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What changed in 22nd Century Group, Inc.'s 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of 22nd Century Group, Inc.'s 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+228 added−348 removedSource: 10-K (2025-03-20) vs 10-K (2024-03-28)

Top changes in 22nd Century Group, Inc.'s 2024 10-K

228 paragraphs added · 348 removed · 139 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe results of numerous completed studies serve as an independent scientific foundation for the FDA’s advanced notice of proposed rule-making (“ANPRM”) on July 28, 2017, which announced FDA’s intention to institute a new rule to require that all combustible cigarettes sold in the United States contain only minimally or non-addictive levels of nicotine, also referred to as the Comprehensive Plan for Tobacco and Nicotine Regulation.
Biggest changeIn 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.
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 tobacco products.
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.
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 covering tobacco plants with altered nicotine content produced by modifying the expression of genes that control the biosynthesis of nicotine in the tobacco plant.
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.
We are also aware that several domestic cigarette companies and other research groups are working to research and grow reduced nicotine tobacco and have filed patent applications. 15 Table of Contents 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.
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.
Human Capital Resources As of December 31, 2023, we had 64 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.
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.
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. ​ 16 Table of Contents
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. ​
Holders of authorized PMTAs are, among other things, 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.
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.
Modified Risk Tobacco Products (MRTP) 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.
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.
In the MRTPA, we requested authorization from the FDA to market our reduced nicotine tobacco cigarettes with certain product labeling claims under the brand name of VLN ® . 8 Table of Contents On December 23, 2021, we secured the first and only MRTP designation for a combustible cigarette for VLN ® King and VLN ® Menthol King 95% reduced nicotine content cigarettes.
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 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 five largest tobacco companies in the United States concerning the advertising, marketing and promotion of tobacco products.
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.
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.
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.
To obtain a risk modification order under the FDCA, an applicant must demonstrate that the product, as it is actually used by consumers, will: (i) significantly reduce harm and the risk of tobacco-related disease to individual tobacco users; and (ii) 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.
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.
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.
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.
The Tobacco Control Act further establishes procedures for the FDA to regulate the labeling and marketing of so-called MRTP, which includes, among other things tobacco products that may (i) reduce harm or the risk of tobacco-related disease or (ii) reduce or eliminate exposure to a substance.
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.
In addition to continued focus on VLN ® , we renewed our focus on utilizing our tobacco assets to attract additional tobacco business to help fund the growth of VLN ® .
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.
The FDA has several investigatory and enforcement tools available to it, 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.
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.
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.
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. 12 Table of Contents We are a Nevada corporation, and our corporate headquarters is located at 321 Farmington Road, Mocksville, North Carolina 27028.
The FDA has 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 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. 9 Table of Contents 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.
On December 5, 2018, we submitted to the FDA a PMTA and on December 17, 2019, the FDA issued a marketing order in response to our PMTA.
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.
For more detailed information regarding the divestiture, please refer to Note 2, titled “Discontinued Operations and Divestiture,” in the Notes to Consolidated Financial Statements, which can be found in Item 15 of this report. Tobacco Overview ​ Our unwavering commitment is centered around reducing the effects of nicotine from smoking and smoking cessation.
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.
We are currently developing new versions of our RNC cigarettes utilizing these non-GMO tobacco lines for future commercialization in the U.S. and globally. Tobacco IP 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.
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. 8 Table of Contents 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.
Once filed, the FDA intends to complete its review of the PMTA within 360 days of receipt, however the FDA’s review may take significantly longer.
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.
Premarket Tobacco Product Application (PMTA) Certain of our products, including our low nicotine cigarettes, are marketed in the United States pursuant to a PMTA. Under Section 910(b) of the FDCA, a PMTA can be submitted for any new tobacco product seeking a marketing order to enable commercialization of a new tobacco product in the United States.
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.
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 and become a subsequent participating manufacturer under the MSA.
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.
A marketing granted order becomes effective on the date it is issued in response to a PMTA and permits the new tobacco product to be legally marketed in the United States. 13 Table of Contents 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 unique requirements for record-keeping and post market reporting, among other things.
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.
Our VLN ® cigarettes are currently available in a large number of top U.S. markets and present a groundbreaking alternative with 95% less nicotine content than conventional cigarettes. Maintaining a familiar combustible product format, VLN ® replicates the conventional cigarette smoking experience, encompassing sensory and experiential elements such as taste, scent, smell, and the familiar “hand-to-mouth” behavior.
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.
