EDGAR 10-K Filing

Company CIK: 1347858
Filing Year: 2025
Filename: 1347858_10-K_2025_0001558370-25-003345.json

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ITEM 1. BUSINESS
Item 1.Business.
Overview
22nd Century Group is a tobacco products company that enables cigarette smokers to take control of their consumption of nicotine, the addictive drug in cigarettes. We manufacture and distribute the only combustible tobacco products containing minimally or non-addictive levels of nicotine that are authorized by the US Food and Drug Administration (FDA) for retail purchase. We also provide turnkey contract manufacturing of cigarettes and filtered cigars for other established tobacco brands.
We created our flagship product, the VLN® cigarette, to give traditional cigarette smokers an authentic and familiar alternative that helps them decide their consumption of nicotine. VLN® cigarettes have 95% less nicotine than the traditional cigarette and have been proven to greatly reduce nicotine consumption. Instead of offering new ways of delivering the nicotine drug to addicted smokers, we offer smokers the option to make their own informed and more productive choices, including the choice to avoid addictive levels of nicotine altogether and help adult smokers smoke less.
Nicotine Harm Reduction
Since the US Surgeon General first warned of the dangers of cigarette smoking in 1964, the debate over tobacco health harm has been largely dominated by two powerful voices: Big Tobacco and the US Government. After decades of litigation, lobbying and lawmaking, the major tobacco producers still decide the nicotine levels contained in the tobacco products consumed by smokers. In addition, despite prominent and omnipresent government warnings that “Nicotine is an Addictive Chemical,” sales of tobacco products containing addictive levels of nicotine continue unabated, including even delivery of smoke-free nicotine in pure form.
22nd Century believes it is time for the individual tobacco user to decide for themselves how much nicotine they choose to consume. If a consumer chooses to smoke tobacco without nicotine addiction, we offer that alternative.
Transition to Growth
We received Modified Risk Tobacco Product (MRTP) granted orders from the FDA for marketing and sale of our revolutionary RNC cigarettes in December 2021, the first and only such orders ever awarded for a combusted tobacco product. The authorized products are based on our proprietary RNC tobacco blends made possible by comprehensive and patented technologies that regulate nicotine biosynthesis activities in the tobacco plant, resulting in full flavor and high yield with 95% less nicotine.
We designed a pilot program to study retailer and consumer reaction to the RNC concept and our VLN® cigarettes in selected retail outlets during 2022. We commissioned a comprehensive market study to evaluate the results, including participants’ smoking behaviors and history, awareness and purchase of VLN® cigarettes, attitudes and perceptions, and responses to messaging. The program was expanded in 2023, progressing state by state and region by region to a store footprint spanning more than 5,000 stores in 26 states.
Based on extensive consumer feedback and point-of-sale data, we made significant enhancements to nearly every aspect of the consumer and retailer VLN® experience, including improved and revitalized branding, packaging, and messaging. As we enter 2025, we have implemented a marketing approach that leverages our numerous contract manufacturing relationships together with cross branding strategies for integrative volume growth and enhanced retail access. We forecast entering national distribution in 2025, with an eye eventually toward more than 270,000 domestic tobacco retail outlets and a substantial share of the estimated $12 billion non-Tier 1 US tobacco market.
A New and Disruptive Category
Our VLN® cigarettes are currently available in a large number of top reatilers in US markets and present a groundbreaking alternative with 95% less nicotine content than conventional cigarettes. Maintaining a familiar combustible product format, VLN® products replicate the conventional cigarette smoking experience, encompassing sensory and experiential elements such as taste, scent, smell, and the familiar “hand-to-mouth” behavior.
Our approach is not to continue making and selling VLN® cigarettes as a novel idea, but to build an entire Reduced Nicotine Content Category of products, including tiers of proprietary and partner or “flanker” brands that we manufacture and distribute. We expect this “House of Brands” to drive retail shelf visibility, consumer recognition, and overall volume expansion. At the same time, we are leveraging our CMO relationships for cross-sale of brand families to increase distribution and points-of-sale for each of us.
As a category, we expect RNC tobacco to be no less disruptive than the zero- and low-proof spirits segment, which has gone from a dubious notion to a multi-billion-dollar market in only a few years. Rather than attempting to compete against traditional adult beverages, the low-proof spirits category breaks the paradigm by offering individuals the option to participate in a personal routine or social ritual without the alcohol intake, either on occasion or as a lifestyle commitment, for whatever reasons they choose. Moreover, this choice is provided at an above-premium price point with high margin delivery.
Instead of an all-or-nothing proposition - either quit smoking or remain forever addicted to nicotine - the VLN® message is that tobacco users have the option to “Take Control” of their nicotine consumption. As the only manufacturer in the US that makes and sells full-flavored cigarettes with minimally or non-addictive levels of nicotine, we are uniquely positioned to fulfill this choice.
Manufacturing
We lease a 60,000 square foot manufacturing facility in Mocksville, North Carolina capable of producing more than 45 million cartons of combusted tobacco products annually with additional space for expansion. Our factory is operated by NASCO Products, LLC, a federally licensed tobacco product manufacturer and our wholly owned subsidiary. The cigarette and filtered cigar manufacturing equipment we own is high speed and automated, allowing for minimal direct labor costs. Our manufacturing operations are vertically integrated, allowing us to control production priorities and maintain the required high quality of our products, including our MRTP-designated VLN® cigarettes.
Through the acquisition of NASCO and our North Carolina factory in 2014, we qualified as a subsequent participating manufacturer under the Master Settlement Agreement (MSA), an accord reached in 1998 between the State Attorneys General of 46 states, five U.S. territories, the District of Columbia and the four largest tobacco companies in the United States concerning the advertising, marketing and promotion of tobacco products. As a subsequent participating manufacturer (SPM) under the MSA, we are released from claims by the Settling States for smoking-related health costs and contribute actively toward the goal of reducing cigarette smoking among youth and raising public awareness about smoking and the tobacco industry, while adhering to higher standard in all aspects of marketing and sales.
We began producing our proprietary RNC cigarettes in 2015, including our SPECTRUM® variable nicotine research cigarettes provided for independent clinical studies largely funded by the National Institute on Drug Abuse (NIDA) and the FDA. Low nicotine SPECTRUM® cigarettes also served as the basis for our Premarket Tobacco Product Application (PMTA) to the FDA in 2018 to enable commercialization as a new tobacco product. In 2022, our factory began production of VLN® Gold King and VLN® Menthol King cigarettes following their authorization by the FDA as Modified Risk tobacco products.
We also operate as a turnkey contract manufacturing facility for many partnership brands both domestically and internationally. With high-speed manufacturing capabilities, we continue to attract additional contract manufacturing business, including third-party filtered cigar brands and MSA-compliant cigarette brands, to absorb our manufacturing overhead and help keep our unit cost profile low.
Tobacco Sources of Raw Materials
We obtain our reduced nicotine tobacco leaf from third party-growers, primarily in multiple states in the United States who are under direct contracts with us. These contracts prohibit the transfer of our proprietary tobaccos, seeds and plant materials to any other party. We purchase conventional tobacco destined for contract manufacturing operations through third parties.
In 2023, we leased additional warehouse space in Winston-Salem, North Carolina. This bonded and temperature conditioned space further supports growth of our VLN® branded products and provides additional distribution opportunities for customers.
Sales, Distribution, and Growth
Our pilot VLN® cigarette retail programs during 2022-23 proved the viability and potential of RNC tobacco products, and the appeal to consumers of having a choice in their nicotine consumption. The motivation to provide tobacco users with lower nicotine options has only increased with the FDA’s recent January 2025 Notice of Proposed Rulemaking that would mandate substantially reduced nicotine content in all combusted tobacco products sold in the US.
Our sales and distribution strategy will be executed with a disciplined route-to-market plan allowing maximum impact for retail development and account depth. We expect our initial focus to be in the convenience store segment, which accounts for the overwhelming share of tobacco revenue, with other channels to follow. We plan to employ consistent marketing collateral combined with a comprehensive digital market campaign, targeting adult smokers to drive point purchase direction with connectivity through age-gated social media platforms and an interactive website for adult smokers. All of this is supported by recently redesigned VLN® packaging with a vibrant, modern look to drive an emotional consumer connection with adult smokers.
With the VLN® concept validated, our unswerving focus now is upon rate-of-sale of our exclusively positioned products and profitable growth. We will build our singular House of Brands by strategic increments, with time-to-market and profitability as our measures of success. Our goal is to release what we see as the enormous untapped value of a disruptive product alternative capable of fulfilling unmet demand within a nearly $12 billion market segment.
In addition to continued focus on VLN® and the Low Nicotine Category, we have renewed our focus on utilizing our tobacco assets and expertise to attract additional tobacco business to help fund our portfolio growth. In addition to existing business relationships with multiple tobacco products companies, we will continue to expand the number of brands and products in our contract manufacturing operations (CMO) portfolio.
Research & Development (R&D) & Intellectual Property (IP)
Since our inception, most of our research and development (R&D) efforts have been outsourced to highly qualified groups in their respective fields. Since 1998, we have had multiple R&D agreements with North Carolina State University (NCSU) and others resulting in exclusive worldwide licenses to various patented technologies. We have utilized the same model employed by many public-sector research organizations, in which we obtain an exclusive option or license agreement to any invention arising out of our funded research. In each case, we fund and control all patent filings as the exclusive licensee. This model of contracting with public-sector researchers has enabled us to control R&D costs while achieving our desired results, including obtaining exclusive intellectual property rights relating to our outsourced R&D.
Pre-Commercialization R&D
Founded as a biotechnology research company, our activities were initially centered on continued development of genetic transformation options for control of nicotine levels in the tobacco plant. In addition to the breakthrough genome modification techniques licensed from NCSU in 1998, we independently invented or obtained exclusive licenses to ways of further affecting the nicotine biosynthetic pathway, including regulation of additional enzymes and transcription factors. These discoveries were instrumental in our formulation of experimental variable-nicotine tobacco products, millions of which were manufactured and furnished for independent clinical trials funded NIDA and the National Cancer Institute (NCI). The results of those trials showed that having a reduced nicotine cigarette option available could substantially affect behaviors and choices among smokers, which charted our course going forward.
In 2014, we entered into sponsored research and license agreements with NCSU for exclusive worldwide rights to bioengineering technologies for achieving low nicotine content in tobacco without having the plant strains regulated as genetically modified organisms (“GMOs”). We subsequently entered into a separate license agreement with the University of Kentucky to license other next-generation very low nicotine content non-GMO tobacco plant lines. In addition, we began assembling studies and data in support of a Premarket Tobacco Product Application (PMTA), a submission authorized under the 2009 Tobacco Control Act, for potential commercialization of consumer tobacco products based on our proprietary low nicotine tobacco. The PMTA for marketing of our SPECTRUM® cigarettes was submitted to the FDA on December 4, 2018.
Beginning in 2018, we also began to extend our R&D activities into the field of hemp (i.e., cannabis). We increased staff at our Rockville, Maryland laboratory facility for this purpose and entered into sponsored and collaborative research agreements with several institutions and consultants for bioengineering of the hemp plant. In 2022, 22nd Century acquired GVB Biopharma, an industrial scale processor of hemp-based derivatives for commercial applications, which itself was engaged in research and development related to its products and processes. In December 2023, the Company divested its GVB subsidiary, terminated all hemp-related research, distribution and consulting agreements, and ceased all R&D activities related to hemp. For more information regarding the GVB divestiture, please refer to Note 2, “Discontinued Operations and Divestiture,” in the Notes to Consolidated Financial Statements, which can be found in Item 15 of this report.
In February 2024, we relocated our laboratory activities from Rockville, Maryland to our Mocksville, NC manufacturing facility in order to reduce fixed costs and take advantage of proximity to the factory and NCSU.
Our R&D Today
We received a marketing order from the FDA on December 17, 2019, authorizing commercialization of our RNC cigarettes. Shortly after, based on further studies and data provided, we received FDA granting orders authorizing our marketing of VLN® cigarettes as Modified Risk Tobacco Products. Since the launch of our VLN® cigarette pilot program in 2022, our research and development activity has been devoted to supporting further VLN® product development and improvements, regulatory compliance, and expanding the RNC portfolio of products.
We continue to pursue improvements in our ability to control nicotine biosynthesis in tobacco, including gene editing techniques that provide for greater crop yields and disease resistance. Our original GMO tobacco strains have been replaced with fully non-GMO engineered low nicotine varieties, which expands accessibility to international markets where GMO agricultural products are disfavored or banned. We have successfully applied our non-GMO bioengineering techniques to increasingly diverse tobacco lines, including bright, burley, and oriental tobaccos. We expect to develop new versions of our RNC cigarettes utilizing these cutting-edge technologies for future commercialization in the U.S. and globally, including the coveted “American blend” of cigarettes in low nicotine form featuring a mix of bright, burley, and oriental proprietary RNC tobacco varieties.
Intellectual Property
Our intellectual property enables us to alter the level of nicotine and other nicotinic alkaloids in tobacco plants through genetic engineering and modern plant breeding. The basic techniques include, but are not limited to, those that are used in the production of genetically modified and gene-edited varieties of other crops, which are also known as “biotech crops.”
We have extensive patent protection and exclusive rights in the US and internationally covering tobacco plants with altered nicotine content produced by modifying the expression of genes that control important steps in the biosynthesis of nicotine in the tobacco plant. The terms of certain patents filed in the 2000s will expire between 2026 and 2029, but those of others will extend into the next decade and beyond. Patent applications currently pending claim substantially improved quality and yield in genetically modified low nicotine varieties, and ways of achieving organically even further reductions in levels of nicotine and those of nicotine nitrosamines upon tobacco combustion, which are among the most carcinogenic and dangerous byproducts of cigarette smoking.
In addition to our patents, patent applications, and exclusive patent license rights, we own valuable trade secrets related to the growth, harvesting, curing and use of our proprietary tobacco plants and the manufacture of our tobacco products. We also own various registered trademarks in the United States and around the world.
Government Regulation
Tobacco Master Settlement Agreement
The Master Settlement Agreement (MSA) is an accord reached in November 1998 between the State Attorneys General of 46 states, five U.S. territories, the District of Columbia and the four largest tobacco companies in the United States concerning the advertising, marketing and promotion of tobacco products. The MSA also set standards for, and imposes restrictions on, the sale and marketing of cigarettes by participating cigarette manufacturers. On August 29, 2014, we entered into an Amended Adherence Agreement with the 46 Settling States under the MSA pursuant to which the Company was approved to acquire NASCO Products, LLC, a federally licensed tobacco product manufacturer and subsequent participating manufacturer under the MSA. On that same date, we closed the NASCO Acquisition and became an SPM under the MSA.
The National Association of Attorneys General (NAAG) coordinates with Settling States through its Center for Tobacco and Public Health to preserve and enforce the monetary and public health mandates of the MSA, including monitoring the compliance of tobacco companies with its terms. As a participating manufacturer under the MSA, we are released from claims by the Settling States for smoking-related health costs and contribute actively toward the goal of reducing cigarette smoking among youth and raising public awareness about smoking and the tobacco industry.
FDA Regulation of Tobacco Products
The Family Smoking Prevention and Tobacco Control Act of 2009 (“Tobacco Control Act”) granted the FDA authority over the regulation of all tobacco products in the United States. Among its authorities, the FDA requires that manufacturers of tobacco products first introduced or modified after February 15, 2007, undergo premarket review and obtain premarket authorization prior to commercialization, and to comply with post-authorization monitoring and reporting requirements. The Tobacco Control Act granted FDA the authority to require the reduction of nicotine to any level other than zero or require reduction of other compouns in tobacco and cigarette smoke. The FDA has further authority to restrict marketing and advertising, impose regulations on packaging, mandate warnings and disclosure of flavors or other ingredients, prohibit the sale of tobacco products with certain flavors or other characteristics, limit or prohibit the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packaging sizes, and seek to hold retailers and distributors responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.
The Tobacco Control Act requires manufacturers of tobacco products to, among, other things, provide FDA with a list of ingredients added to tobacco products in the manufacturing process and register any establishment engaged in the manufacture, preparation, or processing of a tobacco product. The manufacture of products is subject to strict quality control, testing and record-keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. The FDA has several investigatory and enforcement tools available, including document requests and other required information submissions, facility inspections, examinations and investigations, injunction proceedings, monetary penalties, product withdrawal and recall orders, and product seizures. All tobacco products we make and sell in the US are subject to FDA jurisdiction.
Premarket Tobacco Product Application (PMTA)
Under the 2009 Tobacco Control Act, a PMTA must be submitted to the FDA for any new tobacco product seeking a marketing order to enable commercialization of the product in the United States. For FDA to grant such an order, the PMTA must enable the FDA to determine, among other things, that permitting the marketing of the proposed new tobacco product would be appropriate for the protection of the public health (APPH), and that the product manufacturing, processing, and labeling of the product otherwise conform to the requirements of the Food, Drug and Cosmetics Act.
A marketing order may include restrictions on the sale and distribution of the product, including restrictions on the access to, and the advertising and promotion of, the tobacco product, and requirements for record-keeping and post market reporting. Holders of authorized PMTAs are required to submit detailed periodic and annual reports to the FDA within specified timelines, and are further required to submit reports for serious and unexpected adverse events associated with the product. Once granted, the FDA may suspend or withdraw any marketing order on various grounds, such as a determination that the continued marketing of the tobacco product is no longer appropriate for the protection of public health, or where the PMTA holder has failed to comply with applicable post-market requirements.
We submitted a PMTA to the FDA on December 5, 2018, for proposed marketing of our proprietary RNC cigarettes, and, on December 17, 2019, the FDA issued a marketing order authorizing commercialization. Any new tobacco products we wish to commercialize in the US that are not substantially equivalent to products already authorized or exempt from premarket review will require new PMTA authorization. Determination by the FDA of whether to accept the application may take several months. While the FDA endeavors to complete its review of a PMTA within 180 days of acceptance, the FDA’s review period may take significantly longer.
Modified Risk Tobacco Products (MRTP)
The 2009 Tobacco Control Act grants the FDA authority to regulate the labeling and marketing of so-called Modified Risk Tobacco Products (MRTP), which include, among other things, tobacco products that may reduce harm or the risk of tobacco-related disease or reduce or eliminate exposure to a substance. Before an MRTP can be introduced or delivered into interstate commerce in the United States, the FDA must issue a either a “risk modification order” or “exposure modification order” pursuant to the Tobacco Control Act. An order permitting the sale of an MRTP, if granted by the FDA, enables the applicant to utilize certain claims with respect to a single, specific product, not an entire class of tobacco products.
To obtain a risk modification order, an applicant must demonstrate that the product will significantly reduce harm and the risk of tobacco-related disease to individual tobacco users and benefit the health of the population as a whole, taking into account both users of tobacco products and persons who do not currently use tobacco products. The FDA must also find that the applicant has demonstrated that the magnitude of overall reductions in exposure to the substance specified in the application is substantial and that the product as used exposes consumers overall to lower levels of harmful substances.
On May 13, 2019, we submitted to the FDA an MRTP application, seeking FDA authorization to market our reduced nicotine combustible cigarettes with reduced exposure claims. In the application, we requested authorization from the FDA to market our reduced nicotine tobacco cigarettes with certain product labeling claims under the brand name of VLN®. On December 23, 2021, we secured the first ever MRTP designation for a combustible cigarette for VLN® King and VLN® Menthol King 95% reduced nicotine content cigarettes. The FDA authorized the marketing of VLN® with the following reduced exposure claims: “95% less nicotine”, “Helps reduce your nicotine consumption”, and “Greatly reduces your nicotine consumption,”. The FDA also required that any use of these claims be accompanied by the statement that the product “Helps You Smoke Less,” which we consider an evidence-based claim supporting our products. In issuing its granting orders for our VLN® products, the FDA observed that “the data on these products show they can help addicted adult smokers transition away from highly addictive combusted cigarettes.”
Proposed Mandate Limiting Nicotine Content in Cigarettes
On July 28, 2017, the FDA issued an advanced notice of proposed rulemaking (ANPRM) announcing its intention to institute a rule requiring that all combustible cigarettes sold in the United States contain only minimally or non-addictive levels of nicotine, as part pf the FDA’s Comprehensive Plan for Tobacco and Nicotine Regulation. 22nd Century submitted public comments endorsing the proposed rule with citations to clinical studies on the health benefits of RNC tobacco products in curbing nicotine consumption and tobacco-related harms. We submitted further data in support of the technical feasibility of the rule and recommended that the mandated minimally or non-addictive level of nicotine be set at no more than 0.7 milligrams per gram (mg/g) of tobacco dry weight, which the World Health Organization (WHO) identified as the potential threshold to make cigarettes minimally or non-addictive.
On January 15, 2025, the FDA issued a notice of proposed rulemaking (NPRM) that would establish a maximum nicotine level of 0.7 mg/g in cigarettes and certain other combusted tobacco products. According to the FDA, the proposed product standard would limit the addictiveness of the most toxic and widely used tobacco products, which would have significant public health benefits for all age groups. The FDA referenced abundant scientific evidence and clinical studies in support of the proposal, including many furnished by 22nd Century, and noted the current commercial availability of low nicotine content cigarettes such as those currently produced by 22nd Century. The period for public comment on the proposed rule closes on September 15, 2025. We intend to submit comments and to be prominent and active in support of the proposed rule.
Proposed Regulation of Menthol Cigarettes
In April 2022, the FDA announced proposed product standards to prohibit menthol as a characterizing flavor in cigarettes) and prohibit all characterizing flavors (other than tobacco) in cigars. This product standard, if enacted, would prohibit menthol as a characterizing flavor in cigarettes. In January 2024, the FDA formally withdrew its plans to prohibit menthol as a characterizing flavor in cigarettes and prohibit all characterizing flavors (other than tobacco) in cigars. Although some activity has occurred on state and local levels with respect to scrutiny of menthol and flavored tobacco products, the FDA proposal remains unresolved. For example, states like California introduced their own menthol and flavor bans.
Environmental Regulations
We are subject to a variety of federal, state and local environmental laws and regulations. We have developed specific programs across our business units for ensuring high standards of environmental compliance, including, standard operating practices and procedures at our manufacturing facility as well at our research and development centers. We believe that our manufacturing facility complies with all federal, state, and local environmental regulations, including the Clean Air Act, the Clean Water Act, and the Resource Conservation and Recovery Act.
Lastly, in addition, any new products introduced by us are subject to a comprehensive environmental assessment by an independent third-party expert, including an assessment of how such products may create environmental risks. For our PMTA product, the FDA prepared a programmatic environmental assessment (PEA), based on our submitted data in accordance with the Council on Environmental Quality's regulations (40 CFR 1500-1508) implementing the National Environmental Policy Act (NEPA) and FDA’s NEPA regulations (21 CFR 25.40). The PEA concluded that the marketing orders would have no significant impact and that environmental impact statements would not be required.
Excise Taxes
Tobacco products are subject to substantial excise taxes in the U.S. and other countries. Significant increases in tobacco-related taxes or fees have been proposed or enacted and are likely to continue to be proposed or enacted at the federal, state and local levels within the U.S. and other countries. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies. Federal, state and local cigarette excise taxes have increased substantially over the past two decades. Tax increases have an adverse impact on sales of tobacco products.
Competition
Although our products are not approved as smoking cessation aids, we believe that our RNC tobacco cigarettes may compete with FDA-approved smoking cessation aids. In the market for FDA-approved smoking cessation aids, principal competitors would include Pfizer Inc., GlaxoSmithKline plc, Perrigo Company plc, Novartis International AG, and Niconovum AB, a subsidiary of Reynolds American Inc. The industry consists of major domestic and international companies, most of which have existing relationships in the markets into which we plan to sell, as well as financial, technical, marketing, sales, manufacturing, scaling capacity, distribution and other resources, and name recognition substantially greater than ours. We are also aware that several domestic and international cigarette companies and other research groups are working to research and grow reduced nicotine tobacco and have filed patent applications.
Cigarette and filtered cigar companies compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising, retail shelf space, and price. Cigarette sales can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors’ introduction of low-price products or innovative products, higher taxes, higher absolute prices and larger gaps between price categories, and product regulation that diminishes the ability to differentiate or market tobacco products. Domestic cigarette competitors included Philip Morris USA Inc., Reynolds American Inc., ITG Brands, and Vector Group Ltd. International competitors included Philip Morris International Inc., British American Tobacco, JT International SA, Imperial Brands plc, and regional and local tobacco companies; and in some instances, government-owned tobacco enterprises such as the China National Tobacco Corporation.
Human Capital Resources
As of December 31, 2024, we had 56 employees. All employees are located in the United States. Our human capital resource objectives are designed to attract, and retain, highly motivated and well-qualified employees. We believe that we offer a competitive compensation package and have also worked diligently to provide a flexible and safe work environment.
Corporate Information
22nd Century Group, Inc. was incorporated under the laws of the State of Nevada on September 12, 2005 under the name Touchstone Mining Limited. On January 25, 2011, we entered into a reverse merger transaction with 22nd Century Limited, LLC, which we refer to herein as the “merger.” Upon the closing of the merger, 22nd Century Limited, LLC became our wholly-owned subsidiary. After the merger, we succeeded to the business of 22nd Century Limited, LLC as our sole line of business.
22nd Century Limited, LLC was originally formed as a New York limited liability company on February 20, 1998 as 21st Century Limited, LLC and subsequently merged with a newly-formed Delaware limited liability company, 22nd Century Limited, LLC, on November 29, 1999.
We are a Nevada corporation, and our corporate headquarters is located at 321 Farmington Road, Mocksville, North Carolina 27028. Our telephone number is (336) 940-3769. Our internet address is www.xxiicentury.com. All of our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K can be accessed free of charge through our website promptly after filing; however, in the event that the website is inaccessible, we will provide paper copies of our most recent Annual Report on Form 10-K, the most recent Quarterly Report on Form 10-Q, Current Reports filed or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request. These filings are also accessible on the SEC’s website at www.sec.gov. We do not incorporate the information on our website into this Annual Report on Form 10-K and our web site address is included as an inactive textual reference only.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K. The matters discussed in the risk factors, and additional risks and uncertainties not currently known to us or that we currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operation and future growth prospects and could cause the trading price of our common stock to decline.
Risks Related to Our Business and Operations
We have a history of losses, and we expect to incur significant expenses and continuing losses for the foreseeable future and there is substantial doubt regarding our ability to continue as a going concern.
