt, with new maturity dates for some notes extended to April 28, 2026.
• The Audit Committee will reconsider retaining Urish Popeck & Co., LLC if stockholders do not ratify their selection, though they may still retain the firm.

Key Dates

Recommendation

Keywords

Proxy Statement, Annual Meeting, Corporate Governance, Executive Compensation, Director Election, Auditor Ratification, Related Party Transactions, SEC Filing, Financial Performance, Net Loss, Debt Financing, Shareholder Return, Nicotine Industry, Regulatory Affairs