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.
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. 11 Table of Contents 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.
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.
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. 7 Table of Contents 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.
We have utilized the same model employed by many public-sector research organizations, which entails obtaining an exclusive option or license agreement to any invention arising out of our funded research. In all such cases, we fund and control all patent filings as the exclusive licensee.
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.
On October 22, 2018, we entered into a license agreement with the University of Kentucky (“UK”) to license on a non-exclusive basis a next-generation very low nicotine content burley tobacco plant lines that are not genetically modified (non-GMO) plants. The UK license agreement provided for us to pay UK a total license fee of $1.2 million.
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.
Research & Development (R&D) & Intellectual Property (IP) Tobacco R&D 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.
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.
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. 12 Table of Contents 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.
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.
While the Tobacco Control Act prohibits the FDA from banning cigarettes outright, or mandating that nicotine levels be reduced to zero, it does allow the FDA to require the reduction of nicotine or other compounds in tobacco and cigarette smoke.
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.
Building on the success of the pilot, we initiated a phased rollout strategy in 2023, progressing state by state and region by region to a store footprint spanning more than 5,000 stores in 26 states.
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.
This bonded and temperature conditioned space will further support VLN ® growth and provide additional distribution opportunities for customers. 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.
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. 6 Table of Contents 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.
The strategic acquisition of our factory has allowed us to become vertically integrated so that we can control production priorities/timing and maintain the required high quality of our products, including our SPECTRUM ® research cigarettes and our MRTP-designated VLN ® brand cigarettes featuring 95% less nicotine than the top 100 leading brands sold in the United States.
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.
For FDA to grant such an order, the PMTA must enable the FDA to determine that: (1) permitting the marketing of the new tobacco product would be appropriate for the protection of the public health; (2) the methods used in, or the facilities and controls used for, the manufacture, processing, or packing of the product conform to the requirements of Section 906(e) of the FD&C Act (21 U.S.C. 387f(e)); (3) the product labeling is not false or misleading in any particular; and (4) the product complies with any applicable product standard in effect under section 907 of the FDCA or that there is adequate information to justify a deviation from such standard.
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.
There are currently more than 70 countries that are members of UPOV. Our current RNC tobaccos are protected by our patent portfolio. In addition to our patents, patent applications, and PVP certificates, we own various registered trademarks in the United States and around the world.
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.
Our patented, non-GMO technology can introduce very low nicotine traits into virtually any variety of tobacco, including bright, burley, and oriental. We have successfully applied our non-GMO technology to bright and burley varieties of tobacco and have initiated commercial growing activities for our non-GMO bright and burley reduced nicotine varieties.
We have successfully applied our non-GMO bioengineering techniques to increasingly diverse tobacco lines, including bright, burley, and oriental tobaccos.
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Item 1. Business. Overview 22nd Century Group, Inc. is a tobacco products company with sales and distribution of our own proprietary new reduced nicotine tobacco products authorized as Modified Risk Tobacco Products by the FDA. Additionally, we provide contract manufacturing services for conventional combustible tobacco products for third-party brands.
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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.
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Our mission in tobacco is dedicated to mitigating the harms of smoking through our proprietary reduced nicotine content (“RNC”) tobacco plants and our Very Low Nicotine, VLN ® combustible cigarette products.
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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.
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In December 2021, we secured the first and only authorization from the FDA to market a combustible cigarette, our brand VLN ® as a Modified Risk Tobacco Product (“MRTP”) using certain reduced nicotine exposure claims.
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VLN® cigarettes have 95% less nicotine than the traditional cigarette and have been proven to greatly reduce nicotine consumption.
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In April 2022, the inaugural launch of our proprietary VLN ® cigarettes commenced through a pilot program in select Circle K stores in and around Chicago, Illinois.
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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.
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Our VLN ® tobacco products are supported by a substantial intellectual property portfolio comprising issued patents and patent applications related to tobacco plants, and in particular our reduced nicotine tobacco plants.
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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.
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In addition to existing business relationships with multiple tobacco products companies, we will continue to expand the number of brands in our contract manufacturing operations (“CMO”) portfolio in 2024. GVB Divestiture On December 22, 2023, we completed the sale of substantially all of the GVB hemp/cannabis business (referred to as the “GVB Divestiture”).
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After decades of litigation, lobbying and lawmaking, the major tobacco producers still decide the nicotine levels contained in the tobacco products consumed by smokers.