We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business, which casts substantial doubt regarding our ability to continue as a going concern. As of March 17, 2025, we had cash and cash equivalents of approximately $1.7 million and outstanding indebtedness under the Convertible Senior Secured Credit Facility of $4.6 million.
Doubts about our ability to continue as a going concern have and could continue to negatively impact our relationships with our commercial partners and our employees.
We need additional funding to execute our business plan and to continue operations and service our outstanding obligations. We continue to seek and evaluate opportunities to raise additional funds through the issuance of our securities, asset sales, and through arrangements with strategic partners. If capital is not available to us when, and in the amounts needed, we could be required to liquidate our inventory and assets, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that we will be able to raise the capital we need to continue our operations. Without additional capital, we will be unable to continue our operations in the future.
We may be unable to comply with the covenants in our convertible senior secured debentures.
We have $4.6 million in outstanding convertible senior secured debentures as of March 17, 2025, that contain customary representations, warranties and covenants including among other things and subject to certain exceptions, covenants that restrict us from incurring additional indebtedness, creating or permitting liens on assets, making or holding any investments, repaying outstanding indebtedness, paying dividends or distributions and entering into transactions with affiliates. We are also required to maintain certain quarterly revenue targets.
As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted. Furthermore, our failure to comply with the covenants could result in a default under such agreements, which could permit the debt holders to accelerate our obligation to repay the debt. Although we have in the past received a waiver with respect to our compliance with such covenants, there is no assurance that we will be able to secure a similar waiver for the failure to comply with any future covenants. If any of our debt is accelerated, we likely would not have sufficient funds available to repay it. Substantially all of our assets, including intellectual property, are collateralized under the debentures. If such debt is accelerated, we could be required to liquidate our inventory, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings.
Additionally, the senior secured debentures may be converted into shares of the Company’s common. If the senior secured debentures are converted into common stock in whole or in part, the existing stockholders could incur significant dilution in their relative percentage ownership. The prospect of this possible dilution may also negatively impact the price of our common stock.
Our competitors generally have greater financial resources and name recognition than we do, and they may therefore develop products or other technologies similar or superior to ours, or otherwise compete more successfully than we do.
We are competing with large tobacco companies and large pharmaceutical companies that have greater resources than us. The tobacco industry consists of major domestic and international companies, most of which have existing commercial relationships, as well as financial, technical, research and development, marketing, sales, manufacturing, scaling capacity, distribution, lobbying and other resources and name recognition substantially greater than ours. In addition, we expect new competitors will enter the markets for similar or novel tobacco products in the future and the nature and extent of this market entrance cannot be quantified at this time.
Potential customers and other business partners may choose to do business with more established competitors because of their perception that our competitors are more stable, can scale operations more quickly, have greater manufacturing capacity, have robust marketing and sale programs and lend greater credibility to governmental regulators and others. In addition, large companies have the ability to provide entry-level pricing for premium products in order make us less competitive. If we are unable to compete successfully against larger companies with more financial resources and name recognition, our business and prospects would be materially adversely affected.
Our competitors may develop products that are less expensive, safer or otherwise more appealing, which may diminish or eliminate the commercial success of our VLN® cigarettes or any other potential products that we may commercialize.
If our competitors develop very low nicotine tobacco without infringing on our intellectual property or other products that are less expensive, safer or otherwise more appealing than our RNC cigarettes or any of our other potential products, or that reach the market before ours, we may not achieve commercial success. Currently, there are numerous companies developing products for which they may submit MRTPAs, working to develop low nicotine tobacco and other tobacco alternative products to provide products that are potentially safer for human consumption or to otherwise assist consumers to cease or begin to switch from smoking. If one of such competitors develops a cigarette that is safe for human consumption, a safer alternative for nicotine that is widely accepted, superior low nicotine tobacco or otherwise develops a superior quitting method, it could render our RNC tobacco and cigarettes obsolete, which would have a material adverse impact on our business and operations and our ability to achieve profitability.
Our competitors may render our technologies obsolete by advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages that we believe we derive from our research approach and proprietary technologies.
Our competitors may:
● develop and market similar or new products that are less expensive, safer, or otherwise more appealing than our products;
● develop similar or new technologies and products that render our products obsolete;
● operate larger research and development programs or have substantially greater financial resources than we do;
● have greater success in recruiting skilled technical and scientific workers from the limited pool of available talent;
● more effectively negotiate third-party licenses and strategic relationships;
● commercialize competing products before we or our partners can launch our products;
● be more effective in marketing and creating brand awareness of their products that we are;
● develop tobacco with superior traits to ours;
● initiate or withstand substantial price competition more successfully than we can; and/or
● take advantage of acquisition or other opportunities more readily than we can.
Our research and development process may not develop marketable products cost-effectively or at all, which would result in loss of our investment into such process.
We do not know whether our research and development process will result in marketable products. Even if we develop marketable products, we may not be able to obtain the necessary marketing authorizations for these potential products or our anticipated time of bringing these potential products to the market may be substantially delayed. The development of new products is costly, time-consuming, and has no guarantee of success. Any such delays or the inability to effectively develop new products in a cost-effective manner, or at all, would have a material adverse effect on our business and a loss of our financial resources.
The failure of our information systems to function as intended or their penetration by outside parties with the intent to corrupt them could result in business disruption, litigation and regulatory action, and loss of revenue, assets, or personal or confidential data (cybersecurity).
We use information systems to help manage business processes, collect and interpret business data and communicate internally and externally with employees, suppliers, customers and others. Some of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place, and we take care to protect our systems and data from unauthorized access. However, a failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could interrupt our business and place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs. Any cybersecurity incident could cause substantial harm to our business and result in regulatory action, fines, and/or substantial costs.
Business interruptions, whether caused by natural disaster, terrorism, economic downturns, global pandemics or other events, could negatively impact our business.
A natural disaster (such as an earthquake, hurricane, fire, or flood), pandemics, widespread power outage or internet failure or hack, or an act of terrorism could cause substantial delays in our operations, damage or destroy our equipment or facilities, and cause us to incur additional expenses and lose revenue. The insurance we maintain against natural disasters may not be adequate to cover our losses in any particular case, which would require us to expend significant resources to replace any destroyed assets, thereby materially and adversely affecting our financial condition and prospects. Other global incidents could have a similar effect of disrupting our business to the extent they reach and impact the areas in which we operate, the availability of inventory we need, the customers we serve, the partners on whom we rely for products or services or the employees who operate our businesses. For example, another pandemic or
comparable heath concern could disrupt our supply chain for tobacco, as well as negatively impact employee productivity, including affecting the availability of employees reporting for work. Any business interruption caused by such unforeseen events could have a material adverse impact on our business and operations.
Risks Related to the Tobacco Industry
We may be unsuccessful in our efforts to commercialize our RNC tobacco using the reduced exposure claims authorized by the FDA.
While the FDA issued an exposure modification order in connection with our MRTPA and we have been commercializing our VLN® cigarettes in select markets across the United States, there are no guarantees regarding the commercial viability of our RNC tobacco cigarettes. To date, we have only commercialized the cigarettes on a limited basis. We have obtained an exposure modification order for our VLN® cigarettes, which enables us to make certain claims regarding the reduction of nicotine within these products. Specifically, we are permitted to market the products with the claims “95% less nicotine,” “helps reduce your nicotine consumption,” and “greatly reduces your nicotine consumption,” and we are required to use the claim “helps you smoke less” in connection with the other authorized claims; we may not market our VLN® cigarettes for claims that have not been authorized pursuant to an FDA order. Although we believe these claims have the potential to increase our product sales, these products may never achieve consumer acceptance at levels that make the product commercially viable for profitable sales. In addition, the process of commercializing such product and creating consumer awareness could take longer and cost more than we expect.
In addition, even if we believe that certain legislative or regulatory changes may increase product demand, such as the proposals that FDA has historically made with respect to requiring minimally or non-addictive levels of nicotine in all cigarettes sold in the U.S., there can be no assurance that such regulations, if implemented, would increase or create demand for our RNC cigarettes.
The commercial success of our RNC tobacco cigarettes will depend on a number of factors, including, but not limited to our ability to:
● achieve, maintain and grow market identify of, acceptance of, and demand for, such products;
● successfully create consumer awareness of such products;
● achieve the necessary rate of sale to keep products within distribution at retail;
● market the product with the phrase “Helps You Smoke Less” and any other required warnings or statements;
● maintain, manage or scale the necessary sales, marketing, manufacturing and other capabilities and infrastructure that are required to successfully commercialize such products;
● grow or otherwise maintain an adequate supply of RNC tobacco;
● maintain and extend intellectual property protection for such products;
● comply with applicable legal and regulatory requirements, including FDA and MSA regulations or requirements with respect to product advertising and our obligations in connection with our PMTAs and MRTPs;
● competitively price our products;
● compete with other similar products or new technologies (if any);
● obtain cost-effective distribution outlets; and
● effectively sell our products into established markets where there is substantial market dominance by large tobacco enterprises.
If we are unsuccessful in commercializing our RNC tobacco cigarettes, our financial results, business and future prospects would be materially adversely effected.
We may be unable to renew our MRTP Application for our VLN® cigarettes.
The FDA has broad authority over the regulation of tobacco products. The FDA could, among other things, force us to remove from the U.S. market our RNC tobacco cigarettes even after the FDA authorization on December 17, 2019 of our PMTA for us to market our RNC tobacco cigarettes, or the authorization of our MRTP application on December 23, 2021, to enable us to use certain modified exposure claims with respect to our VLN® cigarettes. In addition, the exposure modification order that enables us to market our VLN® cigarettes as MRTPs was granted for a period of five years, which is the maximum duration for a marketing granted order for such products under the Family Smoking Prevention & Tobacco Control Act (PUBLIC LAW 111-31-JUNE 22, 2009). Consequently, we will need to reapply to the FDA under a new MRTP application to extend the FDA’s exposure modification order beyond December 23, 2026. The MRTP authorization process is a complex, substantial and lengthy regulatory undertaking. The FDA may or may not grant continued authorization of these product claims, including based on FDA's assessment of whether the product application(s) satisfy the statutory requirements for such an order, and whether we have adequately complied with the conditions imposed on us in connection with the FDA’s exposure modification order, such as requirements relating to recordkeeping, reporting and post-market studies. Any action by the FDA to remove our products from the U.S. market, including the termination or non-renewal of the exposure modification orders for our VLN® cigarettes would have a material adverse impact on our business.
We have limited experience marketing and selling Modified Exposure Cigarettes and our working capital and inventory estimates based on demand expectations may be incorrect, which could harm our operating results and financial condition.
We have limited experience in introducing a new low nicotine category for selling our VLN® cigarettes pursuant to an exposure modification order. As we work to commercialize one or more of our products for sale, including our VLN® cigarettes, we base our working capital and inventory decisions on management’s estimates of future demand. If demand for such potential new products does not increase as quickly as we have estimated, our inventory costs, demands on working capital, expenses could increase, and our business and operating results could suffer. Alternatively, if we experience sales that exceed our estimates, our working capital and inventory needs may be higher than those currently anticipated. Since our RNC tobacco is not widely available and must be grown specifically for our potential products, any shortage in such tobacco could prevent us from increasing sales to meet demand and any surplus could result in inventory obsolescence and become a total loss. Our inability to correctly estimate demand for future products could negatively harm our operating results and financial condition.
The manufacturing and sale of tobacco products subjects us to significant governmental regulation and the failure to comply with such regulations could have a material adverse effect on our business and subject us to substantial fines or other regulatory actions.
Companies that manufacture and/or sell tobacco products face significant governmental regulation, especially in the United States pursuant to the Tobacco Control Act, including but not limited to efforts aimed at reducing the incidence of tobacco use, restricting marketing and advertising, imposing regulations on packaging, mandating warnings and disclosure of flavors or other ingredients, prohibiting the sale of tobacco products with certain flavors or other characteristics, requiring compliance with certain environmental standards, limiting or prohibiting the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packaging sizes, and seeking to hold retailers and distributors responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.
The Tobacco Control Act requires manufacturers of tobacco products to, among other things, provide the FDA with a list of ingredients added to tobacco products in the manufacturing process and register any establishment engaged in the manufacture, preparation, or processing of a tobacco product. The manufacture of products is subject to strict quality control, testing and record-keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. The Tobacco Control Act also authorizes the FDA to promulgate regulations requiring that the methods used in, and the facilities and controls used for, the manufacture, preproduction design validation, packing, and storage of a tobacco product conform to current good manufacturing practice (CGMP), also known as tobacco product manufacturing practices (TPMP). On March 8, 2023, the FDA issued a proposed rule to promulgate such TRMP regulations. The proposed rule, if finalized, would establish requirements for manufacturers of finished and bulk tobacco products on the methods used in, and the facilities and controls used for, the manufacture, pre-production design validation, packing, and storage of tobacco product.
We cannot guarantee that our current manufacturing facility or any other manufacturing will successfully complete FDA and/or similar inspections, or that future TPMP regulations will not also negatively affect the cost or sustainability of our manufacturing facility. Our failure to comply with applicable manufacturing regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of marketing orders, seizures or recalls, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our financial position. In addition, we and our customers for whom we manufacture tobacco products also face significant governmental regulation, including efforts aimed at reducing the incidence of tobacco use. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Actions by the FDA and other foreign, federal, state or local governments or agencies may impact the adult tobacco consumer acceptability of or access to tobacco products (for example, through product standards proposed by the FDA for nicotine and flavors including menthol), delay or prevent the launch of new or modified tobacco products or products with reduced exposure claims, require the recall or other removal of tobacco products from the marketplace, impose additional manufacturing, labeling or packing requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business. Any one or more of these actions may have a material adverse impact on us or the business of our customers for whom we make tobacco products, which could have a negative impact on our results of operations.
It is possible that significant regulatory developments will take place over the next few years across global markets, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. In addition, the FCTC has led to increased efforts by tobacco control advocates and public health organizations to reduce the appeal of tobacco products. Our operating results could be significantly affected by any significant increase in the cost of complying with new regulatory requirements.
Compliance with current and future regulations regarding tobacco could have a material impact on our business and operations and could result in fines, government actions to restrict or prevent sales of products, as well as result in substantial costs and expenses.
We may become subject to litigation related to cigarette smoking and/or exposure to environmental tobacco smoke, or ETS, which could severely impair our results of operations and liquidity.
Although we are not currently subject to legal proceedings related to cigarette smoking or ETS, we may become subject to litigation related to the sale of our Modified Exposure Cigarettes or other tobacco products we sell or manufacture in the future. Legal proceedings covering a wide range of matters related to tobacco use are pending or threatened in various U.S. and foreign jurisdictions. Various types of claims are raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution, and claims of competitors and distributors.
Litigation is subject to uncertainty, and it is possible that there could be adverse developments in pending cases. An unfavorable outcome or settlement of pending tobacco related litigation could encourage the commencement of additional litigation. The variability in pleadings, together with the actual experience of management in litigating claims, demonstrates that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome.
Damages claimed in some tobacco-related litigations are significant and, in certain cases, range into the billions of dollars. We anticipate that new cases will continue to be filed. The FCTC encourages litigation against tobacco product manufacturers. It is possible that our results of operations, cash flows, or financial position could be materially affected by an unfavorable outcome or settlement of litigation.
Our production facility (NASCO) is integral to our tobacco business and adverse changes or developments affecting our facility may have an adverse impact on our business.
Our production facility is integral to our tobacco business. Adverse changes or developments affecting this facility, including, but not limited to, disease or infestation of our raw materials, a fire, an explosion, a serious injury or fatality, a power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations.
A significant failure of our site security measures and other facility requirements, including failure to comply with applicable regulatory requirements, could have an impact on our ability to continue operating under our facility licenses and our prospects of renewing our licenses, and could also result in a suspension or revocation of these licenses.
The loss of a significant customer for whom we manufacture tobacco products could have an adverse impact on our results of operation.
Currently, a significant portion of our revenues (and corresponding accounts receivable) from manufacturing tobacco products are derived from a small number of large customers, and we do not have agreements with such customers requiring them to purchase a minimum amount of products from us or guaranteeing any minimum future purchase amounts from us. Such customers may, at any time, delay or decrease their level of purchases from us or cease doing business with us altogether. Since many of our manufacturing costs are fixed, if sales to such customers cease or are reduced, we may not obtain sufficient purchase orders from other customers necessary to offset any such losses or reductions, which could have a negative impact on our results of operations.
Product liability claims, product recalls, or other claims could cause us to incur losses or damage our reputation.
The risk of product liability claims, product recalls, and associated adverse publicity, is inherent in the development, manufacturing, marketing, and sale of tobacco products. Any product recall or lawsuit seeking significant monetary damages may have a material adverse effect on our business and financial condition. A successful product liability claim against us could require us to pay a substantial monetary award. Though we currently have no pending product liability claims against us, we cannot assure you that such claims will not be made in the future and any such claim could cause us to incur substantial losses or damage our reputation.
Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. These tax increases may affect the sales of our potential products and our third-parties customers’ tobacco products manufactured at our factory, which could result in decreased sales and profitability of our manufacturing business.
Tax regimes, including excise taxes, sales taxes, and import duties, can disproportionately affect the retail price of manufactured cigarettes versus other tobacco products, or disproportionately affect the relative retail price of our Modified Exposure Cigarettes versus lower-priced cigarette brands manufactured by our competitors. Increases in cigarette taxes are expected to continue to have an adverse impact on sales of cigarettes resulting in (i) lower consumption levels, (ii) a shift in sales from manufactured cigarettes to other tobacco products or to lower-price cigarette categories, (iii) a shift from local sales to legal cross-border purchases of lower price products, and (iv) illicit products such as contraband and counterfeit.
Government mandated prices or taxes, production control programs, shifts in crops driven by economic conditions, climatic or adverse weather patterns may increase the cost or reduce the quality and/or supply of the tobacco and other agricultural products used to manufacture our products.
We depend on a small number of independent tobacco farmers to grow our specialty proprietary tobaccos with specific nicotine contents for our products. As with other agricultural commodities, the price of tobacco leaf can be influenced by imbalances in supply and demand, and crop quality can be influenced by variations in weather patterns, diseases, and pests. This risk is greater for us, as there would be no alternative supply of RNC tobacco in the event that one of our growers experiences a material adverse event, such as a natural disaster, with respect to a particular RNC tobacco crop or the quantity or quality was not as we anticipated, and we would not be able to supply leaf for our VLN® cigarettes.
We must also compete with other tobacco companies for contract production with independent tobacco farmers. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the patterns of demand for agricultural products could cause farmers to plant less tobacco. Any significant change in tobacco leaf prices or taxes, quality and quantity could affect our profitability and our business.
We may distribute and sell our products outside of the U.S., which subjects us to other regulatory risks.
We may seek governmental authorizations required to market our RNC tobacco cigarettes and our other products in other countries. Marketing of our products is not permitted in certain countries until we have obtained required authorizations or exemptions in these individual countries. The regulatory review process varies from country to country, and authorization by foreign governmental authorities is unpredictable, uncertain, and generally expensive. Our ability to market our potential products could be substantially limited due to delays in receipt of, or failure to receive, the necessary authorizations or exemptions. We anticipate commencing the applications required in some or all of these countries in the future. Failure to obtain necessary regulatory authorizations or exemptions could impair our ability to generate revenue from international sources.
We may become subject to governmental investigations on a range of matters.
Tobacco companies are often subject to investigations, including allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of custom duties and/or excise taxes, and allegations of false and misleading usage of descriptors such as “lights” and “ultra-lights.” We cannot predict the outcome of any investigations to which we may become subject, but we may be materially affected by an unfavorable outcome of potential future investigations.
We may be unsuccessful in anticipating changes in adult consumer preferences, responding to changes in consumer purchase behavior or managing through difficult competitive and economic conditions, which could have an adverse effect on business.
In the tobacco industry, we are subject to intense competition and changes in adult consumer preferences. To be successful, we must:
● anticipate and respond to new and evolving adult consumer preferences;
● develop, manufacture, market and distribute new and innovative products that appeal to adult consumers (including, where appropriate, through arrangements with, or investments in, third parties);
● improve productivity; and
● protect or enhance margins through cost savings and price increases.
The willingness of adult consumers to purchase premium consumer tobacco products, such as our RNC cigarettes, depends in part on economic conditions. In periods of economic uncertainty, adult consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-priced tobacco products, which could have a material adverse effect on the business and profitability.
We may be unsuccessful in developing and commercializing adjacent products or processes, including innovative tobacco products that may reduce the health risks associated with certain other tobacco products and that appeal to adult tobacco consumers.
Some innovative tobacco products may reduce the health risks associated with certain other tobacco products, while continuing to offer adult tobacco consumers products that meet their taste expectations and evolving preferences. Examples include tobacco-containing and nicotine-containing products that reduce or eliminate exposure to cigarette smoke and/or constituents identified by public health authorities as harmful, such as electronically heated tobacco products, oral nicotine pouches, and e-vapor products. We may not succeed in our efforts to develop and commercialize any adjacent products.
Further, we cannot predict whether regulators, including the FDA, will permit the marketing or sale of any particular innovative products (including products with claims of reduced risk to adult consumers), the speed with which they may make such determinations or whether regulators will impose an unduly burdensome regulatory framework on such products. In addition, the FDA could, for a variety of reasons, determine that innovative products currently on the market, or those that have previously received authorization, including with a claim of reduced exposure, are not appropriate for the public health and the FDA could require such products be taken off the market. We also cannot predict whether any products will appeal to adult tobacco consumers or whether adult tobacco consumers’ purchasing decisions would be affected by reduced-risk claims on such products if permitted. Adverse developments on any of these matters could negatively impact the commercial viability of such products.
If we do not succeed in our efforts to develop and commercialize innovative tobacco products or to obtain or maintain regulatory authorizations for the marketing or sale of products, including for the use of claims of reduced exposure, but one or more of our competitors does succeed, we may be at a competitive disadvantage, which could have an adverse effect on our ability to commercialize our products.
An extended disruption at a facility or in service by a supplier, distributor or distribution chain service provider could have a material adverse effect on our business.
We face risks inherent in reliance on one manufacturing facility and a small number of key suppliers, distributors and distribution chain service providers. A pandemic (including COVID-19), natural or man-made disaster or other disruption that affects the manufacturing operations, the operations of any key supplier, distributor or distribution chain service provider or any other disruption in the supply or distribution of goods or services (including a key supplier’s inability to comply with government regulations or unwillingness to supply goods or services to a tobacco company) could have a material adverse effect on our business.
A ban on menthol or flavored tobacco products could have a material adverse impact on our business.
There has been increasing activity on the state and local levels with respect to scrutiny of menthol and flavored tobacco products, including a recent law passed by the State of California prohibiting tobacco retailers from selling most flavored and menthol tobacco products, including VLN® Menthol King. If these proposed rules are finalized and implemented, if new rules are proposed or if additional states or governments pass laws similar to the State of California, we could be negatively impacted through decreased sales, a requirement to remove non-compliant tobacco products from the marketplace, associated interruptions in manufacturing or business disruptions.
Risks Related to Intellectual Property
We may be unable to adequately protect our intellectual property, products and potential products, and if we cannot obtain adequate protection of our intellectual property.
Our commercial success will depend, in part, on obtaining and maintaining intellectual property protection for our technologies, products, and potential products. We will only be able to protect our technologies, products, and potential products from unauthorized use by third parties to the extent that valid and enforceable patents cover them, or to the extent that other market exclusionary rights apply.
Patent positions can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Accordingly, we cannot predict the breadth of claims that may be allowed or that the scope of these patent rights could provide a sufficient degree of future protection that could permit us to gain or keep our competitive advantage with respect to these products and technology. Additionally, companies like ours are often dependent on creating a pipeline of products. We may not be able to develop additional potential products or proprietary technologies that produce commercially viable products or that are themselves patentable.
Our issued patents may be subject to challenge and potential invalidation by third parties and our competitors may develop processes to achieve similar results without infringing on our patents. Changes in either the patent laws or in the interpretations of patent laws in the United States, or in other countries, may diminish the value of our intellectual property. In addition, others may independently develop similar or alternative products and technologies that may be outside the scope of our intellectual property. Should third parties develop alternative methods of regulating nicotine in tobacco or obtain patent rights to similar products or technology without infringing on our intellectual property rights, this may have an adverse effect on our business.
The expiration of a portion of the QPT patent family in 2018 may provide third parties with the freedom to target the QPT gene in the tobacco plant. This could result in experiments to try to reduce nicotine levels in tobacco plants to levels that may satisfy the planned new nicotine reduction regulations coming from the FDA. There can be no assurance about whether any third-parties will or will not be successful in such efforts, how long or short in time such efforts will entail and/or if such efforts will or will not infringe other genes and other intellectual property on which we have continuing patent protection that would need to be used, in combination with QPT, to result in RNC tobacco. If independent researchers or our competitors are able to successfully reduce nicotine levels in tobacco plants without violating our patent protections, our ability to license our technology would be negatively impacted and we would likely face increased competition.
We also rely on license agreements and trade secrets to protect our technology, products, and potential products, especially where we do not believe patent protection is appropriate or obtainable. Trade secrets, however, are difficult to protect. While we believe that we use reasonable efforts to protect our trade secrets, our own, our licensees’ or our strategic partners’ employees, consultants, contractors or advisors may unintentionally or willfully disclose our information to competitors. We seek to protect this information, in part, through the use of non-disclosure and confidentiality agreements with employees, consultants, advisors, and others. These agreements may be breached, and we may not have adequate remedies for a breach. In addition, we cannot ensure that those agreements will provide adequate protection for our trade secrets, know-how, or other proprietary information, or prevent their unauthorized use or disclosure.
To the extent that consultants or key employees apply technological information independently developed by them or by others to our products and potential products, disputes may arise as to the proprietary rights of the information, which may not be resolved in our favor. Key employees are required to assign all intellectual property rights in their discoveries to us. However, these key employees may terminate their relationship with us, and we cannot preclude them indefinitely from dealing with our competitors. If our trade secrets become known to competitors with greater experience and financial resources, the competitors may copy or use our trade secrets and other proprietary information in the advancement of their products, methods, or technologies. If we were to prosecute a claim that a third party had illegally obtained and was using our trade secrets, it could be expensive and time consuming and the outcome could be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets
than courts in the United States. Moreover, if our competitors independently develop equivalent knowledge, we would lack any contractual claim to this information, and our business could be harmed.
