NOTE 13 – COMMITMENTS AND CONTINGENCIES

Leases

The Company leases office space under agreements classified as operating leases that expire on various dates through 2028. All of the Company’s lease liabilities result from the lease of its headquarters in Costa Mesa, California, which expired on September 30, 2024, and effective October 1, 2024, the lease has been on a month-to-month basis, and its warehouse in Huntington Beach, California, which was renewed in August 2025 and expires May 2028. On April 29, 2022, the Company entered into a commercial lease agreement for the Company’s sales and marketing operations in Williamsville, New York (“Williamsville Lease”) with Henry Sicignano Jr., a relative of the Company’s President, Henry Sicignano III. The Williamsville Lease, which became effective on May 1, 2022, had a term of one year and a base rent of $1,650 per month. The Williamsville Lease has been subsequently extended for additional one-year periods, with the same terms. The Williamsville Lease is considered a modified gross lease and therefore the Company is also responsible for additional monthly expenses including gas, electricity, and internet. The Williamsville Lease was evaluated and approved by the Company’s Board of Directors.

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 ASC Topic 842, “Leases”, as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company entered into a commercial lease for the Company’s corporate headquarters (the “Lease”) in Costa Mesa, California with Brandon Stump, the Company’s former Chief Executive Officer, Ryan Stump, the Company’s Chief Operating Officer, and Keith Stump, a former member of the Company’s Board of Directors. The Stumps 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 the Board of Directors, after reviewing a detailed analysis of comparable properties and rent rates compiled by an independent, third-party consultant. Effective October 1, 2024, the lease was on a month-to-month basis. The total rent paid to related parties for the six months ended June 30, 2026 and 2025 was approximately $138,000 and $138,000, respectively.

Effective June 2, 2022, the Company’s lease at 5331 Production Drive, Huntington Beach, CA was renewed for an additional three-year term, concluding May 31, 2025. On August 12, 2025, the Company renewed this lease for an additional three years commencing on September 1, 2025 and ending August 31, 2028. The renewal resulted in an additional $583,000 in right-of-use assets and $583,000 in lease liabilities.

In September 2025, the Company entered into a lease agreement commencing on October 1, 2025 (the “October Lease”), pursuant to which the Company leases certain premises located at 15902-06 Manufacture Lane, Huntington Beach, CA for purposes of filling and assembling certain of its nicotine and alternative alkaloid vapor products. The October Lease has a term of 1.5 years concluding June 30, 2027. The Company recognized $123,000 in right-of-use assets and $123,000 in lease liabilities on the consolidated balance sheet as of the commencement date.

As of June 30, 2026, the Company had operating lease liabilities of approximately $514,000 and right of use assets of approximately $505,000 which were included in the condensed consolidated balance sheet.

The following table summarizes quantitative information about the Company’s operating leases for the three and six months ended June 30, 2026 (amounts in thousands):

Maturities of our operating leases as of June 30, 2026, excluding short-term leases, are as follows (amounts in thousands):

Legal Proceedings

As of the date hereof, there are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

As more fully described under “Risks and Uncertainties” (above), and in our 2025 Annual Report in “RISK FACTORS,” the Company’s wholly owned subsidiary, Charlie’s Chalk Dust LLC (“CCD”), is a petitioner in two proceedings challenging Marketing Denial Orders (“MDOs”) issued by the U.S. Food and Drug Administration (“FDA”) with respect to certain premarket tobacco product applications (“PMTAs”).

On April 1, 2026, the FDA issued an MDO to CCD covering certain products included in CCD’s timely submitted 2020 PMTA. On May 1, 2026, CCD and Toro Imports LLC filed a petition for review challenging the MDO in the U.S. Court of Appeals for the Fifth Circuit, Charlie’s Chalk Dust LLC, et al. v. U.S. Food and Drug Administration, et al., Case No. 26-60320. On May 11, 2026, the petitioners moved to stay the MDO pending judicial review, and the Fifth Circuit granted that motion on June 8, 2026. Merits briefing is underway. The petitioners filed their opening brief on August 3, 2026; the FDA’s response brief is currently due on October 2, 2026, after which the petitioners may file a reply brief. Although the affected products represent only a small percentage of the Company’s current sales, CCD intends to vigorously pursue its challenge to the MDO while continuing to supplement the applicable PMTA with the latest scientific evidence.

On October 28, 2025, the FDA issued MDOs to CCD covering certain products included in CCD’s timely submitted 2022 PMTAs. CCD and FOK of Houma LLC, doing business as Nocko’s, filed a petition for review challenging the MDOs in the U.S. Court of Appeals for the Fifth Circuit, Charlie’s Chalk Dust LLC, et al. v. U.S. Food and Drug Administration, et al., Case No. 25-60609. On November 5, 2025, the petitioners filed an emergency motion for a temporary administrative stay. On November 10, 2025, the Fifth Circuit granted a temporary administrative stay pending its consideration of the petitioners’ motion to stay the MDOs pending judicial review. On December 24, 2025, a Fifth Circuit panel granted that motion. Merits briefing has been completed, and oral argument is currently scheduled for the week of October 5, 2026, subject to possible extension by the Court. As a result of the stay, the affected PMTAs were returned to pending status and continue to be treated as timely filed as of May 2022 while the litigation proceeds. Accordingly, where permitted by state law, the affected products remain eligible for inclusion on state vapor product directories, including in Louisiana, that permit the sale of products associated with timely submitted synthetic-nicotine PMTAs that remain pending before the FDA, subject to satisfaction of all other applicable state requirements.

Except for these proceedings, the Company is not a party to any material legal or administrative proceeding.

From time to time, the Company may be involved in various claims and counterclaims and legal actions arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.