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As a result, we have classified the results of operations of the hemp/cannabis segment and disposal group as discontinued operations in the Consolidated Statements of Operations for all periods presented.
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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.
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Additionally, the associated assets and liabilities linked to the discontinued operations have been designated as held for sale in the Consolidated Balance Sheet as of December 31, 2023 and 2022, respectively. All results and information presented exclude the hemp/cannabis segment and disposal group unless otherwise noted.
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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.
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We believe we can achieve this mission through the commercialization of our proprietary RNC tobacco plants and cigarette products, prominently featured in our VLN ® brand. These products contain 95% less nicotine content compared to conventional tobacco and cigarettes, which are intended to help users smoke less.
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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.
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The urgency of our mission is underscored by alarming statistics – the FDA publicly acknowledged on July 28, 2017, that tobacco use remains the leading cause of preventable disease and death in the United States.
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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.
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The repercussions include over 480,000 deaths annually and an economic toll of nearly $300 billion in lost productivity and direct health care costs, as reported the U.S.
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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.
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Centers for Disease Control and Prevention (“CDC”). 5 Table of Contents Our innovative approach involves utilizing both genetically modified organism (“GMO”) and non-GMO methods to modify and develop proprietary bright, burley, and oriental RNC tobaccos, ensuring they grow with at least 95% less nicotine content.
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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. 5 Table of Contents 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.
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Our SPECTRUM ® research cigarettes, developed in collaboration with independent researchers, officials from the FDA, the National Institute on Drug Abuse (“NIDA”), which is part of the National Institutes of Health (“NIH”), the National Cancer Institute (“NCI”), and the CDC, have played and continue to play a crucial role in independent clinical studies, with more than 32.8 million variable nicotine research cigarettes provided since 2011.
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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.
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The extensive body of scientific evidenced derived from these studies, published in peer-reviewed journals, including the New England Journal of Medicine and the Journal of the American Medical Association , supports the potential impact of our RNC tobaccos.
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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.
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Smokers who opt for our RNC cigarettes in clinical studies experienced reductions in smoking (measured in cigarettes per day), nicotine exposure, and dependence, coupled with minimal or no evidence of compensatory smoking or withdrawal and without serious adverse events.
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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.
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A list of ongoing as well as completed and published clinical studies using cigarettes made with our RNC tobaccos may be viewed at https://www.xxiicentury.com/vln-clinical-studies/published-clinical-studies-on-very-low-nicotine-content-vlnc-cigarettes . These studies showed that smokers who used for RNC cigarettes increased their frequency of smoke-free days and doubled their efforts to quit smoking.
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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.
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SPECTRUM ® research cigarettes persist as a key component in various independent scientific studies, aimed at substantiating the public health advantage acknowledged by the FDA and other entities. This advantage is associated with the FDA’s proposal to establish a national product standard requiring that all cigarettes incorporate “minimally or nonaddictive” levels of nicotine.
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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.
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Notably, our SPECTRUM ® variable nicotine research cigarettes serve as the precursor to our innovative VLN ® cigarette products. Our conviction in the significant global market potential of our proprietary RNC cigarettes, marketed under the brand name VLN ® , is rooted in substantial data.
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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.
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As outlined in a 2021 report by the Foundation for a Smoke Free World, global full nicotine cigarette retail sales reached an estimated 84.1% or $612 billion of the $853 billion market for products that contain nicotine.
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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.
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The statistics from the CDC and the World Health Organization (“WHO”) highlight a substantial market, with over 1 billion global adult smokers and 30 million in the U.S. Despite the prevalence of various nicotine delivery systems, including vaping, our belief is that smokers are actively seeking alternatives to traditional addictive combustible cigarettes.
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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.
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Our confidence is reinforced by consumer perception studies, in which 60% of adult smokers expressed a likelihood to adopt VLN ® as their preferred choice. Importantly, VLN ® is currently available in the market for sale, positioning itself as a viable option for smokers seeking reduced harm alternatives.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

68 edited+13 added−46 removed95 unchanged
Biggest changeIf we are unsuccessful in commercializing our RNC tobacco cigarettes, or such commercialization takes longer or costs more than we currently expect, our financial results, business and future prospects would be materially adversely effected. 21 Table of Contents 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.
Biggest changeWe 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.
Consequently, we will need to reapply to 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.
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.
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 impact the price of our common stock.
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 inability to incorrectly 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.
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.
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 senior secured debentures.
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.
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, 22 Table of Contents 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.
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.
Potential customers 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.
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.
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 18 Table of Contents 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.