The ability to commercialize our existing and potential products will depend on our ability to sell such products without infringing the patent or proprietary rights of third parties.
The ability to commercialize our potential products will depend on our ability to sell such products without infringing the patents or other proprietary rights of third parties. Third-party intellectual property rights in our field are complicated, and third-party intellectual property rights in these fields are continuously evolving. While we have conducted searches for such third-party intellectual property rights, we have not performed specific searches for third-party intellectual property rights that may raise freedom-to-operate issues, and we have not obtained legal opinions regarding commercialization of our potential products. As such, there may be existing patents that may affect our ability to commercialize our potential products.
In addition, because patent applications are published up to 18 months after their filing, and because patent applications can take several years to issue, there may be currently pending third-party patent applications and freedom-to-operate issues that are unknown to us, which may later result in issued patents.
If a third-party claims that we infringe on its patents or other proprietary rights, we could face a number of issues that could seriously harm our competitive position, including:
● infringement claims that, with or without merit, can be costly and time consuming to litigate, can delay regulatory authorization processes, and can divert management’s attention from our core business strategy;
● substantial damages for past infringement which we may have to pay if a court determines that our products or technologies infringe upon a competitor’s patent or other proprietary rights;
● a court order prohibiting us from commercializing our potential products or technologies unless the holder licenses the patent or other proprietary rights to us, which such holder is not required to do;
● if a license is available from a holder, we may have to pay substantial royalties or grant cross licenses to our patents or other proprietary rights; and
● redesigning our process so that it does not infringe the third-party intellectual property, which may not be possible, or which may require substantial time and expense including delays in bringing our potential products to market.
Such actions could harm our competitive position and our ability to generate revenue and could result in increased costs.
Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We own or exclusively control many issued patents and pending patent applications. We cannot be certain that these patent applications will issue, in whole or in part, as patents. Patent applications in the United States are maintained in secrecy until the patents are published or are issued. Since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions. We also cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to U.S. patents will be issued. Furthermore, if these patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States.
The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. Accordingly, we cannot be certain that the patent applications that we or our licensors file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our operations.
We license certain patent rights from third-party owners. If such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects could be harmed.
We license rights to third-party intellectual property that is necessary or useful for our business, and we may enter into additional licensing agreements in the future. Our success could depend in part on the ability of some of our licensors to obtain, maintain, and enforce patent protection for their intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed and may in some instances retain rights to the intellectual property that allows them to compete with us. Even if patents are issued with respect to these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we could. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.
Our worldwide exclusive licenses relating to tobacco from NCSU involve multiple patent families and trade secrets. The exclusive rights under the NCSU agreements expire on the date on which the last patent or registered plant variety covered by the subject license expires in the country or countries where such patents or registered plant varieties are in effect. The NCSU licenses relate predominately to issued patents, and our exclusive rights in the NCSU licenses are expected to expire in 2042.
If any of our license agreements or other intellectual property agreements are not effective at preventing others from competing with us and/or using our intellectual property, our business could be adversely affected.
Risks Related to Ownership of Our Common Stock
Nasdaq may delist our common stock from trading on its exchange which could limit investors’ ability to make transactions in our common stock and subject us to additional trading restrictions.
Our common stock is currently listed on the Nasdaq Capital Market (“NASDAQ”). If Nasdaq delists our common stock from trading on its exchange, we could face significant material adverse consequences, including:
● a limited availability of market quotations for our common stock;
● reduced liquidity with respect to our securities;
● a determination that shares of our common stock are “penny stock” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares;
● a limited amount of news and analyst coverage; and
● a decreased ability to issue additional common stock or obtain additional financing in the future.
Recently, the Company received deficiency letters from the Nasdaq Listing Qualifications Department notifying the Company not been in compliance with certain Nasdaq trading rules. Although such deficiencies have been addressed and remedied, there can be no assurance of our ability to comply with such rules in the future.
An active trading market for our common stock may not be sustained and you may not be able to resell your shares at or above the price at which you purchased them.
An active trading market for our shares may not be sustained. In the absence of an active trading market for our common stock, shares of common stock may not be able to be resold at or above the purchase price of such shares. Although there can be no assurances, we expect that our common stock will continue to be listed on the NASDAQ. However, even if our common stock continues to be listed on the NASDAQ, there is no assurance that an active market for our common stock will continue in the foreseeable future. There also can be no assurance that we can maintain such listing on the NASDAQ. If we are ever no longer listed on the NASDAQ or other national stock exchange in the future, then it would be more difficult to dispose of shares or to obtain accurate quotations as to the market value of our common stock compared to securities of companies whose shares are traded on national stock exchanges.
Our stock price may be highly volatile and could decline in value.
The market price for our common stock has been volatile. Further, the market prices for securities in general have been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:
● general economic conditions, including adverse changes in the global financial markets;
● equity sales by us of our common stock or securities convertible into common stock to fund our operations.
● actual and anticipated fluctuations in our quarterly financial and operating results;
● developments or disputes concerning our intellectual property or other proprietary rights;
● introduction of technological innovations or new commercial products by us or our competitors;
● issues in manufacturing or distributing our products or potential products;
● market acceptance of our products or potential products;
● FDA or other United States or foreign regulatory actions affecting us or our industry;
● litigation or public concern about the safety of our products or potential products;
● negative press or publicity regarding us or our common stock;
● the announcement of litigation against us or the results of on-going litigation;
● additions or departures of key personnel;
● third-party sales of large blocks of our common stock or third party short-selling activity;
● third-party articles regarding us or our securities;
● pending or future shareholder litigation;
● sales of our common stock by our executive officers, directors, or significant stockholders; and
These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock, such as the current class action and derivative lawsuits. Such lawsuits and any future related lawsuits could cause us to incur substantial costs defending the lawsuit and can also divert the time and attention of our management, which would have a negative adverse impact on our business.
We are named defendant in certain litigation matters; if we are unable to resolve these matters favorably, then our business, operating results and financial condition may be adversely affected.
We are currently involved in certain litigation matters. See "Item 3 - Legal Proceedings" included in this Annual Report on Form 10-K. We cannot at this time predict the outcome of these matters or any future litigations matters (whether related or unrelated) or reasonably determine the probability of a material adverse result or reasonably estimate range of potential exposure, if any, that these matters or any future matters might have on us, our business, our financial condition or our results of operations, although such effects, including the cost to defend, any judgements or indemnification obligations, among others, could be materially adverse to us. In addition, in the future, we may need to record litigation reserves with respect to these matters. Further, regardless of how these matters proceed, it could divert our management’s attention and other resources away from our business.
Future sales of our common stock will result in dilution to our common stockholders.
Sales of a substantial number of shares of our common stock in the public market may depress the prevailing market price for our common stock and could impair our ability to raise capital through the future sale of our equity securities. Additionally, as of March 17, 2025, we have outstanding 24,391,163 warrants to purchase an equal number of shares of common stock and $4.6 million in convertible promissory notes (convertible into 754,554 shares). If any of the holders of outstanding warrants or notes exercise or convert them, as applicable, our common stockholders will incur dilution in their relative percentage ownership. The prospect of this possible dilution may also impact the price of our common stock.
We have a significant number of outstanding warrants with anti-dilution price protection.
We have approximately 24,387,570 outstanding warrants with anti-dilution price protection. The exercise price on these warrants will have the exercise price reduced in the event of any future offerings of securities at a lower price than the current exercise price (subject to limited exceptions) of $4.3021. Such warrants may deter future investors and can result in further dilution to our investors.
We do not expect to declare any dividends on our common stock in the foreseeable future.
We have not paid cash dividends to date on our common stock. We currently intend to retain our future earnings, if any, to fund the development and growth of our business, reduce our outstanding debt obligations, and we do not anticipate paying any cash dividends on our common stock for the foreseeable future. Additionally, the terms of any future debt facilities may preclude us from paying dividends on the common stock. As a result, capital appreciation, if any, of our common stock could be the sole source of gain for the foreseeable future.
Our common stock may become the target of a “short squeeze.”
In recent years, the securities of several companies have increasingly experienced significant and extreme volatility in stock price due to short sellers of common stock and buy-and-hold decisions of longer investors, resulting in what is sometimes described as a “short squeeze.” Short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Sharp rises in a company’s stock price may force traders in a short position to buy the shares to avoid even greater losses. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those shares have abated. We may be a target of a short squeeze, and investors may lose a significant portion or all of their investment if they purchase our shares at a rate that is significantly disconnected from our underlying value.
Anti-takeover provisions contained in our articles of incorporation and bylaws, as well as provisions of Nevada law, could impair a takeover attempt.
Our amended and restated articles of incorporation and bylaws currently contain provisions that, together with Nevada law, could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents presently include the following provisions:
● providing for a “staggered” board of directors in which only one-third (1/3) of the directors can be elected in any year;
● authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend, and other rights superior to our common stock; and
● limiting the liability of, and providing indemnifications to, our directors and officers.
These provisions, alone or together, could delay hostile takeovers and changes in control of our Company or changes in our management.
As a Nevada corporation, we also may become subject to the provisions of Nevada Revised Statutes Sections 78.378 through 78.3793, which prohibit an acquirer, under certain circumstances, from voting shares of a corporation’s stock after crossing specific threshold ownership percentages, unless the acquirer obtains the approval of the stockholders of the issuer corporation. The first such threshold is the acquisition of at least one-fifth, but less than one-third of the outstanding voting power of the issuer. We may become subject to the above referenced Statutes if we have 200 or more stockholders of record, at least 100 of whom are residents of the State of Nevada and do business in the State of Nevada directly or through an affiliated corporation.
As a Nevada corporation, we are subject to the provisions of Nevada Revised Statutes Sections 78.411 through 78.444, which prohibit an “interested stockholder” from entering into a combination with the corporation, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years did own) 10 percent or more of the corporation’s voting stock.
Any provision of our amended and restated articles of incorporation, our bylaws or Nevada law that has the effect of delaying or deterring a change in control of our Company could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2.Properties.
As of December 31, 2024, we operated four tobacco facilities located in Mocksville, North Carolina and surrounding areas. These locations are comprised of one leased manufacturing facility (which is also our principal executive office and headquarters) and three leased inventory storage facilities. We believe the facilities we operate and their equipment are effectively utilized, well maintained, generally are in good condition, and will be able to accommodate our capacity needs to meet current and growing levels of demand. We continuously review our anticipated requirements for facilities and, on the basis of that review, may from time to time acquire additional facilities, expand or dispose of existing facilities.

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ITEM 3. LEGAL PROCEEDINGS
Item 3.Legal Proceedings.
See Note 11 - Commitments and Contingencies - Litigation - to our consolidated financial statements included in this Annual Report for information concerning our on-going litigation. In addition to the lawsuits described in Note 11 to our consolidated financial statements, from time to time we may be involved in claims arising in the ordinary course of business. To our knowledge, other than the cases described in Note 11 to our consolidated financial statements, no material legal proceedings, governmental actions, investigations or claims are currently pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial condition.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.Mine Safety Disclosures.
Not applicable
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on the Nasdaq Capital Market under the symbol “XXII.” As of March 17, 2025, there were approximately 136 holders of record of our common stock based on the records of our transfer agent. However, because many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, we believe there are considerably more beneficial holders of our common stock than record holders.
Dividend Policy
We have not previously and do not plan to declare or pay any dividends on our common stock. Our current policy is to retain all funds and any earnings for use in the operation, debt reduction and expansion of our business. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Shares authorized for issuance under equity compensation plans
The following table summarizes the number of shares of common stock to be issued upon exercise of outstanding options and vesting of restricted stock units under the amended and restated 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “Plan”) and our prior 2014 Equity Incentive Plan, the weighted-average exercise price of such stock options, and the number of securities available to be issued under the Plan as of December 31, 2024:
Number of securities
remaining available for
Number of securities to
issuance under equity
be issued upon exercise
Weighted average
compensation plans
of outstanding options,
exercise price of
(excluding securities
and restricted stock units
outstanding options
reflected in column (a))
(a)
(b)
(c)
Equity compensation plans approved by security holders
-
$
-
5,336,670
Equity compensation plans not approved by security holders
-
N/A
-
Total
-
-
5,336,670
(1)
(1) Consists of shares available for award under the Plan.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6.[Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with the other sections of this Form 10-K, including “Risk Factors,” and the Financial Statements and notes thereto. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary.” Our actual results may differ materially. For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, references to the “Company,” “we,” us” or “our” refer to the operations of 22nd Century Group, Inc. and its direct and indirect subsidiaries for the periods described herein.
On December 17, 2024, we implemented a 1-for-135 reverse stock split, on March 28, 2024, we implemented a 1-for-16 reverse stock split, and on July 5, 2023, we implemented a 1-for-15 reverse stock split of our common stock. All historical share and per-share amounts reflected throughout this section have been adjusted to reflect the reverse stock splits. The par value per share of our common stock was not affected.
($ in thousands, except per share data or unless otherwise specified)
Executive Overview
● On December 23, 2021, the FDA issued modified risk orders for our reduced nicotine cigarettes, VLN® King and VLN® Menthol King, authorizing the Company to market VLN® cigarettes with the claim, “95% less nicotine”, to clarify the purpose of the brand, the FDA also required the use of the claim, “Helps You Smoke Less.”
● Subsequently commenced pilot market sales of VLN® King and VLN® Menthol King 95% reduced nicotine content cigarettes in Chicago during the first quarter of 2022, then expanded sales and distribution channels from 2022 - 2024 to more than 5,100 stores across 26 states.
● Executed on restructuring plans that commenced in the fourth quarter of 2023 for a turnaround in the business, including cost reductions and efforts to reposition the company’s business to focus on its VLN assets and CMO business, inclusive of:
o In December 2023, the Company completed the sale of substantially all of the GVB hemp/cannabis business (referred to as the “GVB Divestiture”) to Specialty Acquisition Corporation, exiting the hemp/cannabis market and focusing fully on the Company’s tobacco operations.
o Decreased consolidated liabilities from December 31, 2023 to December 31,2024 by $18,251 through payment, equity exchange and other means, including $8,124 reduction in long-term debt.
Tobacco Business Highlights
● Poised to benefit from the January 2025 proposed FDA rule mandating reduced nicotine content in all combustible cigarette products, if advanced. The Company has the only FDA-authorized combustible cigarette able to meet the proposed stringent reduced nicotine content product standard.
● Continued agreements with national-scale C-store distribution partners to support state-wide or multi-state availability of VLN® at hundreds of stores within our target markets.
● Announced plans for new VLN product branding and marketing initiatives designed to drive greater customer engagement, as well as the development of partner VLN brands to be sold alongside proprietary VLN products.
● Announced the first VLN partner brand with Smoker Friendly, to begin shipments in the second quarter 2025.
● Restructured contract manufacturing business operations to deliver improved efficiency and exited or renegotiated underpriced contracts in favor of improved customer agreements.
● Signed a new license and manufacturing agreement with Smoker Friendly, one of the largest independent cigarette retailers in the United States, covering 11 brands currently sold in the Smoker Friendly network of retail stores and dealers in the U.S., plus another eight new premium brands to be launched and establishing a framework for other planned future products to be added.
● Expanded the Pinnacle private label brand to add distribution of cigarillo products to its existing Pinnacle cigarette products currently sold as a private label brand in a top-5 U.S. gas station convenience store chain.
● Executed two significant new export customer contracts to drive additional revenue and improve our margin profile, including an expected substantial increase in our overall CMO production unit volumes. Those contracts and production setup commenced in April 2024, with initial shipments during the fourth quarter.
Financial Overview - Fourth Quarter and Full Year 2024 Results
● Net revenues for the fourth quarter of 2024 were $4,020, a decrease of 45.4% from $7,357 in 2023, primarily driven by a decrease in volumes of filtered cigars.
o Fourth quarter 2024 cartons sold of 338 compared to 823 in the comparable prior year period.
● Net revenues for the full year 2024 were $24,382, a decrease of 24.3% from $32,204 in 2023.
● Gross profit (loss) for the fourth quarter of 2024 was a loss of $1,254 compared to loss of $7,829 in the prior year period.
● Gross profit (loss) for the full year 2024 was a loss of $2,400, compared to a loss of $8,696 in 2023.
● Total operating expenses for the fourth quarter 2024 decreased 56% to $2,837 compared to $6,403 in the prior year quarter driven by:
o Sales, general and administrative expenses decreased to $2,471, driven primarily by a decrease in strategic consulting, insurance expenses, and other public company expenses due to our cost savings initiatives.
o Research and development expenses decreased to $219, driven by a decrease in contract and IP related costs.
o Other operating expense, net was $147 compared to $1,905 in the prior year period, primarily reflecting restructuring costs of $1,871, including impairment and legal charges that occurred in 2023.
● Operating loss for the fourth quarter 2024 was $4,091, compared to a loss of $14,232 in the prior year period. Operating loss for the full year 2024 was $13,950, compared to a loss of $44,931 in the prior year.
● Net loss in the fourth quarter of 2024 was $4,246 representing a net loss per share of $10.59 compared with net loss in the fourth quarter of 2023 of $22,068, representing a net loss per share of $1,413.40. Net loss for the full
year 2024 was $15,495, representing a net loss per share of $105.85 compared with net loss for the full year 2023 of $54,686, representing a net loss per share of $5,776.63.
● As of December 31, 2024, we had $4,422 in cash and cash equivalents.
Our Financial Results
The following table presents selected financial information derived from our Consolidated Financial Statements, contained in Item 15 of this report, for the periods presented (dollars in thousands, except per share amounts):
Year Ended
December 31
December 31
Change
$
%
Revenues, net
$
24,382
$
32,204
(7,822)
(24.3)
Cost of goods sold
14,278
24,891
(10,613)
(42.6)
Excise taxes and fees on products
12,504
16,009
(3,505)
(21.9)
Gross (loss) profit
(2,400)
(8,696)
6,296
(72.4)
Gross (loss) profit as a % of revenues, net
(9.8)
%
(27.0)
%
Operating expenses:
Sales, general and administrative ("SG&A")
10,287
31,064
(20,777)
(66.9)
SG&A as a % of revenues, net
42.2
%
96.5
%
Research and development ("R&D")
1,133
2,644
(1,511)
(57.1)
R&D as a % of revenues, net
4.6
%
8.2
%
Other operating expense, net ("OOE")
2,527
(2,397)
(94.9)
Total operating expenses
11,550
36,235
(24,685)
(68.1)
Operating loss from continuing operations
(13,950)
(44,931)
30,981
(69.0)
Operating loss as a % of revenues, net
(57.2)
%
(139.5)
%
Other income (expense):
Loss on transfer of promissory note
-
(895)
NM
Other income (expense), net
51.8
Interest income, net
(147)
(67.1)
Interest expense
(2,094)
(9,366)
7,272
(77.6)
Total other income (expense), net
(1,515)
(9,708)
8,193
(84.4)
Loss before income taxes
(15,465)
(54,639)
39,174
(71.7)
Provision for income taxes
(17)
(36.2)
Net loss from continuing operations
(15,495)
(54,686)
39,191
(71.7)
Net loss as a % of revenues, net
(63.6)
%
(169.8)
%
Net loss per common share from continuing operations (basic and diluted)
$
(105.85)
$
(5,776.63)
5,670.78
(98.2)
2024 Compared with 2023
Revenue - Sale of products, net
Year Ended
December 31
December 31
Revenues, net
$
24,382
$
32,204
Cartons sold
2,125
3,415
Tobacco revenue was $24,382, a decrease of 24.3% from $32,204 in the prior year, primarily driven by a decrease in volumes of filtered cigars and export cigarettes, offset by increases in cigarettes and new sales in 2024 for cigarillos.
Gross (loss) profit
Year Ended
December 31
December 31
Gross (loss) profit
$
(2,400)
$
(8,696)
Percent of Revenues, net
(9.8)
%
(27.0)
%
The decrease in gross loss and gross loss as a percent of revenues, net for the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily driven by implementation of cost cut initiatives, efficiency, and the shift in product mix offset by lower sales volume. Additionally, the improvement in gross loss and gross loss as a percent of revenues, net is due to the prior year period reserve for excess, obsolete or expired leaf inventory of $7,720 recorded during the fourth quarter of 2023.
Sales, general and administrative expense
Changes From Prior Year
Compensation and benefits (a)
$
(8,098)
Sales and marketing (b)
(2,456)
Strategic consulting (b)
(6,569)
Other expenses (c)
(3,654)
Net decrease in SG&A expenses
$
(20,777)
(a) Compensation and benefits and equity compensation expense decreased for the year ended December 31, 2024 compared to the prior year due to a reduction of headcount as part of our cost cut initiatives.
(b) Decreases of strategic consulting, sales and marketing and travel and entertainment for the year ended December 31, 2024 compared to the prior year were due to reduced spending as part of our cost cut initiatives.
(c) Other expenses decreased for the year ended December 31, 2024 compared to the prior year ended December 31, 2023 mainly due to decreases in insurance of $1,483, public company expenses of $1,407, legal expenses of $617, travel and entertainment of $615, technology expenses $329 and depreciation expense of $78 which were partially offset by an allocation to our hemp cannabis business that occurred in the prior year.
Research and development expense
Changes From Prior Year
Compensation and benefits (a)
$
(475)
Contract, IP and other expenses (b)
(1,036)
Net decrease in R&D expenses
$
(1,511)
(a) Decreased compensation and benefits primarily relate to the decrease in headcount in 2024 compared to the prior year.
(b) Contract, IP and other expenses decreased for the year ended December 31, 2024 compared to the prior year primarily due to a decrease in contract costs of $500 and IP related consulting and expenses of $503 due to our cost cutting initiatives.
Other operating expenses (income), net
Year Ended
December 31,
Restructuring costs:
Impairment of intangible assets
$
-
$
1,375
Impairment of fixed assets
-
Professional services
-
Severance
-
Total Restructuring costs (a)
-
2,415
Acquisition and transaction costs (b)
-
Impairment of intangible assets
-
Loss (gain) on sale or disposal of property, plant and equipment
(111)
Total other operating expense, net
$
$
2,527
(a) During the second half of 2023, the Company undertook various restructuring activities in an effort to better align its internal organizational structure and costs with its strategy, as well as preserve liquidity. As a result, the Company incurred $2,415 in restructuring costs for the year ended December 31, 2023, which included costs related to employee termination, professional services and consulting, and long-lived asset impairment.
(b) Acquisition and transaction costs primarily relate to professional fees incurred in connection with potential capital markets transactions in the prior year.
Refer to Note 18, “Other operating expenses (income), net,” of the Notes to Consolidated Financial Statements contained in Item 15 of this report for additional information regarding these charges.
Other income (expense), net
Year Ended
Loss on transfer of promissory note (a)
$
Other income (expense), net (b)
Interest income, net
(147)
Interest expense (c)
7,272
Net decrease in other expense
$
8,193
(a) During 2023 and in connection with the Senior Secured Credit Facility October 2023 Amendment, the Company assigned $3,800 PLSH promissory note less unamortized discount of $305, and corresponding pay down of indebtedness on outstanding principal of $600 and redemption of the related warrant liability of $2,000 resulting in loss on sale of financial asset of $895.
(b) Other income (expense), net primarily reflects the change in fair value of warrant liability.
(c) Interest expense decreased for 2024, as compared to the prior year 2023 as a result of ongoing repayment and elimination of debt obligations on our balance sheet. Cash interest decreased $454 and non-cash interest amortization decreased $723 recognized from the Senior Secured Credit Facility (of these totals, interest that was allocated to discontinued operations decreased by $82), and additional decreases of $1,113 as a result of change in fair value of conversion option derivative liability and other interest charges of $28. Additionally, these amounts are offset by $5,158 for extinguishment of debt in the prior year period. Additionally, interest expense decreased $278 from the Subordinated Note, which was extinguished prior to maturity in April 2024 and resulted in a loss on extinguishment of $400.
Liquidity and Capital Resources
We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business. We had negative cash flow from operations of $14,345 for the year ended December 31, 2024 and an accumulated deficit of $393,871 as of December 31, 2024. As of December 31, 2024, we had cash and cash equivalents of $4,422, indebtedness under the Convertible Senior Secured Credit Facility of $7,690 and working capital from continuing operations of $1,790 (compared to working capital deficit from continuing operations of ($6,826) at December 31, 2023). Given our projected operating requirements and existing cash and cash equivalents, there is substantial doubt about our ability to continue as a going concern through one year following the date that the Consolidated Financial Statements herein are issued.
In response to these conditions, management is currently evaluating different strategies for reducing expenses, as well as pursuing financing strategies which include raising additional funds through the issuance of securities, asset sales, and through arrangements with strategic partners. If capital is not available to the Company when, and in the amounts needed, it could be required to liquidate inventory or assets, cease or curtail operations, seek to negotiate new business deals with our business partners or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that the Company will be able to raise the capital it needs to continue operations. Accordingly, there is substantial doubt regarding our ability to continue in operations. Management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern through one year following the date that the Consolidated Financial Statements are issued.
Our cash and cash equivalents, and working capital as of December 31, 2024, and 2023, are set forth below:
December 31
December 31
Cash and cash equivalents
$
4,422
$
2,058
Working capital
$
1,790
$
(6,826)
Working Capital
As of December 31, 2024, we had working capital, excluding assets and liabilities held for sale, of approximately $1,790 compared to working capital deficit of approximately ($6,826) as of December 31, 2023, an improvement of $8,616. This increase in working capital was primarily due to a decrease in current liabilities of $13,168 offset by a decrease of $4,552 in current assets. Cash and cash equivalents increased by $2,364 and the remaining net current assets decreased by $6,916. As a result of the working capital balance, management has taken a number of steps to improve liquidity. Refer below to “Cash demands on operations.”
Summary of Cash Flow
Year Ended
December 31,
Change
$
Cash provided by (used in):
Operating activities
$
(14,345)
$
(54,987)
40,642
Investing activities
(139)
16,816
(16,955)
Financing activities
16,848
37,209
(20,361)
Net change in cash and cash equivalents
$
2,364
$
(962)
Net cash used in operating activities
Cash used in operations decreased $40,642 from $54,987 in 2023 to $14,345 in 2024. The primary driver for this decrease was lower consolidated net loss of $125,611 due to our cost savings initiatives implemented in 2024, a decrease of $89,876 related to net adjustments to reconcile net loss to cash primarily due to a loss on disposal of the hemp cannabis business that occurred in the prior year of $58,521, and a decrease in cash used for working capital components related to operations in the amount of $4,907 for the year ended December 31, 2024, as compared to the year ended December 31, 2023.