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.
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 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.
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.
Although we recently 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.
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.
In addition, we expect new competitors will enter the markets for similar tobacco products in the future and the nature and extent of this market entrance cannot be quantified at this time.
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.
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.
We are also required to maintain certain quarterly revenue targets. ​ 13 Table of Contents 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.
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; ● 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.
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 16 Table of Contents ● effectively sell our products into established markets where there is substantial market dominance by large tobacco enterprises.
We currently intend to retain our future earnings, if any, to fund the development and growth of our business, 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.
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.
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.
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 22 Table of Contents than courts in the United States.
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. 28 Table of Contents Such actions could harm our competitive position and our ability to generate revenue and could result in increased costs.
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.
We cannot guarantee that our current manufacturing facility or any other manufacturing will successfully complete FDA inspections and/or similar inspections in foreign, or that future CGMP regulations will not also negatively affect the cost or sustainability of our manufacturing facility.
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 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 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. 14 Table of Contents 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 stock price may be highly volatile and could decline in value. Our common stock is currently traded on the NASDAQ and 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.
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 tobacco industry consists of major domestic and international companies, most of which have existing relationships in the markets in which we plan to sell, 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.
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.
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; ● 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; 30 Table of Contents ● 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 ● equity sales by us of our common stock or securities convertible into common stock to fund our operations.
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.
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; 29 Table of Contents ● 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.
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. 24 Table of Contents Recently, the Company received deficiency letters from the Nasdaq Listing Qualifications Department notifying the Company not been in compliance with certain Nasdaq trading rules.
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.
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.
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.
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 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.
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.
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.
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 are currently involved in certain litigation matters, including securities class action and derivative litigation. See "Item 3 – Legal Proceedings" included in this Annual Report on Form 10-K.
We are currently involved in certain litigation matters. See "Item 3 – Legal Proceedings" included in this Annual Report on Form 10-K.
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.
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. 17 Table of Contents 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.
Our senior secured debentures 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 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.
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.
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.
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.
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.
Any significant change in tobacco leaf prices or taxes, quality and quantity could affect our profitability and our business. 24 Table of Contents We distribute and sell our products outside of the U.S., which subjects us to other regulatory risks.
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.
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.
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.
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.
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.
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”). On March 8, 2023, the FDA issued a proposed rule to promulgate such CGMP regulations.
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).
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.
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. ​ 21 Table of Contents 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.
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. 23 Table of Contents The loss of a significant customer for whom we manufacture tobacco products could have an adverse impact on our results of operation.
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.
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.
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. 20 Table of Contents The willingness of adult consumers to purchase premium consumer tobacco products, such as our RNC cigarettes, depends in part on economic conditions.
We need additional funding to execute our business plan and to continue operations even with the proceeds from recent warrant inducement and exchange concluded in February 2024. 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.
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.
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.
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.
Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations. 20 Table of Contents 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.
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.
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.
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.
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.
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.
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.
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.
District Court for the Eastern District of Texas vacated the final rule, and the case is currently pending before the U.S. Court of Appeals for the Fifth Circuit. 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”).
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”).
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.
For example, another pandemic or 15 Table of Contents 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.
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.
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. 19 Table of Contents 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.
To date, there has never been a comparable product sold in the marketplace and 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.
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.
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. 27 Table of Contents 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.
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.
As a result, capital appreciation, if any, of our common stock could be the sole source of gain for the foreseeable future. Anti-takeover provisions contained in our articles of incorporation and bylaws, as well as provisions of Nevada law, could impair a takeover attempt.
As a result, capital appreciation, if any, of our common stock could be the sole source of gain for the foreseeable future.
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. 25 Table of Contents 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.
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.
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. ​ 17 Table of Contents Additionally, the senior secured debentures may be converted into shares of the Company’s common stock on the earlier of (i) June 30, 2024 and (ii) the public announcement of a Fundamental Transaction (as defined in the senior secured debentures).
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.
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. 26 Table of Contents A ban on menthol or flavored tobacco products could have a material adverse impact on our business. ​ On April 27, 2022, the FDA proposed new rules to prohibit menthol as a characterizing flavor in cigarettes and prohibit all characterizing flavors (other than tobacco) in cigars.
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.
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.
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. 25 Table of Contents 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.
Patent applications in the United States are maintained in secrecy until the patents are published or are issued.
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.
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.
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.
The prospect of this possible dilution may also impact the price of our common stock. 31 Table of Contents 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.
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.
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.
Legal proceedings covering a wide range of matters related to tobacco use are pending or threatened in various U.S. and foreign jurisdictions.
The Company has not implemented the reverse stock split as of March 25, 2024. 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.
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.
Any resulting litigation could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business. ​ Our competitors generally have, and any future competitors may 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.
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.
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.
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.
If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business. 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.
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.
Additionally, if any of the holders of outstanding options or warrants exercise or convert those shares, as applicable, our common stockholders will incur dilution in their relative percentage ownership.
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.
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.
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.
Additionally, life science 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.
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.
The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain.
Furthermore, if these patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States. 23 Table of Contents The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain.
The patent positions of life sciences companies, like ours, can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in such companies’ patents has emerged to date in the United States. The general patent environment outside the United States also involves significant uncertainty.
Patent positions can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved.
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.
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.
Removed
As of March 25, 2024, we had cash and cash equivalents of approximately $2.2 million.
Added
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.
Removed
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 ability, as part of our cost-cutting measures, to obtain, maintain, restructure and/or terminate agreements with them, or negatively impact our negotiating leverage with such parties, which could have a material adverse effect on our business, financial condition and results of operations or result in litigation.
Added
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.
Removed
Furthermore, any loss of key personnel, employee attrition or material erosion of employee morale arising out of doubts about our ability to operate as a going concern could have a material adverse effect on our ability to effectively conduct our business, and could impair our ability to execute our business plan, thereby having a material adverse effect on our business, financial condition and results of operations.
Added
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. 18 Table of Contents Litigation is subject to uncertainty, and it is possible that there could be adverse developments in pending cases.
Removed
Substantially all of our assets, including intellectual property, are collateralized under the debentures.
Added
The loss of a significant customer for whom we manufacture tobacco products could have an adverse impact on our results of operation.
Removed
We could continue to incur restructuring and impairment charges as we continue to pursue a cost cutting initiative and pursue strategic alternatives. We continue to evaluate opportunities to optimize the cost structure of our operations in order to implement a cost savings initiative.
Added
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.
Removed
The actions driven from these opportunities could result in significant charges which could adversely affect our financial condition and results of operations. Future actions could result in restructuring and related charges, including but not limited to impairments and employee termination costs and costs associated with terminating contracts that could be significant.
Added
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.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeRisk Management and Strategy As one of the critical elements of the Company’s overall ERM approach, the Company’s cybersecurity program is focused on the following key areas: Collaborative Approach : The Company has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.
Biggest changeRisk Management and Strategy As one of the critical elements of the Company’s overall ERM approach, the Company’s cybersecurity program is focused on the following key areas: 27 Table of Contents Collaborative Approach : The Company has implemented a comprehensive, cross-functional approach to identifying, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the prompt escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management in a timely manner.
As applicable, the Audit Committee also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. ​ 33 Table of Contents Senior management, in coordination with the Company’s third-party service provider specializing in information technology, works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s incident response and recovery plans.
As applicable, the Audit Committee also receives prompt and timely information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. ​ Senior management, in coordination with the Company’s third-party service provider specializing in information technology, works collaboratively across the Company to implement a program designed to protect the Company’s information systems from cybersecurity threats and to promptly respond to any cybersecurity incidents in accordance with the Company’s incident response and recovery plans.
For more information on our cybersecurity related risks, see Item 1A Risk Factors in this Annual Report on Form 10-K. ​ ​
For more information on our cybersecurity related risks, see Item 1A Risk Factors in this Annual Report on Form 10-K. ​ ​ 28 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed1 unchanged
Biggest changeItem 2. Properties. Our principal executive office and headquarters is located in Mocksville, North Carolina, a leased facility. We previously held our principal executive office and headquarters at leased office space in Buffalo, New York through the end of fiscal 2023. As of December 31, 2023, we operated four tobacco facilities located in Mocksville, North Carolina and surrounding areas.
Biggest changeItem 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.
These locations are comprised of one 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 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.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeTo our knowledge, other than the cases described in Note 12 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. ​ Item 4.
Biggest changeTo 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. ​ Item 4.
Item 3. Legal Proceedings. See Note 12 - Commitments and Contingencies – Litigation - to our consolidated financial statements included in this Annual Report for information concerning our on-going litigation.
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 12 to our consolidated financial statements, from time to time we may be involved in claims arising in the ordinary course of business.