Net cash (used in) provided by investing activities
Cash used in investing activities amounted to $139 in 2024 as compared to cash provided by investing activities of $16,816 in 2023. The decrease in cash provided by investing activities of $16,955 was primarily the result of (i) a decrease in net proceeds from short-term investments of $18,239; (ii) $3,500 of property, plant, and equipment casualty loss insurance proceeds collected in the prior year; (iii) $665 from proceeds from the sale of discontinued operations in the prior year and (iv) a decrease in the proceeds from the sale of property, plant and equipment of $261. These decreased cash inflows were partially offset by a decrease in cash outflows of $5,456 related to the acquisitions of patents, trademarks and property, plant and equipment and (ii) $254 from the acquisition of RXP in the prior year.
Net cash provided by financing activities
During the year ended December 31, 2024, cash provided by financing activities decreased by $20,361, from $37,209 in the prior year, to $16,848, resulting from decreases in (i) net proceeds of $16,048 from issuance of long-term debt, (ii) proceeds of $6,016 from issuance of detachable warrants, (iii) net proceeds of $10,335 from the issuance of common stock (iv) proceeds from issuance of notes payable of $1,104 offset by an increase in net proceeds from warrant exercise of $309. These cash inflows were offset by decreases in cash outflows of note payable payments of $4,035, payments of long-term debt of $8,398, and taxes paid related to net share settlement of RSUs of $419.
Cash demands on operations
We have financed our operations to date primarily through the issuance of equity securities, proceeds from the exercise of warrants to purchase common stock and sale of debt instruments with various institutions, accredited investors, high net worth individuals and creditors.
In January and February 2024, we received net proceeds of $2,245 from the inducement and exercise of 6,081 warrants for shares of common stock and issuance of 12,160 warrants to purchase common stock. In April 2024, we received net proceeds of $3,913 from the issuance of 13,741 shares of common stock, 926 pre-funded warrants and 14,667 warrants to purchase common stock in a registered direct offering. In August and September 2024, we received net proceeds of $5,208 from the issuance of 72,000 shares of common stock pursuant to a Regulation A offering, and in separate private placements, issued 109,600 warrant to purchase common stock. In September 2024 we received net proceeds of $1,054 from the issuance of 38,041 shares of common stock and 76,348 warrants to purchase common stock in a registered direct offering. Also, in September 2024 we received net proceeds of $1,073 from the inducement and exercise of 37,624 warrants for shares of common stock and issuance of 75,248 warrants to purchase common stock. In October 2024 we received net proceeds of $2,002 from the issuance of 105,679 shares of common stock and 211,358 warrants to purchase common stock in a registered direct offering. Also, in October 2024 we received net proceeds of $2,909 from the issuance of 210,036 prefunded warrants to purchase shares of common stock and 315,055 warrants to purchase common stock in a private placement offering.
Convertible Senior Secured Credit Facility
As of December 31, 2024, the remaining principal balance under our Senior Secured Credit Facility is $7,690 of which $1,500 remains current with corresponding non-operating pledged assets. The Debentures under the Senior Secured Credit Facility allow the Holders to voluntarily convert the Debentures, in whole or in part, into shares of the Company’s common stock and the conversion option price in effect as of January 13, 2025 is $6.04. The Holders exercised conversion notices in the amount of $3,132 in January 2025 and the Company issued 518,600 shares of common stock. The remaining principal balance of the Debentures is $4,558, as of March 17, 2025 following the conversion of which the Company and Holders have $1,500 of non-operating assets pledged for repayment.
Outstanding Warrants
As of March 17, 2025, we had the following warrants outstanding:
# of warrants outstanding
Issue date exercise price
Current exercise price (1)
Expiration date
July 2022 RDO warrants
$
66,420.00
$
66,420.00
July 25, 2027
Senior Secured Credit Facility - JGB
$
41,310.00
$
27,708.00
September 3, 2028
July 19, 2023 RDO warrants (3)
$
5,227.20
$
4.3021
July 20, 2028
October 2023 CMPO warrants (3)
$
1,134.00
$
4.3021
October 19, 2028
2023 Inducement warrants (3)
$
464.40
$
4.3021
February 15, 2029
April 2024 RDO Placement Agent warrants (3)
7,611
$
361.125
$
4.3021
April 8, 2029
September 2024 Reg A+ warrants (3)
2,497,630
$
135.00
$
4.3021
December 6, 2029
September 2024 RDO warrants (3)
2,341,905
$
135.00
$
4.3021
December 6, 2029
September 2024 RDO Placement Agent warrants (3)
87,216
$
168.75
$
4.3021
December 6, 2029
September 2024 Inducement warrants (3)
2,220,465
$
135.00
$
4.3021
December 6, 2029
September 2024 Inducement Placement Agent warrants (3)
85,960
$
168.75
$
4.3021
December 6, 2029
Omnia Pre-Funded Warrants
8,519
$
0.00001
$
0.00001
Not applicable
Omnia warrants
3,408
$
361.125
$
361.125
May 1, 2029
October 2024 RDO (3)
6,359,501
$
135.00
$
4.3021
December 6, 2029
October 2024 RDO Placement Agent Warrants (3)
241,445
$
168.75
$
4.3021
December 6, 2029
October 2024 PIPE Warrants (3)
9,886,421
(4)
$
135.00
$
4.3021
(4)
(2)
October 2024 PIPE Placement Agent Warrants (3)
659,095
(4)
$
168.75
$
4.3021
(4)
(2)
24,399,683
(1) Warrant price adjusted as a result of anti-dilution or ratchet provisions.
(2) Expiration date is 5-years following shareholder approval date.
(3) The exercise prices of the warrants are subject to appropriate adjustment as a result of anti-dilution or ratchet protection provisions relating to subsequent equity sales of shares of the Company’s common stock or common stock equivalents at an effective price per share lower than the then effective exercise price of such warrants. Additionally, the warrant contains cashless and/or alternative cashless exercise features.
(4) Reflects the number of warrants and exercise price assuming stockholder approval is obtained.
Impact of Recently Issued Accounting Standards
In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. Refer to Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements contained in Item 15 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.
Critical Accounting Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates and judgments upon historical experience and other factors that are believed to be reasonable under the circumstances. Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements.
We have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimates and assumptions have had or are reasonably likely to have a material effect on the consolidated financial statements. This listing is not a comprehensive list of all of our accounting policies. For further information regarding the application of these and other accounting policies, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements contained in Item 15 of this report.
Inventories
Inventories are measured on a first-in, first-out basis at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The valuation of inventory requires us to estimate obsolete or excess inventory, as well as inventory that is not of saleable quality.
Historically, our adjustments or write-off charges recorded against inventory have been adequate to cover our losses. However, variations in methods or assumptions could have a material impact on our results. Additionally, if our demand forecasts for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory write-down or expense a greater amount of overhead costs, which would negatively impact our gross profit and net income.
Valuation of Long-Lived Assets
We make assumptions in establishing the carrying value, fair value and, if applicable, the estimated lives of our intangible and other long-lived assets. Intangible assets determined to have an indefinite useful life are not amortized. Instead, these assets are evaluated for impairment on an annual basis on December 1, the measurement date, and whenever events or business conditions change that could indicate that the asset is impaired. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable.
Evaluation of indefinite-lived intangible assets for impairment
Our indefinite-lived intangible assets include the MSA, cigarette brand predicate and trademarks. We perform an annual impairment review of our indefinite-lived intangible assets on December 1, the measurement date, unless events occur that trigger the need for an interim impairment review. We have the option to first assess qualitative factors in determining whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. If we elect not to use this option, or we determine that it is more-likely-than-not that the asset is impaired, we perform a quantitative assessment that requires us to estimate the fair value of each indefinite-lived intangible asset and compare that amount to its carrying value. Impairment, if any, is based on the excess of the carrying value over the fair value of these assets.
For our indefinite-lived intangible assets, we performed a qualitative evaluation and considered factors such as current and future sales projections, strategic objectives, future market and economic conditions, competition, and federal and state regulations. We determined as of December 1, 2024, it is more likely than not that that the assets are not impaired.
Evaluation of long-lived assets for impairment
When impairment indicators exist, we determine if the carrying value of the long-lived asset(s) including, but not limited to, PP&E, right-of-use lease assets, and definite-lived intangible asset(s) exceeds the related undiscounted future cash flows. In cases where the carrying value exceeds the undiscounted future cash flows, the carrying value is written down to fair value. Fair value is generally determined using a discounted cash flow analysis. When it is determined that the useful life of an asset (asset group) is shorter than the originally estimated life, and there are sufficient cash flows to support the carrying value of the asset (asset group), we accelerate the rate of depreciation/amortization in order to fully depreciate/amortize the asset over its shorter useful life.
Estimation of the cash flows and useful lives of long-lived assets and definite-lived intangible assets requires significant management judgment. Events could occur that would materially affect our estimates and assumptions. Unforeseen changes, such as the loss of one or more significant customers, technology obsolescence, or significant manufacturing disruption, among other factors, could substantially alter the assumptions regarding the ability to realize the return of our investment in long-lived assets, definite-lived intangible assets or their estimated useful lives.
For our long-lived assets, we determined that no impairment indicators occurred during 2024.
Detachable Warrants
Warrants issued pursuant to debt or equity offerings that the Company may be required to redeem through payment of cash or other assets outside its control are classified as liabilities and therefore measured at fair value. The Company uses a Monte Carlo valuation model to estimate fair value at each issuance and period-end date. The key assumptions used in the model are the expected future volatility in the price of the Company’s shares and the expected life of the warrants.
Embedded Derivatives - Conversion Option
Our December Amendment to the Senior Secured Credit Facility contained an embedded derivative conversion option. The Company evaluates each debt agreement to determine whether any embedded features require bifurcation from the debt host in accordance with ASC 815, Derivatives and Hedging ("ASC 815"). If the embedded feature requires bifurcation from its debt host, the Company will account for it as either a derivative liability or as a derivative in equity. The Company uses valuation models to estimate the fair value of the embedded derivatives. For the valuation to record the debt and embedded derivative related to the conversion option at fair value, the Company uses a binomial lattice model at inception and on subsequent valuation dates. This model incorporates inputs such as the stock price of the Company, risk-free interest rate, the effective debt yield and expected volatility. Certain inputs involve unobservable inputs and are classified as level 3 of the fair value hierarchy (see Note 8, Fair Value Measurement to our Consolidated Financial Statements included elsewhere in Item 15 of this Annual Report). The sensitivity of the fair value calculation to these methods, assumptions, and estimates included could create materially different results under different conditions or using different assumptions.
Off-Balance Sheet Arrangement
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.Financial Statements and Supplementary Data.
The required financial statements and the notes thereto are contained in a separate section of this Form 10-K beginning with the page following Item 15 (Exhibits and Financial Statement Schedules) and are incorporated by reference into this Item 8.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2024.
Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to a permanent exemption for smaller reporting companies.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

---

ITEM 9B. OTHER INFORMATION
Item 9B.Other Information.
Our directors and executive officers may purchase or sell shares of our common stock in the market from time to time, including pursuant to equity trading plans adopted in accordance with Rule 10b5-1 under the Exchange Act (“Rule 10b5-1”) and in compliance with guidelines specified by the Company. In accordance with Rule 10b5-1 and the Company’s insider trading policy, directors, officers and certain employees who, at such time, are not in possession of material non-public information about the Company are permitted to enter into written plans that pre-establish amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s common stock, including shares acquired pursuant to the Company’s equity plans (“Rule 10b5-1 Trading Plans”). Under a Rule 10b5-1 Trading Plan, a broker executes trades pursuant to parameters established by the director or executive officer when entering into the plan, without further direction from them. No contracts, instructions or
written plans for the sale or purchase of our securities were adopted, terminated or modified by our directors and executive officers during the three months ended December 31, 2024.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10.Directors, Executive Officers and Corporate Governance.
Information concerning our executive officers, directors and corporate governance is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2025 Annual Meeting of Stockholders.
Code of Business Conduct and Corporate Ethics
Our Board of Directors has long maintained a Code of Ethics that applies to all our directors, officers, and employees. A copy of our Code of Ethics is available on our website at http://www.xxiicentury.com. We intend to satisfy any disclosure requirements pursuant to Item 5.05 of Form 8-K regarding any amendment to, or waiver from, certain provisions of the Code of Ethics by posting such information on our website.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11.Executive Compensation.
Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2025 Annual Meeting of Stockholders.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2025 Annual Meeting of Stockholders.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13.Certain Relationships and Related Transactions, and Director Independence.
Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2025 Annual Meeting of Stockholders.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14.Principal Accounting Fees and Services.
Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2025 Annual Meeting of Stockholders.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.Exhibits and Financial Statement Schedules.
(a) (1) Financial Statements
Page
Report of Independent Registered Public Accounting Firm (PCAOB ID 317)
Consolidated Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
-51
(a) (2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not required.
(b) Exhibits
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index below following the Financial Statements, which are incorporated herein by this reference.
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of 22nd Century Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of 22nd Century Group, Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, statements of comprehensive loss, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue and profit in its tobacco business. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Debt related accounting and classification.
Critical Audit Matter description
As discussed in Note 12 of the financial statements, during the year ended December 31, 2024, the Company amended their debt via a series of letter agreements/amendments. For each agreement/amendment, the Company was required to evaluate troubled debt restructuring applicability and debt modification versus extinguishment analysis. None of these agreements/agreements met the criteria to qualify as an extinguishment. We identified the accounting for the various agreements/amendments as a critical audit matter. Auditing the accounting for these items was especially challenging due to the inherent complexity of the agreements/amendments. Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedure we performed include: Inspecting the underlying agreements/amendments and ensuring appropriate application of the relevant accounting literature to the terms of the amended Debentures.
Subordinated note settlement accounting, classification, and valuation
Critical Audit Matter description
As discussed in Note 12 of the financial statements, during the year ended December 31, 2024, the Company entered into a General Release and Settlement Agreement with Omnia Capital LP (Omnia). This agreement settled and extinguished all outstanding debt and interest owed to Omnia, via their subordinated note, as well as the put provision on the 2023 Omnia warrants. In return, Omnia received a combination of shares, pre-funded warrants, warrants, and cash. The warrants were recorded at fair value on the date of the settlement and are subsequently adjusted to fair value at the end of each reporting period.
We identified the accounting for the settlement as well as the valuations related to the warrants as a critical audit matter. Auditing the accounting for these items was especially challenging due to the inherent complexity of the agreements and the related valuation models. Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: Inspecting the underlying agreements and ensuring appropriate application of the relevant accounting literature to the terms of the settlement; evaluating the appropriateness of the fair value of the warrants; and utilizing personnel with specialized skill and knowledge in valuation to assist in assessing the fair value determined.
Warrants issued with equity raises and related deemed dividend valuation
Critical Audit Matter description
As discussed in Note 9 of the financial statements, during the year ended December 31, 2024, the Company entered into several warrant and common stock agreements with investors. Due to anti-dilution and down round provisions with their existing warrants, the agreements triggered these provisions multiple times. We identified the valuation for these deemed dividends to be a critical audit matter. Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: Inspecting the underlying agreements; evaluating the appropriateness of the fair value calculations of the warrants; and utilizing personnel with specialized skill and knowledge in valuation to assist in assessing the fair value determined.
/s/ Freed Maxick P.C. (F/K/A Freed Maxick CPAs, P.C.)
We have served as the Company’s auditor since 2011.
Buffalo, New York
March 20, 2025
22nd CENTURY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share and per-share data)
December 31,
December 31,
ASSETS
Current assets:
Cash and cash equivalents
$
4,422
$
2,058
Accounts receivable, net
1,698
1,671
Inventories
2,015
4,346
Insurance recoveries
3,768
GVB promissory note
2,000
Prepaid expenses and other current assets
1,068
1,180
Current assets of discontinued operations held for sale
1,051
1,254
Total current assets
11,522
16,277
Property, plant and equipment, net
2,773
3,393
Operating lease right-of-use assets, net
1,639
1,894
Intangible assets, net
5,724
5,924
Other assets
Total assets
$
21,673
$
27,503
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes and loans payable - current
$
$
Current portion of long-term debt
1,500
5,848
Operating lease obligations
Accounts payable
2,401
4,445
Accrued expenses
1,021
1,322
Accrued litigation
3,768
Accrued payroll
Accrued excise taxes and fees
2,038
2,234
Deferred income
Other current liabilities
1,849
Current liabilities of discontinued operations held for sale
1,281
3,185
Total current liabilities
9,962
25,034
Long-term liabilities:
Operating lease obligations
1,437
1,698
Long-term debt
5,165
8,058
Other long-term liabilities
1,097
1,123
Total liabilities
17,661
35,913
Commitments and contingencies (Note 11)
Shareholders' equity (deficit):
Preferred stock, $.00001 par value, 10,000,000 shares authorized
Common stock, $.00001 par value, 250,000,000 shares authorized
Capital stock issued and outstanding:
730,148 common shares (20,313 at December 31, 2023)
Common stock, par value
-
-
Capital in excess of par value
397,883
370,297
Accumulated deficit
(393,871)
(378,707)
Total shareholders' equity (deficit)
4,012
(8,410)
Total liabilities and shareholders’ equity (deficit)
$
21,673
$
27,503
See accompanying notes to consolidated financial statements.
22nd CENTURY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per-share data)
Year Ended
December 31,
Revenues, net
$
24,382
$
32,204
Cost of goods sold
14,278
24,891
Excise taxes and fees on products
12,504
16,009
Gross (loss) profit
(2,400)
(8,696)
Operating expenses:
Sales, general and administrative
10,287
31,064
Research and development
1,133
2,644
Other operating expense, net
2,527
Total operating expenses
11,550
36,235
Operating loss from continuing operations
(13,950)
(44,931)
Other income (expense):
Other income (expense), net
Loss on transfer of promissory note
-
(895)
Interest income, net
Interest expense
(2,094)
(9,366)
Total other income (expense), net
(1,515)
(9,708)
Loss from continuing operations before income taxes
(15,465)
(54,639)
Provision for income taxes
Net loss from continuing operations
$
(15,495)
$
(54,686)
Discontinued operations:
Income (loss) from discontinued operations before income taxes
$
$
(85,634)
Provision for income taxes
-
Net income (loss) from discontinued operations
$
$
(86,089)
Net loss
$
(15,164)
$
(140,775)
Deemed dividends
(10,303)
(9,992)
Net loss available to common shareholders
$
(25,467)
$
(150,767)
Basic loss per share:
Basic loss per common share from continuing operations
$
(105.85)
$
(5,776.63)
Basic income (loss) per common share from discontinued operations
$
2.26
$
(9,093.89)
Basic loss per common share from deemed dividends
$
(70.38)
$
(1,055.47)
Basic loss per common share
$
(173.97)
$
(15,925.99)
Diluted loss per share:
Diluted loss per common share from continuing operations
$
(105.85)
$
(5,776.63)
Diluted income (loss) per common share from discontinued operations
$
0.24
$
(9,093.89)
Diluted loss per common share from deemed dividends
$
(70.38)
$
(1,055.47)
Diluted loss per common share
$
(175.99)
$
(15,925.99)
Weighted average shares outstanding:
Basic
146,392
9,467
Diluted
1,389,983
9,467
See accompanying notes to consolidated financial statements.
22nd CENTURY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
Year Ended
December 31,
Net loss
$
(15,164)
$
(140,775)
Other comprehensive income:
Unrealized gain on short-term investment securities
-
Foreign currency translation
-
(1)
Reclassification of realized losses to net loss
-
Other comprehensive income
-
Comprehensive loss
$
(15,164)
$
(140,664)
See accompanying notes to consolidated financial statements.
22nd CENTURY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(amounts in thousands, except share amounts)
Years Ended December 31, 2024 and 2023
Common
Par Value
Capital in
Other
Shares
of Common
Excess of
Comprehensive
Accumulated
Shareholders'
Outstanding
Shares
Par Value
Income (Loss)
Deficit
Equity
Balance at January 1, 2023
6,389
$
-
$
333,900
$
(111)
$
(237,814)
$
95,975
Stock issued in connection with RSU vesting, net of shares withheld for taxes
-
(419)
-
-
(419)
Stock issued in connection with acquisition
-
-
-
Stock issued in connection with ATM, net of fees of $178
-
2,563
-
-
2,563
Stock issued in connection with licensing arrangement
-
3,570
-
-
3,570
Stock issued in connection with capital raises, net of issuance costs of $2,279
6,646
-
22,880
-
-
22,880
Stock issued in connection with warrant exercises, net of fees of $292
6,875
-
3,044
-
-
3,044
Equity detachable warrants
-
-
1,577
-
-
1,577
Adoption of ASU 2016-13
-
-
-
-
(118)
(118)
Fractional shares issued for reverse stock split
-
-
-
-
-
Equity-based compensation
-
-
2,679
-
-
2,679
Other comprehensive income
-
-
-
-
Net loss
-
-
-
-
(140,775)
(140,775)
Balance at December 31, 2023
20,313
$
-
$
370,297
$
-
$
(378,707)
$
(8,410)
Stock issued in connection with RSU vesting, net of 3 shares withheld for taxes
-
(1)
-
-
(1)
Stock issued in connection with licensing arrangement
2,679
-
-
-
Stock issued in connection with warrant exercises, net of fees of $261
362,762
-
3,354
-
-
3,354
Stock issued in connection with Reg A Private Placement, net of issuance costs of $332
72,002
-
5,208
-
-
5,208
Stock issued in connection with capital raises, net of issuance costs of $713
105,502
-
9,879
-
-
9,879
Stock issued upon conversion of Senior Secured Credit Facility
14,928
-
3,084
-
-
3,084
Stock issued in connection with settled indebtedness
15,720
-
1,617
-
-
1,617
Stock issued for extinguishment of Subordinated Note (1)
8,519
-
3,864
-
-
3,864
Reclass of conversion option
-
-
-
-
Fractional shares issued for reverse stock split
127,694
-
-
-
-
-
Equity-based compensation
-
-
-
-
Net loss
-
-
-
-
(15,164)
(15,164)
Balance at December 31, 2024
730,148
$
-
$
397,883
$
-
$
(393,871)
$
4,012
*Giving retroactive effect to the 1-for-15 reverse stock split on July 5, 2023, 1-for-16 reverse stock split on April 2, 2024 and 1-for-135 reverse stock split on December 17, 2024.
(1) Excludes 8,519 of pre-funded warrants
See accompanying notes to consolidated financial statements.
22nd CENTURY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Ended
December 31,
Cash flows from operating activities:
Net loss
$
(15,164)
$
(140,775)
Adjustments to reconcile net loss to cash used in operating activities:
Impairment of goodwill and long-lived assets
3,297
Amortization and depreciation
1,003
3,951
Amortization of right-of-use asset
Other non-cash gains
(947)
(15)
Provision for credit losses
1,024
Loss on sale or disposal of machinery and equipment
Debt related charges included in interest expense
2,174
8,006
Equity-based compensation
2,679
Gain on change of contingent consideration
-
(1,138)
Change in fair value of warrant liabilities
(492)
(364)
Change in fair value of derivative liability
(556)
Loss on disposal of discontinued operations
-
58,521
Loss on transfer of promissory note
-
Deferred income taxes
Change in inventory reserves
(4,374)
8,695
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable
(30)
(18)
Inventories
6,705
(5,925)
Prepaid expenses and other assets
Accounts payable
(1,169)
4,752
Accrued expenses
(475)
Accrued payroll
(565)
(2,153)
Accrued excise taxes and fees
(196)
Other liabilities
(1,257)
(334)
Net cash used in operating activities
(14,345)
(54,987)
Cash flows from investing activities:
Acquisition of patents, trademarks, and licenses
(20)
(961)
Acquisition of property, plant and equipment
(141)
(4,656)
Proceeds from the sale of property, plant and equipment
Acquisition, net of cash acquired
-
(254)
Proceeds from sale of discontinued operations
-
Property, plant and equipment insurance proceeds
-
3,500
Sales and maturities of short-term investment securities
-
21,714
Purchase of short-term investment securities
-
(3,475)
Net cash (used in) provided by investing activities
(139)
16,816
Cash flows from financing activities:
Payments on notes payable
(1,546)
(5,581)
Proceeds from issuance of notes payable
1,256
2,360
Payments of long-term debt
(1,302)
(9,700)
Proceeds from issuance of long-term debt
-
16,849
Payment of debt issuance costs
-
(801)
Proceeds from issuance of detachable warrants
-
6,016
Net proceeds from warrant exercise
3,354
3,044
Proceeds from issuance of common stock related to the ATM
-
2,741
Payment of common stock issuance costs related to the ATM
-
(178)
Proceeds from issuance of common stock
16,132
25,158
Payment of common stock issuance costs
(1,045)
(2,279)
Taxes paid related to net share settlement of RSUs
(1)
(420)
Net cash provided by financing activities
16,848
37,209
Net increase (decrease) in cash, cash equivalents and restricted cash
2,364
(962)
Cash and cash equivalents - beginning of period
2,058
3,020
Cash and cash equivalents - end of period
$
4,422
$
2,058
Supplemental disclosures of cash flow information:
Net cash paid for:
Cash paid during the period for interest
$
$
1,313
Cash paid during the period for income taxes
$
$
Non-cash transactions:
Capital expenditures incurred but not yet paid
$
$
Right-of-use assets and corresponding operating lease obligations
$
-
$
5,166
Deemed dividends
$
10,303
$
9,992
Stock issued in connection with settled indebtedness
$
1,617
$
-
Non-cash consideration RXP acquisition
$
-
$
1,641
Non-cash licensing arrangement
$
$
3,500
Stock issued for extinguishment of Subordinated Note
$
3,864
$
-
Payment of GVB Promissory Note
$
1,500
$
2,600
Insurance/litigation gross up
$
-
$
3,768
Non-cash proceeds from sale of discontinued operations
$
-
$
2,000
Payment of debt issuance costs
$
$
-
Equity conversion of Senior Secured Credit Facility
$
3,084
$
-
See accompanying notes to consolidated financial statements.