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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 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, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 373,831 (1) ​ $ 26.34 606,406 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity compensation plans not approved by security holders — ​ ​ N/A — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total 373,831 ​ ​ — 606,406 (2) (1) Consists of outstanding options of 219,316 and unvested restricted stock units of 154,515.
Biggest changeIssuer Purchases of Equity Securities None. 29 Table of Contents 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. ​ ​ Item 6. [Reserved] ​
Our current policy is to retain all funds and any earnings for use in the operation 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.
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.
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. 34 Table of Contents Dividend Policy We have not previously and do not plan to declare or pay any dividends on our common stock.
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.
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 25, 2024, there were approximately 122 holders of record of our common stock based on the records of our transfer agent.
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.
Removed
Recent Sales of Unregistered Securities On November 2, 2023, we executed a licensing agreement (“NCSU License Agreement”) with North Carolina State University (“NCSU”).
Removed
Pursuant to the terms of the License Agreement, NCSU granted the Company exclusive rights to Patent Rights and Plant Materials (each as defined in the NCSU License Agreement) owned by NCSU which will allow us to develop and commercialize reduced nicotine content tobacco using the latest non-GMO technology.
Removed
As partial consideration, we issued 183,680 shares of our common stock, equal in value to $100,000, to NCSU (the “Stock Consideration”) calculated using the twenty-day average closing price of the Company’s common stock immediately preceding November 2, 2023.
Removed
The Stock Consideration was issued in a private placement and was exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof as a transaction not involving a public offering and/or Rule 506 of Regulation D promulgated thereunder.
Removed
On November 28, 2023, we commenced a warrant inducement offering with the holders of our previously outstanding 31,779,654 warrants consisting of: (i) the common stock purchase warrants issued on or about June 22, 2023; (ii) the common stock purchase warrants issued on or about July 10, 2023; (iii) the common stock purchase warrants of issued on or about July 21, 2023; and/or (iv) the common stock purchase warrants 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 $0.525.
Removed
We offer the holders of the Existing Warrants an inducement period, whereby we 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)).
Removed
As a result of the warrant inducement offering, 28,649,654 Existing Warrants were exercised for shares of common stock and 57,299,308 Inducement Warrants were issued. The Inducement Warrants were issued in reliance upon an exemption from registration pursuant to Section 4(a)(2) under the Securities Act of 1933, as amended.
Removed
We amended the outstanding Debentures to (i) allow the holders to voluntarily convert the Debentures, in whole or in part, into shares of our 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 our 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 us of any of its stock, or other Equity Interests (as defined in the Debentures) or the incurrence or issuance of any indebtedness.
Removed
The amended Debentures and shares issuable upon conversion of the amended Debentures were issued in a private placement and were exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof as a transaction not involving a public offering and/or Rule 506 of Regulation D promulgated thereunder.
Removed
Issuer Purchases of Equity Securities None. 35 Table of Contents Shares authorized for issuance under equity compensation plans On June 16, 2023, the stockholders of 22nd Century Group, Inc. (the “Company”) approved the amendment and restatement of the 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “Plan”).
Removed
The Plan allows for the granting of equity awards to eligible individuals over the life of the Plan, including the issuance of up to 566,667 shares of the Company’s common stock and any remaining shares under the Company’s 2014 Omnibus Incentive Plan pursuant to awards under the Plan.
Removed
The 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 Plan and the number of shares of common stock to underlie each such award under the Plan.
Removed
As of December 31, 2023, we had available 606,406 shares remaining for future awards under the Plan.