22nd CENTURY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2024
Amounts in thousands, except for share and per share data
NOTE 1. - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
22nd Century Group, Inc. (together with its consolidated subsidiaries, “22nd Century Group” or the “Company”) is a publicly traded Nevada corporation on the NASDAQ Capital Market under the symbol “XXII.” 22nd Century Group is a tobacco products company with sales and distribution of the Company’s own proprietary new reduced nicotine tobacco products authorized as Modified Risk Tobacco Products by the FDA. Additionally, the Company provides contract manufacturing services for conventional combustible tobacco products for third-party brands.
Basis of Presentation and Principles of Consolidation - The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of 22nd Century Group and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
As described in Note 2, on December 22, 2023, the Company divested substantially all of the assets of GVB Biopharma’s (“GVB”) business within its former hemp/cannabis segment.
As a result of the divestiture of GVB and strategic shift away from hemp/cannabis, the Company has realigned its corporate and management reporting structure to focus solely on its tobacco business. As a result, during the fourth quarter of 2023, the Company reorganized its business to become a single reportable segment: tobacco.
The results of operations of the former hemp/cannabis segment are reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented and the related assets and liabilities associated with the discontinued operations are classified as held for sale in the Consolidated Balance Sheets as of December 31, 2024 and 2023, respectively. The Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations due to 22nd Century’s (parent) centralized treasury and cash management processes, and, accordingly, cash flow amounts for discontinued operations are disclosed in Note 2 “Discontinued Operations and Divestitures.” All results and information in the Consolidated Financial Statements are presented as continuing operations and exclude the former hemp/cannabis segment unless otherwise noted specifically as discontinued operations.
Use of Estimates - The preparation of financial statements in conformity with 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 of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Liquidity and Capital Resources - These Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue and profit in its tobacco business. The Company had negative cash flow from operations of $14,345 and $54,987 for the years ended December 31, 2024 and 2023, respectively, and an accumulated deficit of $393,871 and $378,707 as of December 31, 2024 and December 31, 2023, respectively. As of December 31, 2024, the Company had cash and cash equivalents of $4,422.
Given the Company’s projected operating requirements and its existing cash and cash equivalents, there is substantial doubt about the Company’s ability to continue as a going concern through one year following the date that the Consolidated Financial Statements are issued.
In response to these conditions, management is currently evaluating different strategies for reducing expenses, as well as pursuing financing strategies which include raising additional funds through the issuance of securities, asset sales, and through arrangements with strategic partners. If capital is not available to the Company when, and in the amounts needed, it could be required to liquidate inventory or assets, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that the Company will be able to raise the capital it needs to continue operations. Management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern through one year following the date that the Consolidated Financial Statements are issued.
The Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Other Significant Risks and Uncertainties - The Company is subject to a number of risks, including, but not limited to, the lack of available capital; future covenant non-compliance with respect to the Company’s Senior Secured Credit Facility giving rise to an event of default; inability to identify or consummate any strategic initiatives and transactions; unsuccessful commercialization strategy and launch plans for the Company’s products or market acceptance of the Company’s products; risks inherent in litigation, including purported class actions; and protection of proprietary technology.
Reverse Stock Split - In order to regain compliance with Nasdaq's continued listing requirements, the Company effected the following reverse stock splits:
Round up of
Date
Split
fractional shares
July 5, 2023
1-for-15
April 2, 2024
1-for-16
December 17, 2024
1-for-135
126,818
All share and per share amounts, and exercise prices of stock options, and warrants in the Consolidated Financial Statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the reverse stock splits.
Preferred stock authorized - The Company is authorized to issue “blank check” preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock.
Concentration of Credit Risk - Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in financial institutions. Although the cash accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions. Management reviews the financial viability of these institutions on a periodic basis.
Cash and cash equivalents - The Company considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. However, the Company has elected to classify money market mutual funds related to its short-term investment portfolio as short-term investment securities. There are no restrictions on the Company’s cash and cash equivalents.
Trade Accounts Receivable and Provision for Current Expected Credit Losses - The Company provides credit, in the normal course of business, to its tobacco customers in the form of trade receivables. Credit is extended based on evaluation of a customer’s financial condition and collateral is not required. The Company maintains a provision for those trade receivables that it does not expect to collect. In accordance with Accounting Standards Codification (“ASC”) Topic 326, the Company accrues its estimated losses from uncollectable accounts receivable to the provision based upon recent historical experience, the length of time the receivable has been outstanding, other specific information as it becomes available, and reasonable and supportable forecasts not already reflected in the historical loss information. Provisions for current expected credit losses are charged to current operating expenses. Actual losses are
charged against the provision when incurred. As of December 31, 2024, and 2023, the Company recorded a provision for credit losses of $9 and $8, respectively.
Inventories - Inventories are valued at the lower of historical cost or net realizable value. Cost is determined using an average cost method for tobacco leaf inventory by crop year and raw materials inventory. Standard cost is primarily used for finished goods inventory. Inventories are evaluated to determine whether any amounts are not recoverable based on slow moving or obsolete condition and are written off or reserved as appropriate.
Property, plant and equipment - Plant and equipment are recorded at their acquisition cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are depreciated on a straight-line basis over the term of the lease or the estimate useful life of the asset, whichever is shorter. Depreciation commences when the asset is placed in service. The following table shows estimated useful lives of property, plant and equipment:
Classification
Estimated Useful Lives
Leasehold improvements
shorter of 15 years or lease term
Manufacturing equipment
5 to 15 years
Office furniture, fixtures and equipment
3 to 10 years
Laboratory equipment
5 years
Acquisitions - The Company accounts for acquisitions under the acquisition method of accounting for business combinations. Results of operations of acquired companies are included in the Company’s results of operations as of the respective acquisition dates. The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. Any purchase price in excess of these net assets is recorded as goodwill. The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.
Discontinued Operations - In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as a discontinued operation, the Company analyzes whether the group of assets being disposed of represented a component of the entity; that is, whether it had historic operations and cash flows that were clearly distinguished (both operationally and for financial reporting purposes). In addition, the Company considers whether the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell. The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal transaction.
Contingent Consideration - Contingent consideration arising from a business acquisition is included as part of the purchase price and is recorded at fair value as of the acquisition date. Subsequent to the acquisition date, the Company remeasures contingent consideration arrangements at fair value at each reporting period until the contingency is resolved. The changes in fair value are recognized within Other operating expenses (income), net in the Company’s Consolidated Statement of Operations and Comprehensive Loss. Changes in fair values reflect new information about the likelihood of the payment of the contingent consideration and the passage of time. See Note 3 “Business Acquisitions” for the contingent consideration arising from the acquisition of RX Pharmatech Ltd.
Goodwill - Goodwill represents the excess of cost over the fair value of identifiable net assets of a business acquired and is assigned to one or more reporting units. The Company tests its reporting unit’s goodwill for impairment at least annually as of the measurement date year and between annual tests if an event occurs or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. The Company concluded an interim impairment trigger event occurred and tested its goodwill for impairment during the quarter ended September 30, 2023 and concluded that goodwill impairment existed. No goodwill remained as of December 31, 2023. See Note 2 “Discontinued Operations and Divestitures” for additional information.
Intangible Assets - Definite lived intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patent rights from third-parties, (2) license fees paid for third-party intellectual property. The amounts capitalized relate to intellectual property that the Company owns or to which it has rights to use. The Company’s capitalized intellectual property costs are amortized using the straight-line method over the remaining statutory life of the patent assets in each of the Company’s patent families, which have estimated expiration dates ranging from 2026 to 2043. Periodic maintenance or renewal fees are expensed as incurred. Annual minimum license fees are charged to expense. License fees paid for third-party intellectual property are amortized on a straight-line basis over the last to expire patents, which have expected expiration dates from 2028 through 2043.
The Company believes that costs associated with becoming a signatory to the master settlement agreement “MSA”, costs related to the acquisition of a predicate cigarette brand, and tobacco brand related trademarks have indefinite lives. At each reporting period, the Company evaluates whether the nature and use of the asset continue to support the indefinite-lived classification.
Impairment of Long-Lived Assets - The Company reviews the carrying value of its long-lived assets at each reporting period to determine if impairment indicators are present in accordance with ASC 360-Property, plant, and equipment or ASC 350- Intangibles, Goodwill, and Other.
Definite lived intangible assets subject to amortization are reviewed for strategic importance and commercialization opportunity prior to expiration. If it is determined that the asset no longer supports the Company’s strategic objectives and/or will not be commercially viable prior to expiration, the asset is impaired. In addition, the Company will assess the expected future undiscounted cash flows for its intellectual property based on consideration of future market and economic conditions, competition, federal and state regulations, and licensing opportunities. If the carrying value of such assets are not recoverable, the carrying value will be reduced to fair value and the difference is recorded as impairment.
Indefinite-lived intangible asset carrying values are reviewed at least annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an impairment exists. The Company first performs a qualitative assessment and considers its current strategic objectives, future market and economic conditions, competition, and federal and state regulations to determine if an impairment is more likely than not. If it is determined that an impairment is more likely than not, a quantitative assessment is performed to compare the asset carrying value to fair value.
Leases - The Company determines if an arrangement is, or contains, a lease at inception and classifies it as operating or finance. The Company has operating and finance leases for office and manufacturing facilities, machinery and vehicles. Finance lease assets and corresponding liabilities are not material to the Consolidated Financial Statements.
Any operating lease having a lease term greater than twelve months will be recognized on the Consolidated Balance Sheets as a right-of-use (ROU) asset with an associated lease obligation-all other leases are considered short-term in nature and will be expensed on a month-to-month basis. The ROU assets and lease obligations are recognized as of the commencement date at the net present value of the fixed minimum lease payments for the lease term. The lease term is determined based on the contractual conditions, including whether renewal options are reasonably certain to be exercised. The discount rate used is the interest rate implicit in the lease, if available, or the Company’s incremental borrowing rate which is determined using a base line rate plus an applicable spread.
Refer to Note 6 “Right-of-use Assets, Lease Obligations, and Other Leases” for additional information.
Fair Value of Financial Instruments - FASB ASC 820 - Fair Value Measurements and Disclosures establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
● Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;
● Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and
● Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.
A financial asset’s or a financial liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company estimates that the carrying amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, contract assets, promissory note receivable, accounts payable and accrued expenses, and notes and loans payable approximate their fair value due to the short-term nature of these items. Note 8 “Fair Value Measurements” contains additional information on assets and liabilities recorded at fair value in the Consolidated Financial Statements.
Warrants - The Company accounts for common stock warrants as either equity instruments, derivative liabilities, or liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815) depending on the specific terms of the warrant agreement. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
Warrants that the Company may be required to redeem through payment of cash or other assets outside its control are classified as liabilities pursuant to ASC 480 and are initially and subsequently measured at their estimated fair values. Changes in subsequent measurement fair value are recorded in Other income (expense), net of the Company’s Consolidated Statements of Operations and Comprehensive Loss. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of Capital in excess of par value at the time of issuance. For additional discussion on warrants, see Note 8 “Fair Value Measurements” and Note 9 “Capital Raises and Warrants for Common Stock”.
Deemed dividends associated with down round provisions (commonly referred to as “ratchets”) represent the economic transfer of value to holders of equity-classified freestanding financial instruments when these provisions are triggered. These deemed dividends are presented as a reduction in net income or an increase in net loss available to common stockholders and a corresponding increase to Capital in excess of par value resulting in no change to stockholders’ equity/deficit. See Note 9 “Capital Raises and Warrants for Common Stock.”
Debt Issued with Detachable Warrants - The Company considers guidance within ASC 470-20, Debt (ASC 470), ASC 480, and ASC 815 when accounting for the issuance of debt with detachable warrants. As described above under the caption “Warrants”, the Company classifies stock warrants as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement. In circumstances in which debt is issued with detachable warrants, the proceeds from the issuance of the debt are first allocated to the warrants at their full estimated fair value with a corresponding debt discount. The remaining proceeds, as further reduced by discounts (including those created by the bifurcation of embedded derivatives), is allocated to the debt. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds, to interest expense using the effective interest method over the expected term of the debt instrument pursuant to ASC 835, Interest (ASC 835).
Embedded Derivatives - The Company considers whether there are any embedded features in debt instruments that require bifurcation and separate accounting as derivative financial instruments pursuant to ASC 815. Embedded derivatives are initially and subsequently measured at fair value. With the exception of the bifurcated embedded conversion option as described in Note 12 “Debt”, the embedded derivatives associated with the Company’s Senior Secured Credit Facility and Subordinated Note are not material.
Debt Issuance Costs and Discounts - Debt issuance costs and discounts associated with the issuance of debt by the Company are deferred and amortized over the term of the related debt. Debt issuance costs and discounts related to the Company’s Senior Secured Credit Facility and Subordinated Note are recorded as a reduction of the carrying value of the related debt and are amortized to Interest expense using the effective interest method over the period from the date of issuance to the maturity date, whichever is earlier. The amortization of debt issuance costs and discounts are included in Debt related charges included in interest expense in the Consolidated Statements of Cash Flows. Note 12 “Debt” contains additional information on the Company’s debt issuance costs and discounts.
Transfers of Financial Assets - The Company accounts for transfers of financial assets as sales when it has surrendered control over the related assets. Whether control has been relinquished requires, among other things, an evaluation of relevant legal considerations and an assessment of the nature and extent of the Company’s continuing involvement with the assets transferred. Gains and losses resulting from transfers reported as sales are included as a component of Other income (expense) in the Consolidated Statement of Operations and Comprehensive Loss.
Gain/Loss on Debt Extinguishment - Gain or loss on debt extinguishment is generally recorded upon an extinguishment of a debt instrument. Gain or loss on extinguishment of debt is calculated as the difference between the reacquisition price and net carrying amount of the debt, which includes unamortized debt issuance costs. Gains and losses on debt extinguishment are included as a component of Interest expense in the Consolidated Statement of Operations and Comprehensive Loss.
Related Party Transaction - A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company may conduct business with its related parties in the ordinary course of business.
Beginning in the fourth quarter of 2024, the Company recorded $154 of revenue, net and corresponding contract asset with a related party contract manufacturing customer for the sale of private label cigarettes. The customer relationship is conducted at arm’s length.
Revenue Recognition - The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. For additional discussion on revenue recognition, refer to Note 16 “Revenue Recognition”.
Research and Development - Research and development costs are expensed as incurred.
Stock Based Compensation - The Company’s Omnibus Incentive Plan allows for various types of equity-based incentive awards. Stock based compensation expense is based on awards that are expected to vest over the requisite service periods and are based on the fair value of the award measured on the grant date. Vesting requirements vary for directors, officers, and employees. In general, time-based awards fully vest after one year for directors and vest in equal annual installments over a three-year period for officers and employees. Performance-based awards vest upon achievement of certain milestones. Forfeitures are accounted for when they occur.
Income Taxes - The Company recognizes deferred tax assets and liabilities for any basis differences in its assets and liabilities between tax and U.S. GAAP reporting, and for operating loss and credit carry-forwards.
As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to fully offset its net deferred tax assets associated with definite lived assets as of December 31, 2024, and December 31, 2023.
The Company’s federal and state tax returns for the years ended December 31, 2021 through December 31, 2023 are currently open to audit under the statutes of limitations. The Company is currently under federal examination for tax year 2021. There are no other pending audits as of December 31, 2024.
Earnings (Loss) Per Common Share - Basic earnings (loss) per common share is computed using the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed assuming conversion of all potentially dilutive securities, using the treasury-stock method or the if-converted method, as applicable. Potential common shares outstanding are excluded from the computation if their effect is anti-dilutive. Refer to Note 15 “Earnings (Loss) Per Common Share” for additional information.
Gain and Loss Contingencies - The Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When a loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of related expenses. The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability.
The Company maintains general liability insurance policies for its facilities. Under the terms of our insurance policies, in the case of loss to a property, the Company follows the guidance in ASC 610-30, Other Income -Gains and Losses on Involuntary Conversions, for the conversion of nonmonetary assets (the properties) to monetary assets (insurance recoveries). Under ASC 610-30, once the recovery is deemed probable the Company recognizes an asset for the insurance recovery receivable in the Consolidated Balance Sheets, with corresponding income that is offsetting to the casualty losses recorded in the Consolidated Statements of Operations and Comprehensive Loss. If the insurance recovery is less than the amount of the casualty charges recognized, the Company will recognize a loss whereas if the insurance recovery is greater than the amount of casualty loss recognized, the Company will only recognize a recovery up to the amount of the casualty loss and will account for the excess as a gain contingency in accordance with ASC 450-30, Gain Contingencies. Business interruption insurance is treated as a gain contingency. Gain contingencies are recognized when earned and realized, which typically will occur at the time of final settlement or when cash is received.
Refer to Note 11 “Commitments and Contingencies”.
Severance charges - From time to time, the Company evaluates its resources and optimizes its business plan to align to changing needs of executing on its strategy. These actions may result in voluntary or involuntary employee termination benefits. Voluntary termination benefits are accrued when an employee accepts the related offer. Involuntary termination benefits are accrued upon the commitment to a termination plan and the benefit arrangement is communicated to affected employees, or when liabilities are determined to be probable and estimable, depending on the existence of a substantive plan for severance or termination. The following table summarizes the change in accrued severance liabilities, presented within Other current liabilities on the Consolidated Balance Sheets:
Balance at January 1, 2023
$
Accruals
Reversal from settlement
(168)
Cash payments
(870)
Balance at January 1, 2024
$
Accruals
Cash payments
(289)
Settlement in common stock
(23)
Balance at December 31, 2024
$
The following table summarizes the classification of severance charges on the Condensed Consolidated Statements of Operations and Comprehensive Loss:
Year Ended
December 31,
Sales, general, and administrative
$
$
Other operating expense (income), net
-
Total severance charges
$
$
Recent Accounting Pronouncement(s) -
The Company adopted ASU 2016-13, or ASC 326 Financial Instruments-Credit Losses, effective January 1, 2023 under a modified retrospective approach. Under the current expected credit losses (“CECL”) model, the Company immediately recognizes an estimate of credit losses expected to occur over the life of the financial asset at the time the financial asset is originated or acquired. Estimated credit losses are determined by taking into consideration historical loss conditions, current conditions and reasonable and supportable forecasts. Changes to the expected lifetime credit losses are recognized each period. The new guidance applies to the Company’s trade receivables and contract asset balances. Due to the nature of business operations and contracts with customers, the Company has historically not experienced significant bad debt expense or write-offs and as a result, the adoption of ASC 326 did not have a material impact to the Company’s Consolidated Financial Statements. In connection with the adoption of ASC 326, the Company recorded a provision for credit losses of $118 with an offsetting cumulative-effect adjustment to the opening balance of retained earnings as of January 1, 2023.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable Segment Disclosures. The ASU enhances disclosure of significant segment expenses by requiring disclosure of significant segment expenses regularly provided to the chief operating decision maker, extend certain annual disclosures to interim periods, and permits more than one measure of segment profit or loss to be reported under certain conditions. The amendments in ASU 2023-07 were adopted by the Company effective January 1, 2024 for the fiscal year-ended December 31, 2024 and interim reports beginning in fiscal year 2025. See Note 17 “Segment and Geographic Information.”
Accounting Guidance Not Yet Elected or Adopted
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)-Improvements to Income Tax Disclosures. The ASU requires additional quantitative and qualitative income tax disclosures to allow readers of the consolidated financial statements to assess how the Company’s operations, related tax risks and tax planning affect its tax rate and prospects for future cash flows. For public business entities, the ASU is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements.
We consider the applicability and impact of all ASUs. If the ASU is not listed above, it was determined that the ASU was either not applicable or would have an immaterial impact on our financial statements and related disclosures.
NOTE 2. - DISCONTINUED OPERATIONS AND DIVESTITURES
Provision for Impairment of GVB Hemp/Cannabis Business
During the third quarter of 2023, the Company identified certain events and circumstances that could potentially be an impairment triggering event for both the tobacco and hemp/cannabis reporting units in connection with (1) the announcement of initiating a process to evaluate strategic alternatives for the Company’s assets, and (2) announcement of cost cut initiatives intended to yield significant cash savings on an annual basis. The initiation of these two processes was in response to the sustained decline in the Company's market capitalization, operating losses and negative cash flows from operations, and current liquidity position, and is intended to monetize the value or more effectively expand the market reach of our products.
Accordingly, the Company evaluated the impact on each of its reporting units to assess whether there was an impairment triggering event requiring it to perform a goodwill impairment test. The Company had no recorded goodwill in its tobacco reporting unit. For the hemp/cannabis reporting unit, as part of this impairment test, the Company considered certain qualitative factors, such as the Company’s performance, business forecasts, and strategic plans. It reviewed key assumptions, including projected cash flows and future revenues. After reviewing the qualitative assessment, the Company determined a quantitative assessment was required to be performed.
Using the income approach, with the discount rate selected considering and capturing the related risk associated with the forecast, the Company compared the fair value of the reporting unit to carrying value. Based on the results, the carrying value of the hemp/cannabis reporting unit exceeded its fair value and the goodwill was determined to be impaired and $33,360, representing the full amount of goodwill recorded to the hemp/cannabis reporting unit, was written off as impaired during the quarter ended September 30, 2023.
The impairment charge is the result of the Company's Step-1 goodwill impairment test for the former hemp/cannabis reporting unit, which reflected a decrease in the future expected cash flows related to bulk ingredient and CDMO+D product sales, along with increases in discount rates to reflect the uncertainty of future cash flows. Estimating the fair value of goodwill requires the use of estimates and significant judgments that are based on a number of factors, including unobservable level 3 inputs. These estimates and judgments may not be within the control of the Company and accordingly it is reasonably possible that the judgments and estimates could change in future periods.
The Company also evaluated the recoverability of its hemp/cannabis segment other intangible assets, net and long-lived assets to determine whether any assets or asset groups were impaired. The Company determined that the carrying value of certain tradenames, patents and license intangible assets, net were greater than their fair value, as these intangible assets related to hemp/cannabis operations. Therefore, the Company recorded additional provision for impairment in the amount of $10,879, the Cookies license acquired in the second quarter of 2023 was written-off and fully impaired in the amount of $3,037, and a loss on equity investments of $682. Additionally, through a similar analysis, the Company recorded provision for impairment of $7,418 for property, plant and equipment and $5,038 for operating lease right-of-use assets related to manufacturing and lab facilities. The undiscounted cash flow analysis and fair value determination requires the use of estimates and significant judgments that are based on a number of factors, including unobservable level 3 inputs. For the year ended December 31, 2023, total impairment charges for other intangibles and long-lived assets is $25,189.
Discontinued Operations and Divestiture of GVB Hemp/Cannabis Business
On November 20, 2023, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Specialty Acquisition Corporation, a Nevada corporation (the “Buyer”) pursuant to which the Company agreed to sell substantially all of its equity interests in its GVB hemp/cannabis business (the “Purchased Interests”) for a purchase price of $2,250 (the “Purchase Price”).
On December 22, 2023, the Company and the Buyer entered into an Amendment to Equity Purchase Agreement (the “GVB Amendment”) pursuant to which the Company and the Buyer increased the Purchase Price to $3,100 (the “New Purchase Price”) which consisted of (i) a cash payment of $1,100 to the Company’s senior lender, on behalf of and at the direction of the Company and (ii) a 12% secured promissory note issued by the Buyer to the Company’s senior lender, on behalf of and at the direction of the Company, in an aggregate principal amount of $2,000 (the “GVB Note”). Until repaid to the senior lender, the GVB Note is recorded as a current asset and corresponding amount is pledged as Current portion of long term debt on the Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023.
The parties previously agreed that the Company would retain any insurance proceeds received in connection with the fire at the Grass Valley manufacturing facility, if any (the “Insurance Proceeds”) and up to the first $2,000 of the Insurance Proceeds would be used to offset the Buyer’s portion of certain shared liabilities. Pursuant to the terms of the GVB Amendment, the Buyer will be entitled to offset its portion of certain shared contingent liabilities up to $1,000; provided that, the Insurance Proceeds exceed $5,000.
In connection with the closing of the transaction on December 22, 2023, but prior to any adjustments for Insurance Proceeds and certain shared liabilities, after selling expenses of $434, the Company recognized a loss on disposal of discontinued operations of $58,521 during the year ended December 31, 2023, which includes the third quarter impairment charges described above.
For disposal transactions, a component of an entity that is anticipated to be sold in the future is reported in discontinued operations after it meets the criteria for held-for-sale classification, and if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The Company evaluated the quantitative and qualitative factors related to the expected sale of the GVB hemp/cannabis business and exit from the hemp/cannabis space, and concluded that it met the held-for-sale criteria and that all other conditions for discontinued operations presentation were not met until November 30, 2023. Property, plant and equipment are not depreciated, and intangibles assets are not amortized once classified as held-for-sale.
As a result, the operating results of the hemp/cannabis disposal group have been classified as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented and the assets and liabilities of the hemp/cannabis disposal group have been classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets at December 31, 2024 and 2023, respectively.
The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell. Following the provision for impairment charges recorded during the third quarter of 2023 as described above, the Company concluded the carrying value of assets and liabilities of the GVB hemp/cannabis business approximated fair value when deemed held for sale based on the purchase price consideration of $3,100.
As of December 31, 2024 and 2023, all assets and liabilities of the hemp/cannabis disposal group are presented as current in the Consolidated Balance Sheets as management believes the remaining disposal and exit from hemp/cannabis is deemed probable and will occur within one year. The carrying amounts of the hemp/cannabis disposal group assets and liabilities that were classified as assets and liabilities of discontinued operations held for sale were as follows:
December 31,
December 31,
Prepaid expenses and other current assets
$
-
$
Property, plant and equipment, net
1,051
1,207
Other assets
-
Current assets of discontinued operations held for sale
$
1,051
$
1,254
Notes and loans payable - current
$
-
$
Operating lease obligations
-
1,083
Accounts payable
1,210
2,013
Accrued expenses
Deferred income
-
Current liabilities of discontinued operations held for sale
$
1,281
$
3,185
Net liabilities
$
(230)
$
(1,931)
Net income (loss) from discontinued operations for the year ended December 31, 2024 and 2023 was as follows:
Year Ended
December 31,
Revenues, net
$
-
$
42,113
Cost of goods sold
-
49,185
Gross loss
-
(7,072)
Operating expenses:
Sales, general and administrative
(365)
16,540
Research and development
3,010
Other operating expense, net
(386)
Loss on disposal of discontinued operations
-
58,521
Total operating expenses
(621)
78,189
Operating income (loss) from discontinued operations
(85,261)
Other income (expense):
Other income, net
-
Interest expense
(290)
(438)
Total other expense
(290)
(373)
Income (loss) from discontinued operations before income taxes
(85,634)
Provision (benefit) for income taxes
-
Net income (loss) from discontinued operations
$
$
(86,089)
(1) During the year ended December 31, 2024, the Company settled outstanding obligations which resulted in reversals of previously accrued liabilities of $1,561.