Removed
(2) Consists of shares available for award under the Plan. ​ ​ Item 6. [Reserved] ​

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

20 edited+22 added−47 removed29 unchanged
Biggest changeNet loss for the full year 2023 was $54,686, representing a net loss per share of $2.64 compared with net loss for the full year 2022 of $36,553, representing a net loss per share of $2.84. ● As of December 31, 2023, we had $2,058 in cash and cash equivalents. 38 Table of Contents 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 ​ 2023 ​ 2022 ​ ​ $ ​ % Revenues, net ​ $ 32,204 ​ ​ $ 40,501 ​ ​ (8,297) ​ (20.5) Cost of goods sold ​ ​ 40,900 ​ ​ ​ 38,654 ​ ​ 2,246 ​ 5.8 Gross (loss) profit ​ ​ (8,696) ​ ​ ​ 1,847 ​ ​ (10,543) ​ NM Gross (loss) profit as a % of revenues, net ​ ​ (27.0) % ​ ​ 4.6 % ​ ​ ​ ​ Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Sales, general and administrative ("SG&A") ​ ​ 31,064 ​ ​ ​ 32,231 ​ ​ (1,167) ​ (3.6) SG&A as a % of revenues, net ​ ​ 96.5 % ​ ​ 79.6 % ​ ​ ​ ​ Research and development ("R&D") ​ ​ 2,644 ​ ​ ​ 3,578 ​ ​ (934) ​ (26.1) R&D as a % of revenues, net ​ ​ 8.2 % ​ ​ 8.8 % ​ ​ ​ ​ Other operating expenses (income), net ("OOE") ​ ​ 2,527 ​ ​ ​ (327) ​ ​ 2,854 ​ NM Total operating expenses ​ ​ 36,235 ​ ​ ​ 35,482 ​ ​ 753 ​ 2.1 Operating loss from continuing operations ​ ​ (44,931) ​ ​ ​ (33,635) ​ ​ (11,296) ​ 33.6 Operating loss as a % of revenues, net ​ ​ (139.5) % ​ ​ (83.0) % ​ ​ ​ ​ Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other income (expense), net ​ ​ 334 ​ ​ ​ (366) ​ ​ 700 ​ (191.3) Realized loss on Panacea investment ​ ​ - ​ ​ ​ (2,789) ​ ​ 2,789 ​ NM Loss on transfer of promissory note ​ ​ (895) ​ ​ ​ - ​ ​ (895) ​ NM Interest income, net ​ ​ 219 ​ ​ ​ 313 ​ ​ (94) ​ (30.0) Interest expense ​ ​ (9,366) ​ ​ ​ (55) ​ ​ (9,311) ​ NM Total other expense ​ ​ (9,708) ​ ​ ​ (2,897) ​ ​ (6,811) ​ 235.1 Loss before income taxes ​ ​ (54,639) ​ ​ ​ (36,532) ​ ​ (18,107) ​ 49.6 Provision for income taxes ​ ​ 47 ​ ​ ​ 21 ​ ​ 26 ​ NM Net loss from continuing operations ​ ​ (54,686) ​ ​ ​ (36,553) ​ ​ (18,133) ​ 49.6 Net loss as a % of revenues, net ​ ​ (169.8) % ​ ​ (90.3) % ​ ​ ​ ​ Net loss per common share from continuing operations (basic and diluted)* ​ $ (2.64) ​ ​ $ (2.84) ​ ​ 0.20 ​ (7.04) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NM - calculated change not meaningful ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fiscal 2023 Compared with Fiscal 2022 Revenue - Sale of products, net ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31 ​ December 31 ​ 2023 2022 Revenues, net ​ $ 32,204 ​ $ 40,501 ​ Tobacco revenue was $32,204, a decrease of 20.5% from $40,501 in the prior year period, reflecting lower unit sales as a result of a planned reallocation in production resources during 2023 at the Company’s NASCO facilities away from lower margin filtered cigars to higher margin VLN® and conventional cigarette products.
Biggest changeNet loss for the full 31 Table of Contents 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 ​ 2024 ​ 2023 ​ ​ $ ​ % 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") ​ ​ 130 ​ ​ ​ 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) ​ ​ 895 ​ NM Other income (expense), net ​ ​ 507 ​ ​ ​ 334 ​ ​ 173 ​ 51.8 Interest income, net ​ ​ 72 ​ ​ ​ 219 ​ ​ (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 ​ ​ 30 ​ ​ ​ 47 ​ ​ (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) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 32 Table of Contents 2024 Compared with 2023 Revenue - Sale of products, net ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31 ​ December 31 ​ 2024 2023 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 ​ 2024 ​ 2023 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.
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. 49 Table of Contents ​ Estimation of the cash flows and useful lives of long-lived assets and definite-lived intangible assets requires significant management judgment.
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. 39 Table of Contents ​ Estimation of the cash flows and useful lives of long-lived assets and definite-lived intangible assets requires significant management judgment.
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 9, Fair Value Measurement to our Consolidated Financial Statements included elsewhere in Item 15 of this Annual Report).
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).
Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements. ​ 48 Table of Contents We have identified several critical accounting estimates.
Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements. ​ 38 Table of Contents We have identified several critical accounting estimates.
We determined as of December 1, 2023, it is more likely than not that that the assets are not impaired.
We determined as of December 1, 2024, it is more likely than not that that the assets are not impaired.