(2) The Company recorded $25,189 of impairment charges in Other operating expenses, net and recorded $33,360 of Goodwill impairment from discontinued operations during the three months ended September 30, 2023, which were reclassified to Loss on disposal of discontinued operations during the three months ended December 31, 2023.
(3) The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal transaction. Interest expense included in discontinued operations reflects an estimate of interest expense related to the principal balance of debt that is required to be repaid with the proceeds from the sale of the GVB hemp/cannabis business.
The components of discontinued operations “Other operating expenses, net” were as follows:
Year Ended
December 31,
Professional services
$
$
Severance
-
Gain on change in contingent consideration
-
(1,138)
Needlerock Farms settlement
-
Gain on sale or disposal of property, plant and equipment
(64)
Gain on release of lease obligations
(947)
-
Acquisition costs
-
Other operating expense, net
$
(386)
$
Cash flow information from discontinued operations for years ended December 31, 2024 and 2023 was as follows:
Year Ended
December 31,
Cash used in operating activities
$
1,459
$
21,281
Cash provided by investing activities
$
$
Depreciation and amortization
$
-
$
2,443
Capital expenditures
$
-
$
3,752
NOTE 3. - BUSINESS ACQUISITIONS
The following acquisition occurred during the year ended December 31, 2023 and was included in the Company’s former hemp/cannabis reportable segment. Accordingly, the results of operations are reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented. See Note 2 “Discontinued Operations and Divestitures” for additional information.
RX Pharmatech, Ltd.
On January 19, 2023, the Company acquired RX Pharmatech Ltd (“RXP”) pursuant to a share purchase agreement ("SPA”) a privately held distributor of cannabinoids with 1,276 novel food applications with the U.K. Food Standards Agency (“FSA”). RXP’s products include CBD isolate and numerous variations of finished products like gummies, oils, drops, candies, tinctures, sprays, capsules and others.
The initial consideration paid to acquire RXP included $200 in cash and $503 in common stock (consisting of 31,056 unregistered shares of common stock), and an initial estimate of target working capital true-up of $286. The fair value of the Company’s common stock issued as part of the consideration was determined based upon the opening stock price of the Company’s shares as of the acquisition date. Additionally, the contingent consideration in the transaction represents the estimated fair value of the Company’s obligation, under the share purchase agreement, to make additional equity based payments of up to $1,550 over the next three years based on specified conditions being met, which has an initial fair value of contingent consideration of $1,138. The fair value of the aggregate consideration in the transaction is $2,127.
Based on the preliminary purchase price allocation, the assets acquired and liabilities assumed principally comprise $1,744 of intangible assets, and other immaterial working capital items representing a net asset of $93 (net of cash acquired of $290). There was no excess purchase price and therefore no goodwill recorded as part of the business combination. The determination of estimated fair value required management to make significant estimates and assumptions based on information that was available at the time the Consolidated Financial Statements were prepared.
Intangible assets include the intellectual property associated with the 1,276 novel food applications with the FSA, which is determined to be indefinite lived. The preliminary fair value was determined by utilizing the cost approach and considered market data to evaluate the replacement cost per application. The intellectual property is included in the former hemp/cannabis reportable segment.
The Company utilizes third-party valuation experts to assist in estimating the fair value of the contingent consideration and develops estimates by considering weighted-average probabilities of likely outcomes and discounted cash flow analysis. These estimates require the Company to make various assumptions about forecasted revenues and discount rates, which are unobservable and considered Level 3 inputs in the fair value hierarchy. A change in these inputs to a different amount might result in a significantly higher or lower fair value measurement at the reporting date.
The following table provides quantitative information associated with the initial fair value measurement of the Company’s liabilities for contingent consideration as of January 19, 2023:
Maximum Payout
Weighted Average
Contingency Type
(undiscounted)
Fair Value
Unobservable Inputs
or Range
Revenue-based payments
$
1,550
$
1,138
Discount rate
%
Projected year(s) of payment
2024-2026
During the third quarter of 2023, the Company finalized amounts recorded as purchase price allocation and recorded measurement period adjustments of $53, resulting from an increase of the working capital true-up amount based on final payment made to the sellers.
On December 22, 2023, concurrent with the GVB divestiture (as described in Note 2) which included RXP, the Company entered into a binding letter agreement to terminate its’ remaining contingent consideration obligation payable in shares under the SPA with the sellers of RXP. Accordingly, for the year-ended December 31, 2023, the Company recognized within discontinued operations a gain of $1,138 in Other operating expenses, net in connection with the change in fair value of the contingent consideration.
Acquisition costs
During the year ended December 31, 2023, direct costs incurred as a result of the acquisition of RXP were $130. Acquisition costs are expensed as incurred and included in Other operating expenses, net in the Consolidated Statements of Operations and Comprehensive Loss.
NOTE 4. - INVENTORIES
Inventories at December 31, 2024 and 2023 consisted of the following:
December 31,
December 31,
Raw materials
$
1,616
$
3,580
Work in process
-
Finished goods
$
2,015
$
4,346
During the fourth quarter of 2023, the Company reserved certain leaf inventory totaling $7,720 resulting from restructuring initiatives implemented. Inventory charges are included within Cost of goods sold on the Company’s Consolidated Statement of Operations and Comprehensive Loss.
NOTE 5. - PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net at December 31, 2024 and 2023 consisted of the following:
December 31,
December 31,
Leasehold improvements
$
$
Manufacturing equipment
7,114
7,254
Office furniture, fixtures and equipment
-
Laboratory equipment
-
7,533
7,770
Less: accumulated depreciation
(4,760)
(4,377)
Property, plant and equipment, net
$
2,773
$
3,393
Depreciation expense was $585 and $852 for the year ended December 31, 2024 and 2023, respectively.
NOTE 6. - RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES
The Company leases a manufacturing facility in Mocksville, North Carolina and an inventory storage facility in Winston-Salem, North Carolina.
On January 1, 2023, the Company signed the lease agreement for the inventory storage facility. The lease has an initial monthly base rent of $15 (escalating 3.0% annually after the first year), an initial term of 36 months - with two twenty-four-month optional renewal options at the Company’s discretion.
On March 31, 2023, the Company extended the lease terms for its manufacturing facility. As a result of this lease modification, the Company re-measured the lease liability and adjusted the ROU asset on the modification dates, including reassessment of renewal options.
The following table summarizes the Company’s discount rate and remaining lease terms as of December 31, 2024:
Weighted average remaining lease term in years
4.9
Weighted average discount rate
9.0
%
Future minimum lease payments as of December 31, 2024 are as follows:
$
Total lease payments
2,118
Less: imputed interest
(420)
Present value of lease liabilities
1,698
Less: current portion of lease liabilities
(261)
Total long-term lease liabilities
$
1,437
Operating lease costs for the year ended December 31, 2024 and 2023, were $419 and $475, respectively.
Supplemental cash flow information for leases for fiscal years 2024 and 2023 are comprised of the following:
December 31,
December 31,
Cash paid for operating leases
$
$
Assets acquired under operating leases
$
-
$
1,602
NOTE 7. - INTANGIBLE ASSETS, NET
Our intangible assets at December 31, 2024 and 2023 consisted of the following:
Gross
Accumulated
Net Carrying
December 31, 2024
Carrying Amount
Amortization
Impairment
Amount
Definite-lived:
Patent
$
2,948
$
(2,268)
$
(68)
$
License fees
4,415
(1,990)
-
2,425
Total amortizing intangible assets
$
7,363
$
(4,258)
$
(68)
$
3,037
Indefinite-lived:
Trademarks
$
MSA signatory costs
2,202
License fee for predicate cigarette brand
Total indefinite-lived intangible assets
$
2,687
Total intangible assets, net
$
5,724
Gross
Accumulated
Net Carrying
December 31, 2023
Carrying Amount
Amortization
Impairment
Amount
Definite-lived:
Patent
$
2,913
$
(1,622)
$
(487)
$
License fees
4,165
(1,666)
(65)
2,434
Total amortizing intangible assets
$
7,078
$
(3,288)
$
(552)
$
3,238
Indefinite-lived:
Trademarks
$
MSA signatory costs
2,202
License fee for predicate cigarette brand
Total indefinite-lived intangible assets
$
2,686
Total intangible assets, net
$
5,924
Aggregate intangible asset amortization expense comprises of the following:
Year Ended
December 31,
Cost of goods sold
$
$
Research and development
Total amortization expense
$
$
During the years ended December 31, 2024 and 2023, the Company incurred impairment charges of $68 and $1,375, respectively, related to write-downs and disposals of patents, licenses and trademarks as a result of a shift in strategy related to the nature and use of the related assets. During 2024, impairment charges related to patents that are no longer being pursued. Impairment charges during the year-ended December 31, 2023 consisted of $552 for patents and
trademarks the Company continues to hold but does not align with its current strategy, $772 was related to disposals of patents abandoned from future maintenance and renewal and $51 was related to disposals of trademarks abandoned. The Company also disposed of $1,501 of patents that had a net book value of $0 and no estimated future economic benefit.
The impairment charges are included in Other operating expenses, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss.
Estimated future intangible asset amortization expense based on the carrying value as of December 31, 2024 is as follows:
Thereafter
Amortization expense
$
$
$
$
$
$
1,356
NOTE 8. - FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.
The following table presents information about our liabilities measured at fair value at December 31, 2024 and 2023, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
Fair Value
December 31, 2024
Level 1
Level 2
Level 3
Total
Liabilities
Omnia 2024 warrants
$
-
$
-
$
1,023
$
1,023
Total liabilities
$
-
$
-
$
1,023
$
1,023
Fair Value
December 31, 2023
Level 1
Level 2
Level 3
Total
Liabilities
Detachable warrants
$
-
$
-
$
1,350
$
1,350
Derivative liability
-
-
Total liabilities
$
-
$
-
$
1,907
$
1,907
Warrants
The following table sets forth a summary of the changes in fair value of the Company’s common stock warrants accounted for as liabilities (Level 3):
Fair value measurement at January 1, 2023
$
-
Initial measurement (see Note 1 and 10)
4,214
Fair value measurement adjustment
(364)
JGB redemption of 78 warrants
(2,500)
Fair value measurement at December 31, 2023
$
1,350
Settlement and General Release
(1,350)
Initial measurement (Omnia 2024 warrants)
1,515
Fair value measurement adjustment
(492)
Fair value measurement at December 31, 2024
$
1,023
The Omnia warrants were measured at December 31, 2024 and 2023 using a Monte Carlo valuation model with the following assumptions:
December 31,
December 31,
Omnia 2024 warrants
Omnia 2023 warrants
Risk-free interest rate per year
4.3
%
4.6
%
Expected volatility per year
119.0
%
90.9
%
Expected dividend yield
-
%
-
%
Contractual expiration
4.3
years
6.6
years
Exercise price
$
288.90
$
27,708.48
Stock price
$
5.31
$
410.40
The warrants are measured at fair value using certain estimated factors which are classified within Level 3 of the valuation hierarchy. Significant unobservable inputs that are used in the fair value measurement of the Company’s warrants include the volatility factor, anti-dilution provisions, and contingent put option. Significant increases or decreases in the volatility factor would have resulted in a significantly higher or lower fair value measurement. Additionally, a change in probability regarding the anti-dilution provision or put option would have resulted in a significantly higher or lower fair value measurement. The Omnia 2023 warrants were extinguished and the Omnia 2024 warrants were issued in April 2024. The Omnia 2024 warrants are classified as Other current liabilities on the Consolidated Balance Sheets. See Note 12 - Debt and Note 9 - Capital Raises and Warrants for Common Stock for further details.
Derivative Liability
The following table sets forth a summary of the changes in fair value of the Company’s derivative liability accounted for as liabilities (Level 3):
Fair value measurement at January 1, 2024
$
Fair value measurement adjustment
(557)
Fair value measurement at December 31, 2024
$
-
The derivative liability related to the debentures and embedded conversion option using was measured at December 31, 2023 using a binomial lattice valuation model and contained the following assumptions:
December 31,
Stock price volatility
104.1
%
Expected term
2.2
years
Stock price
$
410.40
Risk-free interest rate
4.3
%
Credit rating
CCC
Market yield (credit risk)
13.8
%
The debentures and derivative liability are measured at fair value using certain estimated factors which are classified within Level 3 of the valuation hierarchy. Significant unobservable inputs that are used in the fair value measurement of the Company’s derivative liability include a decrease/increase in our stock price, stock price volatility, credit rating, and simulated stock price upon conversion could significantly change the fair value measurement as either an increase or decrease.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis. During the years ended December 31, 2024 and 2023, the Company did not have any financial assets or liabilities measured at fair value on a nonrecurring basis, other than as described in Note 2 “Discontinued Operations and Divestitures”.
NOTE 9. - CAPITAL RAISES AND WARRANTS FOR COMMON STOCK
The following table summarizes the Company’s warrant activity:
Warrants outstanding at January 1, 2023
Issued
30,106
Exercised
(8,372)
Abandoned
(151)
Warrants outstanding at December 31, 2023
22,110
Issued
26,066,746
Exercised
(333,575)
Abandoned
(21)
Warrants outstanding at December 31, 2024
25,755,260
The following tables summarizes the Company’s outstanding warrants as of December 31, 2024:
# of warrants outstanding
Issue date exercise price
Current exercise price (1)
Expiration date
July 2022 RDO warrants
$
66,420.000
$
66,420.00
July 25, 2027
Senior Secured Credit Facility - JGB
$
41,310.000
$
27,708.000
September 3, 2028
July 19, 2023 RDO warrants (3)
$
5,227.200
$
4.3021
July 20, 2028
October 2023 CMPO warrants (3)
$
1,134.000
$
4.3021
October 19, 2028
2023 Inducement warrants (3)
$
464.400
$
4.3021
February 15, 2029
April 2024 RDO Placement Agent warrants (3)
7,611
$
361.1250
$
4.3021
April 8, 2029
August 2024 Reg A+ warrants (3)
603,426
$
135.000
$
4.3021
December 6, 2029
September 2024 Reg A+ warrants (3)
2,835,824
$
135.000
$
4.3021
December 6, 2029
September 2024 RDO warrants (3)
2,376,057
$
135.000
$
4.3021
December 6, 2029
September 2024 RDO Placement Agent warrants (3)
89,843
$
168.750
$
4.3021
December 6, 2029
September 2024 Inducement warrants (3)
2,361,286
$
135.000
$
4.3021
December 6, 2029
September 2024 Inducement Placement Agent warrants (3)
88,548
$
168.750
$
4.3021
December 6, 2029
Omnia Pre-Funded Warrants
8,519
$
0.00001
$
0.00001
Not applicable
Omnia warrants
3,408
$
361.125
$
361.1250
May 1, 2029
October 2024 RDO (3)
6,585,999
$
135.000
$
4.3021
December 6, 2029
October 2024 RDO Placement Agent Warrants (3)
248,716
$
168.750
$
4.3021
December 6, 2029
October 2024 PIPE Warrants (3)
9,886,421
(4)
$
135.000
$
4.3021
(4)
(2)
October 2024 PIPE Placement Agent Warrants (3)
659,095
(4)
$
168.750
$
4.3021
(4)
(2)
25,755,260
(1) Warrant price adjusted as a result of anti-dilution or ratchet provisions.
(2) Expiration date is 5-years following shareholder approval date.
(3) The exercise prices of the warrants are subject to appropriate adjustment as a result of anti-dilution or ratchet protection provisions relating to subsequent equity sales of shares of the Company’s common stock or common stock equivalents at an effective price per share lower than the then effective exercise price of such warrants. Additionally, the warrant contains cashless and/or alternative cashless exercise features.
(4) Reflects the number of warrants and exercise price assuming stockholder approval is obtained.
The incremental value of modifications to warrants as a result of down-round ratchet provisions in outstanding warrants from the issuance of equity in a subsequent financing is determined based on Monte-Carlo and Black Scholes valuation models. Amounts recorded as Deemed dividends in determining Net loss available to common shareholders in the Statement of Operations and Comprehensive Loss are as follows:
Year Ended
December 31,
Total deemed dividends
$
10,303
$
9,992
June 19, 2023 Registered Direct Offering
On June 19, 2023, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of approximately $5,300 of shares and warrants, consisting of an aggregate of 346 shares of common stock and 346 warrants to purchase an equal number of shares, at a purchase price of $15,228 per unit. The net proceeds to the Company from the offering were approximately $4,800.
July 6, 2023 Registered Direct Offering.
On July 6, 2023, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of approximately $3,000 of shares and warrants, consisting of an aggregate of 360 shares of common stock and 721 warrants to purchase an equal number of shares, at a purchase price of $8,208 per unit.
July 19, 2023 Registered Direct Offering.
On July 19, 2023, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of approximately $11,700 of shares and warrants, consisting of an aggregate of 2,025 shares of common stock and 4,050 warrants to purchase an equal number of shares, at a purchase price of $5,767.20 per unit.
October 2023- Public Equity Offering
On October 17, 2023, the Company entered into a securities purchase agreement with certain investors, pursuant to which the Company agreed to sell and issue, in a registered public offering, (i) an aggregate of 3,519 shares of the Company’s common stock, par value $0.00001 per share, (ii) warrants to purchase 9,259 shares of common stock (the “October Warrants”) and (iii) pre-funded warrants to purchase 1,111 shares of common stock. The shares were offered at a combined public offering price of $1,134 per share and two accompanying warrants. The pre-funded warrants were offered at a combined public offering price of $1,133.78 per pre-funded warrant and two accompanying warrants.
In addition, the Company issued the placement agent warrants to purchase up to 463 shares of common stock (equal to 10% of the aggregate number of shares and pre-funded warrants sold in the offering) at an exercise price of $1,417.50, which represents 125% of the public offering price per share and accompanying warrants.
The offering closed on October 19, 2023 with gross proceeds to the Company of approximately $5,250, before deducting the placement agent fees of $367 and other offering expenses payable by the Company of approximately $288.
November 2023 Warrant Inducement Offering
On November 28, 2023, the Company commenced a warrant inducement offering with the holders of the Company’s outstanding 14,713 warrants consisting of: (i) the common stock purchase warrants of the Company issued on or about June 22, 2023; (ii) the common stock purchase warrants of the Company issued on or about July 10, 2023; (iii) the common stock purchase warrants of the Company issued on or about July 21, 2023; and/or (iv) the common stock purchase warrants of the Company issued on or about October 19, 2023 (collectively, the “Existing Warrants”), which Existing Warrants were exercisable for an equal number of shares of common stock at an exercise price of $1,134. The Company agreed to issue new warrants (the “Inducement Warrants”) to purchase up to a number of shares of common stock equal to 200% of the number of shares of common stock issued pursuant to the exercise by the holders of the Existing Warrants during the inducement period, for cash, at a reduced exercise price equal to the Nasdaq Minimum Price (as defined in the as defined in Nasdaq Listing Rule 5635(d)).
For the period from November 28, 2023 to December 31, 2023, the Company entered into warrant inducement agreements with certain holders of the Existing Warrants to purchase an aggregate of 7,184 shares of common stock at a reduced exercise price of $464.10 Pursuant to the warrant inducement agreements, the exercising holders of the Existing Warrants received 14,368 Inducement Warrants and the Company received aggregate gross proceeds of approximately $3,336 from the exercise of the Existing Warrants before deducting the placement agent fees of $234 and other offering expenses payable by the Company of approximately $58.
For the remaining inducement period from January 1, 2024 to February 15, 2024, the Company entered into warrant inducement agreements with certain holders of the Existing Warrants to purchase an aggregate of 6,081 shares of common stock at a reduced weighted average exercise price of approximately $398.30. Pursuant to the warrant inducement agreements, the exercising holders of the Existing Warrants received 12,160 Inducement Warrants and the Company received aggregate gross proceeds of approximately $2,421 from the exercise of the Existing Warrants
April 2024 Registered Direct Offering
On April 8, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of common stock (or pre-funded warrants in lieu of common stock) pursuant to a registered direct offering and a private placement of warrants to purchase shares of common stock. The investors purchased approximately $4,237 of shares and warrants, consisting of an aggregate of 13,741 shares of common stock, pre-funded warrants to purchase 926 shares of common stock and warrants to purchase 14,667 shares of common stock, at a purchase price of $288.90 per share and accompanying warrant. The Company also issued an aggregate of 880 placement agent warrants.
The net proceeds to the Company from the Offering, after deducting placement agent fees and the Company’s estimated offering expenses, were approximately $3,913.
September 2024 Registered Direct Offering
On September 27, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of common stock of the Company pursuant to a registered direct offering and a private placement of warrants to purchase shares of common stock. The investors purchased approximately $1,175 of shares and warrants, consisting of an aggregate of 38,041 shares of Common Stock and warrants to purchase 76,348 shares of common stock, at a purchase price of $30.78 per share and accompanying warrant. The Company also issued an aggregate of 2,290 placement agent warrants.
The net proceeds to the Company from the Offering, after deducting placement agent fees and the Company’s offering expenses were $1,054.
2024 Warrant Inducement
On September 29, 2024, the Company commenced a warrant inducement offering with the holders of outstanding warrants to purchase 37,624 shares of common stock, consisting of: (i) common stock purchase warrants to purchase 24,043 shares of common stock issued on or about November 29, 2023, and (ii) common stock purchase warrants to purchase 13,596 shares of common stock issued on or about April 9, 2024 ((i) and (ii) collectively, the “2024 Existing Warrants”), which are exercisable for an equal number of shares of common stock at an exercise price of $30.78. The net proceeds to the Company from the 2024 Warrant Inducement, after deducting placement agent fees and the Company’s offering expenses were $1,073. In connection with the 2024 Warrant Inducement, the Company issued 75,248 new warrants. The Company also issued an aggregate of 2,257 placement agent warrants.
October 2024 Registered Direct Offering
On October 11, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of common stock of the Company pursuant to a registered direct offering and a private placement of warrants to purchase shares of common stock. The investors purchased approximately $2,140 of shares and warrants, consisting of an aggregate of 105,679 shares of common stock and warrants to purchase 211,358 shares of common stock, at a purchase price of $20.25 per share and accompanying warrant. The Company also issued an aggregate of 6,341 placement agent warrants.
The net proceeds to the Company from the Offering, after deducting the placement agent fees and the Company’s offering expenses were $2,002.
October 2024 PIPE Offering
On October 23, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of prefunded warrants to purchase shares of common stock of the Company and warrants to purchase shares of Common Stock pursuant to a private placement. The investors purchased approximately $3,039 of prefunded warrants and warrants, consisting of prefunded warrants to purchase an aggregate of 210,036 shares of common stock and warrants to purchase an aggregate of 315,055 shares of Common Stock, at a purchase price of $14.47 per prefunded warrant and accompanying warrant. The prefunded warrants are immediately exercisable upon issuance. The Company also issued an aggregate of 16,803 placement agent warrants.
The net proceeds to the Company from the offering, after deducting placement agent fees and the Company’s offering expenses, are approximately $2,909.
The shares issuable upon exercise of the warrants are subject to stockholder approval. The Company has agreed to hold an annual or special meeting on or before May 30, 2025, to have stockholders approve the issuance of the shares of common stock underlying the warrants pursuant to applicable Nasdaq rules.
Other Equity Financings
Pursuant to a Regulation A offering of Form 1-A, the Company entered into subscription agreements with certain accredited investors and high net worth individuals, pursuant to which the Company issued and sold to the investors 72,000 shares of its Common Stock, par value $0.0001 per share of the Company at a price of $76.95 per share for net proceeds to the Company of $5,208, net of offering costs of $332.
The shares that were offered and sold above or at-the-market under Nasdaq rules and pursuant to the Company’s Form 1-A, initially filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on August 2, 2024 and qualified on August 13, 2024.
Private Placement of Warrants
During the third quarter of 2024, the Company and certain investors entered into warrant purchase agreements related to the private placement of 109,600 warrants to purchase an equal number of shares of common stock at a purchase price of $0.00001 per warrant.
Other Agreements
During the second quarter of 2024, the Company settled an aggregate of $1,192 of outstanding indebtedness under various commercial agreements for an aggregate of 5,192 shares of common stock at an effective average price per share of $288.90.
During the third quarter of 2024, the Company settled an aggregate of $525 of outstanding indebtedness under various commercial and licensing agreements for an aggregate of 13,116 shares of common stock at an effective average price per share of $40.03.
March 2023 JGB Warrants
In connection with the sale of the Debentures as described in Note 12 “Debt”, the Company issued the JGB Warrants to purchase up to 155 shares of common stock for an exercise price of $41,310 per share. The JGB warrants initial fair value of $4,475 net of issuance costs of $139 (see Note 8 “Fair Value Measurements”), of which half of the warrants met the criteria for liability classification due to a contingent put option which allows the holder to require that the Company redeem the warrants in cash for a purchase price equal to $32,400. Accordingly, at issuance half of the warrants with the put provision were classified as Other long-term liabilities on the Consolidated Balance Sheets in the amount of $2,898 whereas the remainder of the warrants without the put provision are equity classified and recorded as a component of Capital in excess of par value in the amount of $1,577. The valuation assumptions of the warrants at issuance, as detailed below, are the same for all warrants except for the put provision which derives a greater fair value.
As a result of the June 19, 2023 offering, the exercise price of the Company’s outstanding JGB warrants to purchase up to 155 shares of the Company’s common stock was automatically adjusted to be $27,708 exercise price for up to 230 shares of common stock. As a result of the anti-dilution provision being triggered, the Company recognized a non-cash deemed dividend of $367 in connection with these adjustments, recorded on the Consolidated Statement of Operations and Comprehensive Loss and within Capital in excess of par value (as the Company has an accumulated deficit and therefore the deemed dividend is treated as paid out of Capital in excess of par value). There are no further anti-dilution adjustments on such warrants.
In connection with the Senior Secured Credit Facility Amendment and Waiver, the Company redeemed 78 of such warrants for an aggregate put price equal to $2,500. See Note 12 “Debt.”
The JGB detachable warrants were valued at the closing dates of the Senior Secured Credit Facility using a Monte Carlo valuation model with the following assumptions:
Risk-free interest rate per year
4.2
%
Expected volatility per year
88.1
%
Expected dividend yield
-
%
Contractual expiration
5.5
years
Exercise price
$
41,310.00
Stock price
$
29,484.00
March 2023 Omnia Warrants
In connection with the Subordinated Note as described in Note 12 “Debt”, the Company issued to Omnia, the Omnia Warrants to purchase up to 21 shares of the Company’s common stock (the “Omnia 2023 Warrants”). The Omnia 2023 Warrants are exercisable for seven years from September 3, 2023, at an exercise price of $27,708 per share. The Omnia warrants initial fair value was $1,316 (see Note 8 “Fair Value Measurements”), and met the criteria for liability classification due to contingent put option which allows the holder to require that the Company redeem the warrants in cash for a purchase price equal to $64,800. The Omnia 2023 Warrants are classified as Other long-term liabilities on the Consolidated Balance Sheets.
The detachable Omnia 2023 Warrants were valued at the closing dates of the Subordinated Note using a Monte Carlo valuation model with the following assumptions:
Risk-free interest rate per year
4.1
%
Expected volatility per year
83.8
%
Expected dividend yield
-
%
Contractual expiration
7.5
years
Exercise price
$
27,708.48
Stock price
$
29,484.00
ATM Offering
On March 31, 2023, the Company established an at-the-market common equity offering program (“ATM Program”), through which it had the ability to offer and sell shares of common stock having an aggregate gross sales price of up to $50,000. The Company paid a 3.00% sales commission based on the gross proceeds of the sales price per share of common stock sold. On June 19, 2023, the Company terminated the ATM Program in connection with the June 2023 Capital Raise. The following table shows the number of shares sold under the ATM Program prior to its termination:
Year Ended
December 31,
Number of common shares issued
Weighted average sale price per share
$
20,844.00
Gross proceeds
$
2,741
Net proceeds
$
2,563
NOTE 10. - RETIREMENT PLAN
The Company sponsors a defined contribution plan under IRC Section 401(k). The plan covers all employees who meet the minimum eligibility requirements. Under the 401(k) plan eligible employees are allowed to make voluntary deferred salary contribution to the plan, subject to statutory limits. The Company has elected to make Safe Harbor Non-Elective Contributions to the plan for eligible employees in the amount of three percent (3%) of the employee’s compensation. Total employer contributions to the plan for the years ended December 31, 2024 and 2023 amounted to $152 and $231, respectively.
NOTE 11. - COMMITMENTS AND CONTINGENCIES
License and growing agreements - The Company has entered into various license and tobacco growing agreements (the “Agreements”) with various counter parties in connection with the Company’s plant biotechnology business relating to tobacco. The schedule below summarizes the Company’s commitments, both financial and other, associated with each Agreement. Costs incurred under the Agreements are generally recorded as research and development expenses on the Company’s Consolidated Statements of Operations and Comprehensive Loss.
Future Commitments
Commitment
Counter Party
Commitment Type
2029 & After
Total
License Agreement
NCSU
Minimum annual royalty
$
$
$
$
$
3,425
$
3,875
(1)
License Agreement
NCSU
Contract fee
-
-
-
-
(2)
Consulting Agreements
Various
Contract fee
-
-
-
(3)
$
1,482
$
$
$
$
3,425
$
5,353
(1) The minimum annual royalty fee is credited against running royalties on sales of licensed products. The Company is also responsible for reimbursing NCSU for actual third-party patent costs incurred, including capitalized patent costs and patent maintenance costs. These costs vary from year to year and the Company has certain rights to direct the activities that result in these costs.
(2) On November 1, 2023, the Company entered into a license agreement with NCSU for an exclusive sublicensable right and license under specific patent rights and plant variety rights for the field of use in specific licensed territories. Additional milestone fees could be required pending achievement of events pursuant to the agreement.
(3) As a requirement for a modified risk tobacco product and a condition of the marketing authorization by the FDA, the Company engaged various consultants to conduct post-market studies and research.
Litigation - The Company is subject to litigation arising from time to time in the ordinary course of its business. The Company does not expect that the ultimate resolution of any pending legal actions will have a material effect on its consolidated results of operations, financial position, or cash flows. However, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, will not become material in the future. In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When a loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of related expenses. The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability.
In connection with ongoing restructuring efforts and the hemp/cannabis disposal group (see Note 2 “Discontinued Operations and Divestitures,” the Company has received unasserted claims related to disputed contracts, which could result in accrual of an additional amount up to $1,100 on the Consolidated Balance Sheet. The Company is vigorously defending its position against these claims.
Shareholder Derivative Cases
On February 6, 2019, Melvyn Klein, a resident of Nassau County New York, filed a shareholder derivative claim against the Company, the Company’s then Chief Executive Officer, Henry Sicignano III, the Company’s Chief Financial Officer, John T. Brodfuehrer, and each member of the Company’s Board of Directors in the United States District Court for the Eastern District of New York entitled: Melvyn Klein, derivatively on behalf of 22nd Century Group v. Henry Sicignano, III, Richard M. Sanders, Joseph Alexander Dunn, Nora B. Sullivan, James W. Cornell, John T. Brodfuehrer and 22nd Century Group, Inc., Case No. 1:19 cv 00748. Mr. Klein brings this action derivatively alleging that (i) the director defendants supposedly breached their fiduciary duties for allegedly allowing the Company to make false statements; (ii) the director defendants supposedly wasted corporate assets to defend this lawsuit and the other related lawsuits; (iii) the defendants allegedly violated Section 10(b) of the Securities Exchange Act and Rule 10b 5 promulgated thereunder for allegedly approving or allowing false statements regarding the Company to be made; and (iv) the director defendants allegedly violated Section 14(a) of the Securities Exchange Act and Rule 14a 9 promulgated thereunder for allegedly approving or allowing false statements regarding the Company to be made in the Company’s proxy statement. Numerous other shareholder derivative cases were subsequently filed and consolidated into the main action.
On December 5, 2023, the parties entered into a Memorandum of Settlement to fully resolve all claims pending the Court’s approval of a motion for preliminary approval of settlement, which was filed with the Court on March 6, 2025. The settlement amount is $768 related to plaintiffs attorney and legal fees and is fully covered by the Company’s insurance. Accordingly, the Company has recorded an accrual for litigation settlement and corresponding indemnification receivable on the Consolidated Balance Sheets as of December 31, 2024 and 2023.
Class Action
A complaint was originally filed against the Company and several former executive officers in the Eastern District of New York as Bull v. 22nd Century Group, Case No. 1:19-cv-00409, and later transferred to the Western District of New York in a consolidated putative class action captioned Noto v. 22nd Century Group, Case No. 1:19-cv-01285.
The parties participated in a mediation on March 21, 2023, and reached a settlement of $3,000 (payable by the insurance carrier) to resolve the litigation and release all claims against the Company. On June 30, 2023, District Court preliminarily approved the settlement and on October 23, 2023 the Court finally approved the settlement and dismissed the action with prejudice. Accordingly, the Company has recorded an accrual for litigation settlement and corresponding indemnification receivable on the Consolidated Balance Sheets as of December 31, 2023 which was subsequently paid from the escrow account funded by the insurance carrier during the fourth quarter of 2024.
Insurance Litigation
In November 2022, there was a fire at the Company’s Grass Valley manufacturing facility in Oregon, which resulted in a total loss of the facility. The Company submitted an insurance claim with Dorchester Insurance Company, Ltd. (“Dorchester”) for casualty loss and business interruption coverage which was acknowledged on November 23, 2022. Dorchester funded $5,000 of casualty loss insurance but has failed to issue any payments in connection with the Company’s business interruption claim.
      On July 19, 2023, the Company filed a Complaint against Dorchester in the United States District Court for the District of Oregon, Pendleton Division, Case No. 2:23-cv-01057-HL. The Company is alleging breach of contract, breach of duty of good faith and fair dealing and negligence per se. The Company is seeking full recovery of its business interruption claim under the policy plus direct, indirect and consequential damages resulting from Dorchester’s continued delay in issuing coverage payments. Fact discovery is complete. Expert discovery is complete. The trial date is November 4, 2025.
KeyGene Dispute
On April 11, 2024 the Company received a Request for Arbitration from Keygene N.V. (“Keygene”) in connection with the Company’s termination of various framework collaborative research agreements described below. On April 3, 2019, the Company entered into the Framework Collaborative Research Agreement with KeyGene in the field of hemp/cannabis. On April 30, 2021, the Company and KeyGene entered into a First Amended and Restated Framework Collaborative Research Agreement which extended the agreement term, from first quarter 2024 to first quarter 2027. On March 30, 2022, the Company and KeyGene entered into a new Framework Collaborative Research Agreement for a term of three years in the field related to the hops plant. On January 8, 2024, the Company formally terminated both Framework Collaborative Research Agreements, as amended, related to hemp/cannabis and hops. KeyGene is seeking payment in the amount of $1,885 for current and future services under the Framework Collaborative Research Agreements and has invoiced the Company $881 for services performed. The matter is being arbitrated under the administration of the International Court of Arbitration.
The Company filed its Answer to Request for Arbitration with Defenses and Counterclaims on June 4, 2024. On July 25, 2024, an arbitrator was formally appointed. The parties have submitted their Statements of Claim/Counterclaim, and their Responsive Statements to the Statements of Claim and Counterclaim. Discovery is complete. The arbitration date has been set for March 24, 2025. The Company believes it has substantial defenses to KeyGene’s claims and intends to defend itself vigorously.
Cookies Retail Products Dispute
On October 23, 2024, Cookies Retail Products, LLC (“CRP”) filed a complaint against the Company, a subsidiary of the Company (“PTB”), Cookies Creative Consulting, Inc. (“CCC”), Cookies SF, LLC (“CSF”), GMLC WLNS, LLC (“GMLC”) and other defendants, Case No. 24STCV27828, Superior Court of California, County of Los Angeles.
The complaint alleges three counts against all defendants: Count I for Breach of Contract related to a Settlement Agreement entered into between CRP, Paul Rock, CSF, GMLC, CCC and PTB (the “Settlement Agreement”), and a Purchase Agreement entered into between PTB and CRP (the “Purchase Agreement”); Count II for Fraud - False Promise related to the Settlement Agreement and Purchase Agreement; and Count III for Violation of Penal Code Section 496 related to a Licensing and Distribution Agreement between GMLC, CCC and PTB. CRP is seeking monetary damages. CRP also filed an application for right to attach order and writ of attachment against PTB on February 19, 2025. A hearing date for the application is scheduled for April 4, 2025.
The Company filed a demurrer to the complaint on February 24, 2025. CRP then filed a first amended complaint on March 12, 2025. Discovery is ongoing. The Company believes it has substantial defenses to CRP’s claims, and counterclaims, and intends to defend itself vigorously.
Employee Dispute
On November 19, 2024, a former employee of the Company filed a complaint against the Company, two subsidiaries of the Company, and numerous other former subsidiaries of the Company that were part of the hemp/cannabis division that was divested in December 2023. The complaint was filed in the Circuit Court of the State of Oregon, County of Multnomah, Case No. 24CV55110.
The complaint alleges three counts against all defendants: Count I for Premises Liability; Count II for Personal Injury - Employer Liability Law, and Count III for Negligence/Negligence Per Se, all related to the November 2022 fire at the Company’s Grass Valley manufacturing facility in Oregon. The former employee is seeking monetary damages.
The Company has been served but has not yet filed its responsive pleading to the complaint. The Company believes it has substantial defenses to the claims and intends to defend itself vigorously.
Maison Dispute
On January 23, 2024, the Company received a Notice of Intent to Arbitrate from Maison Placements Canada Inc. (“Maison”) in connection with the Company’s March 2023 Senior Secured Credit Facility transaction. Maison claims it is owed fees for closure of the Senior Secured Credit Facility transaction as a result of discussions with former Company personnel and a purported letter of engagement dating from 2021. The parties fully resolved the matter and entered into a full and final release of claims during the fourth quarter of 2024.
NOTE 12. - DEBT
The Company has a senior secured credit facility (the “Senior Secured Credit Facility”), which consists of Debentures (as defined below) and previously, a subordinated promissory note (the “Subordinated Note). The Debentures were issued at a 5% original issuance discount and are subject to a 5% exit payment. The Subordinated Note was extinguished in April 2024, as described below.
Debt related to the Senior Secured Credit Facility and Subordinate Note as of December 31, 2024 and 2023 consists of the following:
December 31,
December 31,
Senior Secured Credit Facility
$
7,690
$
11,805
Subordinated Note
-
3,554
Unamortized discount on loan and deferred debt issuance costs
(1,025)
(1,453)
Total debt
$
6,665
$
13,906
Current portion of long-term debt
(1,500)
(5,848)
Total long-term debt
$
5,165
$
8,058
Debentures
On March 3, 2023, the Company entered into a Securities Purchase Agreement with each of the purchasers party thereto (collectively, the “Purchasers”) and JGB Collateral, LLC, as collateral agent for the Purchasers (the “Agent”) which pursuant to the agreement, the Company sold 5% original issuance discount senior secured debentures with an aggregate principal amount of $21,053. The Debentures bear interest at a rate of 7% per annum, payable monthly in arrears as of the last trading day of each month and on the maturity date. The Debentures mature on March 3, 2026. At the Company’s election, subject to certain conditions, interest can be paid in cash, shares of the Company’s common stock, or a combination thereof. The Debentures are subject to an exit payment equal to 5% of the original principal amount, or $1,053, payable on the maturity date or the date the Debentures are paid in full (the “Exit Payment”). Any time after, March 3, 2024, the Company may irrevocably elect to redeem all of the then outstanding principal amount of the Debentures for cash in an amount equal to the entire outstanding principal balance, including accrued and unpaid interest, the Exit Payment and a prepayment premium in an amount equal to 3% of the outstanding principal balance as of the prepayment date (collectively, the “Prepayment Amount”). Upon the entry into a definitive agreement that would effect a change in control (as defined in the Debentures) of the Company, the Agent may require the Company to prepay the outstanding principal balance in an amount equal to the Prepayment Amount. Commencing on March 3, 2024, at its option, the holder of a Debenture may require the Company to redeem 2% of the original principal amount of the Debentures per calendar month which amount may at the Company’s election, subject to certain exceptions, be paid in cash, shares of the Company’s common stock, or a combination thereof.
The Company’s obligations under the Debentures can be accelerated upon the occurrence of certain customary events of default. In the event of a default and acceleration of the Company’s obligations, the Company would be required to pay the Prepayment Amount, liquidated damages and other amounts owing in respect thereof through the date of acceleration.
The Debentures contain customary representations, warranties and covenants including among other things and subject to certain exceptions, covenants that restrict the Company from incurring additional indebtedness, creating or permitting liens on assets, making or holding any investments, repaying outstanding indebtedness, paying dividends or distributions and entering into transactions with affiliates. Substantially all of the company’s assets, including intellectual property, are collateralized and at risk if Debenture obligation is not satisfied. In addition, the Company was required to maintain at least $7,500 on its balance sheet as restricted cash in a separate account and has financial covenants to maintain certain quarterly revenue targets.
In connection with the sale of the Debentures, the Company issued warrants to purchase up to 155 shares of common stock for an exercise price of $41,310 per share (the “JGB Warrants”), which had an initial fair value of $4,475 net of issuance costs of $139. On June 22, 2023, as a result of the June 19, 2023 offering, the Company’s outstanding JGB warrants to purchase up to 155 shares of the Company’s common stock for an exercise price of $41,310 per share were automatically adjusted to be $27,708.48 exercise price for up to 231 shares of common stock. There are no further anti-dilution adjustments on such warrants.
On October 16, 2023, the Company entered into a Waiver and Amendment Agreement (the “October Amendment”) with each of the subsidiaries of the Company executing the Debentures, the Holders and the Agent, pursuant to which, among other things, (a) the Holders waived an event of default under Section 7(d) of the Debentures which required the Company to achieve revenue of at least $18,500 for the quarter ended September 30, 2023 (the “waiver”), (b) the parties agreed to amend Schedule E of the Debentures to reduce the Revenue Target (as such term is defined in the Debentures), for the quarter ended December 31, 2023, to $15,500, and (c) the Company agreed to release to the Purchasers the $7,500 that the Company was required to maintain in a separate account (the “Escrow Funds”) which Escrow Funds were applied to, and reduce, the outstanding principal amount of the Debentures on a dollar-for-dollar basis.
As additional consideration for the waiver, the Company agreed to assign, transfer and convey to the Agent, the Company’s entire right, title and interest in and to (i) the Promissory Note made by J&N Real Estate Company, L.L.C. (“J&N”) payable to the Company in the principal amount of $3,800 and (ii) the Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing dated June 30, 2021, between J&N, as borrower, for the benefit of the Company, as lender (collectively, the “Pledged Indebtedness”). Upon assignment of the Pledged Indebtedness, the Company recognized the $2,600 of consideration in exchange to be applied as a $2,000 reduction of the Put Price (as defined below), $600 reduction of the outstanding principal amount of Debentures and $895 loss on sale of financial asset.
In connection with the waiver, the Company and Holders agreed to exercise the outstanding put provision to redeem 78 warrants for an aggregate put price equal to $2,500 (the “Put Price”), which was concurrently reduced by $2,000, as described above, with the remaining $500 payable by the Company on the Maturity Date recorded as Other long-term liabilities on the Consolidated Balance Sheets. No cash was exchanged as a result of executing the October 2023 Amendment.
Subsequently, on December 22, 2023, the Company, the Holders and the Agent entered into an Amendment Agreement (the “December 2023 Amendment”) pursuant to which the Holders and the Agent consented to the Purchase Agreement, as amended by the GVB Amendment (see Note 2 “Discontinued Operations and Divestitures”). In consideration of the Holders and the Agents’ consent, the Company agreed to (i) pay to the Agent, a cash payment of $2,200 to reduce the outstanding principal of the Debentures (which includes the cash portion of the New Purchase Price paid directly to Agent by Buyer which consists of a cash payment of $1,100 and an additional $1,100 paid by the Company), (ii) a 12% secured promissory note issued to the Company’s senior lender, on behalf of and at the direction of the Company, in an aggregate principal amount of $2,000 (the “GVB Promissory Note”), (iii) assign the GVB Insurance Proceeds to the Agent until the outstanding aggregate principal amount of the Debentures, plus accrued and unpaid interest, has been repaid in full; provided that the first $1,000 of Insurance Proceeds in excess of $5,000 shall be applied as stated in the agreement, and (iv) post-closing enter into a deed in lieu of foreclosure agreement with respect to 224 acres of real property in Delta County, Colorado commonly known as Needle Rock Farms, resulting in a non-monetary exchange yielding additional debt reduction of $1,000.
Effective June 24, 2024, GVB Biopharma (“GVB”), the Company’s former subsidiary, made a scheduled principal and interest payment against the Company’s outstanding indebtedness to JGB, reducing the Company’s total outstanding principal indebtedness with JGB by $1,500. The remaining $500 payable by GVB under the GVB Promissory Note was initially extended to December 31, 2024 and subsequently to March 31, 2025.
As of December 31, 2024, the $500 remaining GVB Promissory Note and $1,000 real estate farm asset are pledged to the senior lender for principal reduction and accordingly $1,500 of the Senior Secured Credit Facility is recorded as Current portion of long-term debt on the Consolidated Balance Sheets.
As part of the December 2023 amendment, the Company, the Holders and the Agent also agreed to amend the Debentures to (i) allow the Holders to voluntarily convert the Debentures, in whole or in part, into shares of the Company’s common stock (“Voluntary Conversion Option”) on the earlier of (i) June 30, 2024 and (ii) the public announcement of a Fundamental Transaction at a conversion price equal to the lower of (x) $1.00 per share and (y) the closing sale price of the Company’s common stock on June 29, 2024 (the “Conversion Price”), and (ii) include a mandatory prepayment of the outstanding principal of the Debentures in an amount equal to 20% of the net cash proceeds of any issuance by the Company of any of its stock, or other Equity Interests (as defined in the Debentures) or the incurrence or issuance of any indebtedness. The Voluntary Conversion Option was approved by the Company’s shareholders on June 28, 2024 and the conversion option price in effect is $100.683.
Additional terms of the December 2023 Amendment include revised financial covenants to reflect the sale of the Purchased Interests, including lowering the Company’s quarterly revenue targets. As of December 31, 2024, the Company was in compliance with these financial covenants.
On April 8, 2024, the Company, the Holders and the Agent entered into that certain Letter Agreement to modify the terms of the Amendment Agreement, the JGB SPA and the Debentures, as amended (“April 2024 Amendment”).
Under the terms of the Letter Agreement, the Holders are permitted to convert their debt to common stock at anytime and the Conversion Price (as defined in the Debentures) at which the Holders may convert the principal amount of their Debentures to the Company’s common stock is reduced to $288.90 per share in accordance with applicable Nasdaq rules through the conversion option reset date on June 28, 2024. The principal amount of the Debentures converted shall be applied to the Monthly Allowance (as defined in the Debentures) for that month, and any excess shall be applied to the Monthly Allowances for the succeeding months. The conversions will be a dollar for dollar reduction of the remaining outstanding obligation owed to the Holders. The Agent and Holders have also agreed to daily limits on trading volume and minimum conversion amounts. The Holders converted $428 of debt in exchange for 1,482 shares of common stock during the quarter-ended June 30, 2024.
On May 10, 2024, the Company, the Holders and the Agent entered into that certain May 2024 Exchange Agreement and May 2024 Letter Agreement to modify the terms of the Amendment Agreement, the Securities Purchase Agreement and the Debentures, as amended (“May 2024 Amendment”).
Under the terms of the May 2024 Amendment, the Company and Holders have agreed the Company shall incur an aggregate amendment charge to the undersigned holders equal to $275, which shall be added to the principal balance of the Debentures. Under the terms of the May 2024 Exchange Agreement, the Company and Holders exchanged an aggregate of $2,328 in principal, fees and expenses owed under the Debentures for 2,926 shares of common stock and 6,630 immediately exercisable pre-funded warrants to purchase shares of common stock at an exercise price of $.00001 (at an effective per share price of $228.15). All pre-funded warrants were subsequently exercised during the quarter-ended June 30, 2024.
On August 27, 2024, the Company, the Holders and the Agent entered into that certain August 2024 Letter Agreement to modify the terms of the Amendment Agreement, the JGB SPA, and the Debentures, as amended (“August 2024 Amendment”).
Under the terms of the August 2024 Agreement, each Holder agreed that it shall not exercise its Holder Redemption Right (as defined in the Debentures) for more than 50% of its Monthly Allowance (as defined in the Debentures) through and including July 2025. Further, the provisions in Section 3(c)(i) of the Debentures requiring 20% of any equity issuances to be paid to the Holders shall be suspended through December 31, 2024. In consideration for the amendments set forth in the August 2024 Amendment, the Company paid an amendment fee of $746, which was added to the aggregate principal amount of the Debentures. JGB subsequently issued a conversion notice for 3,260 shares of common stock equal to principal reduction of $328.
On October 10, 2024, the Company, the Holders and the Agent entered into that certain October 2024 Letter Agreement to modify the terms of the Amendment Agreement, the JGB SPA, and the Debentures, as amended (“October 2024 Amendment”).
Under the terms of the October 2024 Amendment, the Company will be able to reset the Conversion Price (as defined in the Debentures) currently in effect, at the discretion of the Board of Directors and on a one time basis, to an amount equal to the average of the daily VWAPs for each of the five (5) consecutive Nasdaq trading days immediately preceding the date on which the Conversion Price shall be reset. The reset Conversion Price shall in no event be greater than the Conversion Price in effect on the date of the Letter Agreement, which is $0.7458. See Note 20 “Subsequent Events.”
In accordance with ASC 470-60 Troubled Debt Restructurings by Debtors and ASC 470-50, Debt Modifications and Extinguishment, the Company performed an assessment of whether the transaction was deemed to be a troubled debt restructuring, and if no, whether the transaction was deemed modification of existing debt, or an extinguishment of existing debt and new debt.
The October 2023 Amendment, April 2024 Amendment, May 2024 Amendment, and August 2024 Amendment was concluded to be a modification, and not an extinguishment, based on an analysis of the present value of future cash flows. A new effective interest rate was determined, and the debt continued to be amortized. The December 2023
Amendment was concluded to be an extinguishment, due to the addition of a substantive conversion option. As a result, the pre-amended debt carrying value was extinguished and the new debt was recorded at fair value, which is subsequently amortized using the effective interest method. Extinguishment charges were $5,158 and recorded in Interest expense on the Consolidated Statements of Operations and Comprehensive Loss for the quarter ended December 31, 2023.
The Company analyzed the conversion feature of the December 2023 Amendment for derivative accounting consideration under ASC 815-15 and determined that the embedded conversion features should be classified as a bifurcated derivative because the exercise price of these convertible notes are subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability at fair value in the amount of $557 as of December 31, 2023, respectively as a component of Other Long-Term Liabilities on the Consolidated Balance Sheet. Subsequently, during the year-ended December 31, 2024, the derivative liability related to the debentures and embedded conversion option was reclassified from Other Long-Term Liabilities to Capital in Excess of Par, based on the Company’s reassessment of the classification and conclusion the derivative met the ‘fixed for fixed’ criteria in ASC 815.
See Note 8 “Fair Value Measurement” for additional information related to measurement of the debentures and derivative liability.
Subordinated Note
On March 3, 2023, the Company executed a Subordinated Promissory Note (the “Subordinated Note”) with a principal amount of $2,865 in favor of Omnia Ventures, LP (“Omnia”). The Subordinated Note refinanced the 12% Secured Promissory Note with a principal amount of $1,000 dated as of October 29, 2021 payable to Omnia (the “October Note”) and the 12% Secured Promissory Note with a principal amount of $1,500 dated as of January 14, 2022 payable to Omnia (the “January Note”, and together with the October Note, the “Original Notes”), which were assumed by the Company in connection with the acquisition of GVB Biopharma.
Under the terms of the Subordinated Note, the Company is obligated to make interest payments in-kind (the “PIK Interest”). The PIK Interest accrues monthly at a compounding rate of 26.5% per annum, payable monthly The Company is not permitted to prepay all or any portion of the outstanding balance on the Subordinated Note prior to maturity. The maturity date of the Subordinated Note was May 1, 2024. The Subordinated Note was terminated and extinguished in April 2024.
In connection with the Subordinated Note, the Company issued to Omnia, warrants to purchase up to 21 shares of the Company’s common stock (the “Omnia 2023 Warrants”). The 2023 Omnia Warrants are exercisable for seven years from September 3, 2023, at an exercise price of $27,708.48 per share, subject, with certain exceptions, to adjustments in the event of stock splits, dividends, subsequent dilutive offerings and certain fundamental transactions.
On April 29, 2024, the Company entered into a General Release and Settlement Agreement (the “Omnia Agreement”) with Omnia Capital LP (“Omnia”). The Omnia Agreement settles and extinguishes all outstanding debt and interest owed to Omnia under the outstanding Subordinated Promissory Note dated March 3, 2023 (the “Old Note”) and the put provision contained in the 2023 Omnia Warrants, amounting to a total of approximately $5,228, for (i) a cash payment of $249; (ii) 8,519 shares of common stock and 8,519 immediately exercisable pre-funded warrants to purchase shares of common stock at an exercise price of $0.0001 that are exercisable until May 1, 2029 (at an effective per share price of $288.90) and (iii) 3,408 immediately exercisable warrants to purchase an equal number of shares of common stock at an exercise price of $288.90 until May 1, 2029 (the “2024 Omnia Warrants”). The 2024 Omnia Warrants contain a put provision that permits the holder to require the Company to redeem the 2024 Omnia Warrants, no earlier than May 1, 2025, for a purchase price equal to $361.125 per warrant, and had an initial fair value of $1,515 (see Note 8). Subject to limited exceptions, a holder of pre-funded warrants and 2024 Omnia Warrants will not have the right to exercise any portion of its warrants if the holder, together with its affiliates, would beneficially own in excess of 19.99% of the number of shares of our common stock outstanding immediately after giving effect to such exercise. As part of the Omnia Agreement, the parties agreed to terminate and cancel the Old Note and the 2023 Omnia Warrants and released all debts,
claims or other obligations against each other occurring prior to the date of the Omnia Agreement. The total cash and non-cash consideration amounted to $5,628, resulting in extinguishment charges of $400 for the year ended December 31, 2024, recorded in Interest expense in the Statement of Operations and Comprehensive Loss.
Contractual Maturities
The Company has $1,500 pledged against outstanding indebtedness under the Senior Secured Credit Facility comprised of (i) $500 GVB promissory note and (ii) $1,000 assignment of Needle Rock Farms to be applied as principal reduction in 2024. As of December 31, 2024, contractual maturities under the Senior Secured Credit Facility for the remainder of 2024 and through maturity, excluding any discounts or premiums, were to be paid in 2024 of $1,500 and 2026 of $6,190.
Additionally, commencing August 2024, at its option, JGB may require the Company to redeem 2% of the original principal amount of the Debentures, as amended to be no more than 50% or $210 per calendar month through July 2025 and $421 per calendar month thereafter which amount may at the Company’s election, subject to certain exceptions, be paid in cash, shares of the Company’s common stock, or a combination thereof. JGB elected the monthly redemption feature and the Company repaid $1,053 in cash during the year ended December 31, 2024. If the redemption feature is elected, as of December 31, 2024, contractual maturities under the senior secured credit Facility for 2025 are $3,368, and for 2026 are $4,332. See Note 20 “Subsequent Events.”
Debt Issuance Costs
The fair values of the warrants at issuance of $5,791, together with the Debentures original issuance discount of $1,053, Debentures exit payment of $1,053, and third-party debt issuance costs of $801, are being amortized using the effective interest method over the term of the respective debt instrument, recorded as Interest expense in the Consolidated Statement of Operations and Comprehensive Loss. The components and activity of unamortized discount and deferred debt issuance costs related to the Senior Secured Credit Facility and Subordinated Note is as follows:
Total
January 1, 2023
$
-
Issuance
8,698
Amortization during the year
(2,087)
Debt extinguishment charges
(5,158)
December 31, 2023
1,453
Amortization during the period
(1,174)
Amendment fees
December 31, 2024
$
1,025
NOTE 13. - NOTES AND LOANS PAYABLE
The table below outlines our notes payable balances as of December 31, 2024 and 2023:
December 31,
December 31,
Insurance loans payable
$
$
Total current notes and loans payable
$
$
Insurance loans payable
During the second quarter of 2024, the Company renewed its Director and Officer (“D&O”) insurance for a one-year policy premium totaling $866. The Company paid $147 as a premium down payment and financed the remaining $719 of policy premiums over ten months at 8.3% annual percentage rate.
During the second quarter of 2023, the Company renewed its Director and Officer (“D&O”) insurance for a one-year policy premium totaling $1,626. The Company paid $285 as a premium down payment and financed the remaining $1,341 of policy premiums over ten months at a 7.88% annual percentage rate. Additionally, during the third quarter of 2023, the Company expanded its D&O coverage, resulting in additional financing of $143, at 9.38% annual percentage rate over six months.
The Company also has other insurance loans payables related to pollution, property, and general liability across the Company.
As of December 31, 2024, all estimated future principal payments to be made under the above notes and loans payable will be paid in 2025.
NOTE 14. - EQUITY BASED COMPENSATION
Stock Compensation Plan
On May 20, 2021, the stockholders of 22nd Century Group, Inc. (the “Company”) approved the 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the granting of equity awards to eligible individuals over the life of the 2021 Plan, including any remaining shares under the Company’s 2014 Omnibus Incentive Plan pursuant to awards under the 2021 Plan. The 2021 Plan has a term of ten years and is administered by the Compensation Committee of the Company’s Board of Directors to determine the various types of incentive awards that may be granted to recipients under the 2021 Plan and the number of shares of common stock to underlie each such award under the 2021 Plan. As of December 31, 2024, the Company had available 5,336,670 shares remaining for future awards under the 2021 Plan.
Compensation Expense
The Company recognized the following compensation costs, net of actual forfeitures, related to RSUs and stock options:
Year Ended
December 31,
Sales, general, and administrative
$
$
2,052
Research and development
Total equity based compensation - continuing operations
2,231
Total equity based compensation - discontinued operations
-
Total equity based compensation
$
$
2,679
During the years ended December 31, 2024 and 2023, equity-based compensation expense reversals due to employee termination forfeitures amounted to $99 and $1,960, respectively. Additionally, the Company recorded $0 and $523 of accelerated equity compensation expense, respectively, in connection with the vesting of an employees’ outstanding equity awards as part of termination severance agreements. On December 31, 2024, the Company canceled all remaining unvested awards which resulted in accelerated compensation expense of $117.
Restricted Stock Units (“RSUs”). We typically grant RSUs to employees and non-employee directors. The following table summarizes the changes in unvested RSUs from January 1, 2023 through December 31, 2024.
Unvested RSUs
Weighted
Average
Number of
Grant-date
Shares
Fair Value
$ per share
Unvested at January 1, 2023
$
68,860.80
Granted
26,870.40
Vested
(69)
64,087.20
Forfeited
(121)
45,057.60
Unvested at December 31, 2023
$
43,931.77
Granted
3,826
38.56
Vested
(2,829)
1,286.36
Forfeited
(1,117)
1,585.92
Canceled
(3)
41,558.40
Unvested at December 31, 2024
-
$
-
The fair value of RSUs related to employee grants that vested during the years ended December 31, 2024 and 2023 was approximately $9 and $1,838, respectively, based on the stock price at the time of vesting. During the year ended December 31, 2024, there were 2,750 shares granted and immediately vested during the period for settled indebtedness for consulting and other services provided; in which the fair value at the time of vesting amounted to $125. As of December 31, 2024, the Company canceled all remaining unvested RSUs.
Stock Options. Our outstanding stock options were valued using the Black-Scholes option-pricing model on the date of the award. There was no stock option grant activity during 2024 and 2023. A summary of all stock option activity from January 1, 2023 to December 31, 2024 is as follows:
Weighted
Weighted
Average
Average
Remaining
Aggregate
Number of
Exercise
Contractual
Intrinsic
Options
Price
Term
Value
$ per share
Outstanding at January 1, 2023
$
55,974.36
Forfeited
(54)
45,984.00
Expired
(4)
89,424.00
Outstanding at December 31, 2023
59,168.69
Forfeited
(4)
83,916.00
Expired
(123)
58,363.90
Outstanding at December 31, 2024
-
$
-
-
years
$
-
Exercisable at December 31, 2024
-
$
-
-
years
$
-
The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option.
NOTE 15. - EARNINGS (LOSS ) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per common share for the years ended December 31, 2024 and 2023, respectively.
Year Ended
December 31,
Net loss from continuing operations
$
(15,495)
$
(54,686)
Net income (loss) from discontinued operations
(86,089)
Net loss
(15,164)
(140,775)
Deemed dividends
(10,303)
(9,992)
Net loss available to common shareholders
$
(25,467)
$
(150,767)
Weighted average common shares outstanding - Basic
146,392
9,467
Dilutive effect of warrants and RSUs
1,167,214
-
Dilutive effect of convertible notes
76,377
-
Denominator for diluted EPS
1,389,983
9,467
Basic loss per common share from continuing operations
$
(105.85)
$
(5,776.63)
Basic loss per common share from discontinued operations
2.26
(9,093.89)
Basic loss per common share from deemed dividends
(70.38)
(1,055.47)
Basic loss per common share
$
(173.97)
$
(15,925.99)
Diluted loss per common share from continuing operations
$
(105.85)
$
(5,776.63)
Diluted income (loss) per common share from discontinued operations
0.24
(9,093.89)
Diluted loss per common share from deemed dividends
(70.38)
(1,055.47)
Diluted loss per common share
$
(175.99)
$
(15,925.99)
Anti-dilutive shares are as follows as of December 31:
Warrants (excluding pre-funded)
25,746,741
22,110
Options
-
Restricted stock units
-
25,746,741
22,360
NOTE 16. - REVENUE RECOGNITION
The Company’s revenues are derived primarily from contract manufacturing organization (“CMO”) customer contracts that consist of obligations to manufacture the customers’ branded filtered cigars and cigarettes. Additional revenues are generated from sale of the Company’s proprietary low nicotine content cigarettes, sold under the brand name VLN®, or research cigarettes sold under the brand name SPECTRUM®. The Company does not have significant intra-entity sales or transfers.
The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. For certain CMO contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product and it has an enforceable right to payment as the product is manufactured. The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units to customers and is recognized net of cash discounts, sales returns and
allowances. There was no allowance for discounts or returns and allowances at December 31, 2024 and December 31, 2023.
Disaggregation of Revenue
The Company’s net revenue is derived from customers located primarily in the United States and is disaggregated by the timing of revenue. Revenue recognized from Tobacco products transferred to customers over time represented 54% and 63%, for the year ended December 31, 2024 and 2023, respectively.
The following table presents net revenue by product line:
Year Ended
December 31,
Contract Manufacturing
Cigarettes
$
14,219
$
14,027
Filtered Cigars
9,427
17,240
Cigarillos
-
Total Contract Manufacturing
24,402
31,267
VLN®
(20)
Total Product Line Revenues
$
24,382
$
32,204
The following table presents net revenues by significant customers, which are defined as any customer who individually represents 10% or more of disaggregated product line net revenues:
Year Ended
December 31,
Customer A
46.11
%
31.49
%
Customer B
16.45
%
21.70
%
Customer C
14.00
%
8.59
%
All other customers
23.44
%
38.22
%
Contract Assets and Liabilities
Unbilled receivables (contract assets) represent revenues recognized for performance obligations that have been satisfied but have not been billed. These receivables are included as Accounts receivable, net on the Consolidated Balance Sheets. Customer payment terms vary depending on the terms of each customer contract, but payment is generally due prior to product shipment or within extended credit terms up to twenty-one (21) days after shipment. Deferred Revenue (contract liabilities) relate to down payments received from customers in advance of satisfying a performance obligation. This deferred revenue is included as Deferred income on the Consolidated Balance Sheets.
Total contract assets and liabilities are as follows:
December 31,
December 31,
Unbilled receivables
$
1,298
$
1,053
Deferred income
(20)
(726)
Net contract assets
$
1,278
$
During the years ended December 31, 2024 and 2023, the Company recognized $726 and $688 of revenue that was included in the contract liability balance as of December 31, 2023 and 2022 respectively.
NOTE 17. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has organized its business as a single reportable segment (“Reporting Segment”), tobacco, as it operates and derives all revenues from its tobacco operations and products. This segment structure reflects the financial information and reports used by the Company’s management, specifically its Chief Operating Decision Maker (“CODM”), to make decisions regarding the Company’s business, including resource allocations and performance assessments. The Company’s Chief Executive Officer serves as the CODM. The accounting policies of the Reporting Segment are the same as those described in the summary of significant accounting policies. See Note 1 for additional information about the Company's business and significant accounting policies.
Consolidated net income (loss) from continuing operations, as presented on the Company's Consolidated Statements of Operations and Comprehensive Loss is a metric utilized by the CODM to assess the Reporting Segment's performance and allocate resources. Total consolidated assets, excluding assets held for sale, as presented on the Company's Consolidated Balance Sheets is used to measure the Reporting Segment's assets.
The CODM uses Consolidated net income (loss) from continuing operations to evaluate profitability generated from segment assets in determining the strategic decisions of the Company with respect to utilizing its assets. Consolidated net income (loss) from continuing operations is also used to monitor budget versus actual results.
The following table presents revenues and significant segment expenses from continuing operations for the years ended December 31, 2024 and 2023:
Year Ended
December 31,
Consolidated net revenue
$
24,382
$
32,204
Less:
Cost of goods sold
13,758
24,181
Excise taxes
12,504
16,009
Selling, general and administration
10,213
30,911
Research and development
2,000
Depreciation and amortization
1,003
1,508
Other segment items (1)
(420)
2,915
Interest expense
2,094
9,366
Segment net loss from continuing operations
$
(15,495)
$
(54,686)
(1) Other segment items include: other operating expenses, other (income) expense, interest income, and provision for income taxes.
Geographic Area Information
For the years ended December 31, 2024 and 2023, substantially all third-party sales of product are shipped to customers in the United States. Additionally, as of December 31, 2024, and 2023, all long-lived assets are physically located or domiciled in the United States.
NOTE 18. - OTHER OPERATING EXPENSES (INCOME), NET
The components of “Other operating expenses (income), net” were as follows:
Year Ended
December 31,
Restructuring costs:
Impairment of intangible assets (see Note 7)
$
-
$
1,375
Impairment of fixed assets
-
Professional services
-
Severance (see Note 1)
-
Total Restructuring costs
-
2,415
Acquisition and transaction costs
-
Impairment of intangible assets
-
Loss (gain) on sale or disposal of property, plant and equipment
(111)
Other operating expense, net
$
$
2,527
Restructuring costs
During the third quarter of 2023, the Company undertook various restructuring activities in an effort to better align its internal organizational structure and costs with its strategy, as well as preserve liquidity. As a component of the restructuring, the Company has initiated a process to evaluate strategic alternatives with respect to the Company’s tobacco assets. The process will include consideration of a range of strategic, operational and financial transactions and alternatives, such as business combinations, asset sales, licensing agreements, alternate financing strategies and other options.
As a result, the Company incurred $2,415 in restructuring costs for the year ended December 31, 2023, which included costs related to employee termination, professional services and consulting, and long-lived asset impairment.
NOTE 19. - INCOME TAXES
The following is a summary of the components giving rise to the (benefit) provision for income taxes from continuing operations for the years ended December 31, 2024 and 2023:
Current:
Federal
$
-
$
-
State
Foreign
-
-
Total current provision
$
$
Deferred:
Federal
(3,355)
(11,351)
State
(736)
Foreign
-
-
Total deferred benefit
(3,258)
(12,087)
Change in valuation allowance
3,266
12,094
Total income tax provision
$
$
The provision for income tax from continuing operations varies from that which would be expected based on applying the statutory federal rate to pre-tax book loss, including the effect of the change in the U.S. corporate income tax rates, as follows:
Statutory federal rate
21.0
%
21.0
%
Other items
0.4
0.2
GVB sale adjustments
4.0
-
Stock based compensation
(5.3)
(0.8)
Research and development credit carryforward
1.5
0.4
State tax, net of federal benefit
(0.7)
1.3
162(m) limitation
-
(0.2)
Valuation allowance
(21.1)
(22.0)
Effective tax rate
(0.2)
%
(0.1)
%
Individual components of deferred taxes consist of the following as of December 31:
Deferred tax assets:
Net operating loss carryforward
$
59,605
$
54,453
Inventory
2,020
Stock-based compensation
-
Start-up expenditures
Research and development credit carryforward
1,654
1,424
Accrued bonus
-
Severance liability
Allowance for credit losses
Research and development costs
1,827
1,617
Operating lease obligations
Capital loss on investment
2,622
2,449
Interest expense limitation
2,259
1,687
Note payable and warrant liability
Other
$
70,194
$
66,025
Deferred tax liabilities:
Machinery and equipment
(334)
(283)
Patents and trademarks
(149)
(193)
Operating lease right-of-use assets
(386)
(467)
Other intangible assets
(409)
(385)
(1,278)
(1,328)
Valuation allowance
(68,989)
(64,763)
Net deferred taxes
$
(73)
$
(66)
The Company has net operating loss (“NOL”) carryforwards of approximately $215,397 as of December 31, 2024 that do not expire. The Company also accumulated an NOL carryforward of approximately $46,920 through December 31, 2017 and this NOL carryforward begins to expire in 2030. As of December 31, 2024, the Company has a research and development credit carryforward of approximately $1,654 that begins to expire in 2030. The Company has a capital loss carryover of approximately $11,119 as of December 31, 2024, that begins to expire in 2026. Utilization of these carryforwards may be subject to an annual limitation in the case of equity ownership changes, as defined by law. As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to reduce the net deferred tax asset associated with the definite lived assets to zero. For the years ended December 31, 2024 and 2023, the valuation allowance increased for continuing operations by $3,305 and $12,094, and increased an additional $922 and $12,910, respectively due to tax attributes that were generated as a part of discontinued operations but remain on a prospective basis with continuing operations due to the Company filing a consolidated US federal return for the year ended December 31, 2024 and 2023.
ASC 740 provides guidance on the financial statement recognition and measurement for uncertain income tax positions that are taken or expected to be taken in a company’s income tax return. The Company has evaluated its tax positions and believes there are no uncertain tax positions as of December 31, 2024 and 2023.
NOTE 20. - SUBSEQUENT EVENTS
JGB Senior Secured Credit Facility
As previously disclosed, on October 9, 2024, 22nd Century Group, Inc. (the “Company”) entered into that certain Letter Agreement to modify the terms of the Securities Purchase Agreement dated March 3, 2023 (the “JGB SPA”) and debentures (the “Debentures”), as amended, with JGB Partners, LP (“JGB Partners”), JGB Capital, LP (“JGB Capital”) and JGB Capital Offshore Ltd. (“JGB Offshore” and collectively with JGB Partners and JGB Capital, the “Holders”) and JGB Collateral, LLC, as collateral agent for the Holders (the “Agent”).
Under the terms of the Letter Agreement, as approved by the stockholders at the December 6, 2024 special meeting of stockholders, the Company was granted approval to reset the Conversion Price (as defined in the Debentures) currently in effect, at the discretion of the Board of Directors and on a one time basis, to an amount equal to the average of the daily VWAPs for each of the five (5) consecutive Nasdaq trading days immediately preceding the date on which the Conversion Price shall be reset.
On January 13, 2025, the Board of Directors approved the reset of the Conversion Price to $6.04 per share. The Holders exercised conversion notices in the amount of $3,132 in January 2025 and the Company issued 518,600 shares of common stock. The remaining principal balance of the Debentures is $4,558, of which the Company and Holders have $1,500 of non-operating assets pledged for repayment.
Nasdaq Compliance
On January 21, 2025, the Company received a letter from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) confirming that the Company had regained compliance with the bid price requirement under Nasdaq Listing Rule 5550(a)(2). As a result, the Company’s hearing before the hearings panel has been cancelled and the Company’s common stock will remain listed on Nasdaq.
NCSU Payment Agreement
On September 5, 2024, the Company entered into a Payment Agreement (the “Agreement”) with NCSU to satisfy outstanding payments due under existing License Agreements with NCSU and to prepay license fees and minimum royalty payments related to sponsored research for the Company’s intellectual property program through the end of 2025.
The second installment of payments was satisfied through the issuance of 83,299 shares of Company common stock occurred on January 30, 2025.
Item 15(b).Exhibits
In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
·
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
·
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
·
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
·
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company’s other public files, which are available without charge through the SEC’s website at http://www.sec.gov.
Exhibit No.
Description
3.1
Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed with the Commission on December 1, 2010).
3.1.1
Amendment to Certificate of Incorporation of the Company (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed with the Commission on March 4, 2014).
3.1.2
Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Commission on December 17, 2024).
3.1.3
Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Commission on April 3, 2024).
3.1.4
Amendment to Certificate of Incorporation of the Company (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed with the Commission on December 11, 2023).
3.2
Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Commission on January 30, 2014).
3.2.1
Amendment No. 1 to Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the Commission on April 28, 2015).
4.1*
Description of Securities Registered Pursuant to Section 12
4.2
Form of Warrant (incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on July 25, 2022).
4.3
Form of Amended Original Issue Discount Senior Secured Debentures dated March 3, 2023 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on December 28, 2023).
4.4
Form of JGB Warrant (incorporated by reference to Exhibit 4.4 to the Company’s Form 10-K filed with the Commission on March 9, 2023).
4.5
Form of Omnia Warrant (incorporated by reference to Exhibit 4.5 to the Company’s Form 10-K filed with the Commission on March 9, 2023).
4.6
Form of Inducement Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on November 29, 2023).
4.7
Waiver and Amendment Agreement (Incorporated by reference from Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on October 16, 2023).
4.8
Form of Common Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on October 18, 2023).
4.9
Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s Form 8-K filed with the Commission on October 18, 2023).
4.10
Form of Prefunded Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on October 24, 2024).
4.11
Form of Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on October 24, 2024).
4.12
Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s Form 8-K filed with the Commission on October 24, 2024).
4.13
Form of Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on October 15, 2024).
4.14
Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on October 15, 2024).
4.15
Form of Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on September 30, 2024).
4.16
Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on September 30, 2024).
4.17
Form of Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s Form 8-K filed with the Commission on September 30, 2024).
4.18
Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.4 to the Company’s Form 8-K filed with the Commission on September 30, 2024).
4.19
Form of Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on September 13, 2024).
4.20
Form of Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on August 28, 2024).
4.21
Form of Pre Funded Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on May 10, 2024).
4.22
Form of Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on April 30, 2024).
4.23
Form of Pre Funded Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on April 30, 2024).
4.24
Form of Common Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on April 9, 2024).
4.25
Form of Pre-Funded Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on April 9, 2024).
4.26
Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.3 to the Company’s Form 8-K filed with the Commission on April 9, 2024).
10.1††
License Agreement dated March 6, 2009 between North Carolina State University and 22nd Century Limited, LLC (incorporated by reference to Exhibit 10.21 to the Company’s Form S-1 registration statement filed with the Commission on August 26, 2011).
10.1.1
Amendment dated August 9, 2012 to License Agreement dated March 6, 2009 between North Carolina State University and 22nd Century Limited, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 20, 2012).
10.2
Letter Agreement between the Company and North Carolina State University dated November 22, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 23, 2011).
10.3†
Amended and Restated 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference from Appendix B to the Company’s definitive proxy statement filed April 29, 2024)
10.4†
Form of Option Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021).
10.5†
Form of Executive RSU Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021).
10.6†
Form of Director RSU Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021).
10.7†
22nd Century Group, Inc. 2014 Omnibus Incentive Plan, as amended and restated (incorporated by reference from Appendix A to the Company’s definitive proxy statement filed on March 22, 2019).
10.8
Securities Purchase Agreement dated March 3, 2023 with each of the purchasers party thereto and JGB Collateral, LLC, a Delaware limited liability company, as collateral agent for the Purchasers (incorporated by reference to Exhibit 10.18 to the Company’s Form 10-K filed with the Commission on March 9, 2023)
10.8.1
Amendment to Securities Purchase Agreement dated March 3, 2023 with each of the purchasers party thereto and JGB Collateral, LLC, a Delaware limited liability company, as collateral agent for the Purchasers (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on December 28, 2023)
10.8.2
Letter Agreement with JGB (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on October 10, 2024)
10.8.3
Letter Agreement with JGB (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on August 28, 2024)
10.8.4
May 2024 Letter Agreement with JGB (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on May 10, 2024)
10.8.5
May 2024 Exchange Agreement with JGB (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on May 10, 2024)
10.8.6
Letter Agreement with JGB (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on April 8, 2024)
10.9
Subordinated Promissory Noted dated March 3, 2023 (incorporated by reference to Exhibit 10.19 to the Company’s Form 10-K filed with the Commission on March 9, 2023)
10.10
Equity Purchase Agreement dated November 20, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 27, 2023)
10.10.1
Amendment to Equity Purchase Agreement dated December 22, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on December 28, 2023)
10.11
License Agreement with NCSU dated November 2, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 8, 2023)
10.12*
Master Services Agreement and Addendum #1 with Smoker Friendly International, LLC dated January 1, 2025.
10.13
Payment Agreement with NCSU (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on September 9, 2024)
10.14
General Release and Settlement Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on April 30, 2024)
19.1
Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Company’s Form 10-K filed with the Commission on March 28, 2024)
21.1*
Subsidiaries
23.1*
Consent of Freed Maxick P.C. (f/k/a Freed Maxick CPAs, P.C.)
31.1*
Section 302 Certification.
31.2*
Section 302 Certification.
32.1*
Written Statement of Principal Executive Officer and Chief Financial Officer pursuant to 18.U.S.C §1350.
97.1
Compensation Recovery Policy (incorporated by reference to Exhibit 97.1 to the Company’s Form 10-K filed with the Commission on March 28, 2024)
101*
Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements.
101.INS XBRL
Instance Document*
101.SCH XBRL
Taxonomy Extension Schema Document*
101.CAL XBRL
Taxonomy Extension Calculation Linkbase Document*
101.DEF XBRL
Taxonomy Extension Definition Linkbase Document*
101.LAB XBRL
Taxonomy Extension Label Linkbase Document*
101.PRE XBRL
Taxonomy Extension Presentation Linkbase Document*
Exhibit 104
Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document*
* Filed herewith.
† Management contract or compensatory plan, contract or arrangement.
†† Certain portions of the exhibit have been omitted pursuant to a confidential treatment order. An unredacted copy of the exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to the request for confidential treatment.