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. 42 Table of Contents Our cash and short-term investments, and working capital as of December 31, 2023, and 2022, are set forth below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31 ​ December 31, ​ 2023 2022 Cash and cash equivalents ​ $ 2,058 ​ $ 2,205 Short-term investment securities ​ $ — $ 18,193 Working capital ​ $ (6,826) $ 22,079 ​ Working Capital As of December 31, 2023, we had working capital, excluding assets and liabilities held for sale, of approximately ($6,826) compared to working capital of approximately $22,079 as of December 31, 2022, a decrease of $28,905.
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. 35 Table of Contents Our cash and cash equivalents, and working capital as of December 31, 2024, and 2023, are set forth below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31 ​ December 31 ​ 2024 2023 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.
Other operating expenses (income), net ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2023 2022 Restructuring costs: ​ ​ ​ ​ ​ ​ Impairment of intangible assets ​ $ 1,375 ​ $ 35 Impairment of fixed assets ​ ​ 56 ​ ​ - Professional services ​ ​ 763 ​ ​ - Severance ​ ​ 221 ​ ​ - Total Restructuring costs (a) ​ ​ 2,415 ​ ​ 35 ​ ​ ​ ​ ​ ​ ​ Acquisition and transaction costs (b) ​ ​ 223 ​ ​ — Gain on sale or disposal of property, plant and equipment (c) ​ ​ (111) ​ ​ (362) Total other operating expenses (income), net ​ $ 2,527 ​ $ (327) ​ ​ ​ ​ ​ ​ ​ NM - calculated change not meaningful ​ ​ ​ ​ ​ ​ ​ (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.
(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, ​ 2024 2023 Restructuring costs: ​ ​ ​ ​ ​ ​ Impairment of intangible assets ​ $ — ​ $ 1,375 Impairment of fixed assets ​ ​ — ​ ​ 56 Professional services ​ ​ — ​ ​ 763 Severance ​ ​ — ​ ​ 221 Total Restructuring costs (a) ​ ​ — ​ ​ 2,415 ​ ​ ​ ​ ​ ​ ​ Acquisition and transaction costs (b) ​ ​ — ​ ​ 223 Impairment of intangible assets ​ ​ 68 ​ ​ — Loss (gain) on sale or disposal of property, plant and equipment ​ ​ 62 ​ ​ (111) Total other operating expense, net ​ $ 130 ​ $ 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.
Additionally, interest expense increased as a result of PIK interest of $695 recognized from the Subordinated Note. ​ 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.
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.
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. ​ (c) Reflects gain on sale resulting from sale of older manufacturing equipment. ​ Refer to Note 18, “Other operating expenses, net,” of the Notes to Consolidated Financial Statements contained in Item 15 of this report for additional information regarding these charges. ​ 41 Table of Contents Other income (expense) ​ ​ ​ ​ ​ ​ Changes From Prior Year Other income (expense): ​ ​ ​ Realized loss on Panacea investment (a) ​ $ (2,789) Other income (expense), net (b) ​ ​ (700) Loss on transfer of promissory note (c) ​ ​ 895 Interest income, net ​ ​ 94 Interest expense (d) ​ ​ 9,311 Net increase in other expense ​ $ 6,811 ​ (a) Realized loss on PLSH investment reflects the change in fair value and write-off of our investment in PLSH common stock during the year ended December 31, 2022 of $2,340 and extinguishment of note receivable of $500 less adjusted discount of $51. ​ (b) Other income (expense), net includes a decrease of $336 of realized losses on short-terms investments and $364 gain on change in fair value of warrant liability. ​ (c) In connection with the Senior Secured Credit Facility October 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. ​ (d) Interest expense increased in 2023, as compared to the prior year period, primarily due to the cash interest of $1,104 and non-cash interest of $2,087 recognized from the Senior Secured Credit Facility (of these totals, $366 of interest was allocated to discontinued operations), and additional charges of $5,158 for extinguishment of debt and $557 of derivative liability in connection with the December Amendment.
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. ​ 34 Table of Contents Other income (expense), net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended Loss on transfer of promissory note (a) ​ $ 895 Other income (expense), net (b) ​ ​ 173 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.
Operating loss for the full year 2023 was $44,931, compared to a loss of $33,635 in the prior year. ● Net loss in the fourth quarter of 2023 was $22,068, representing a net loss per share of $0.66 compared with net loss in the fourth quarter of 2022 of $11,114, representing a net loss per share of $0.77.
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.
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 impairment indicators occurred during the fourth quarter of 2023 in connection with ongoing evaluation of our tobacco strategy and restructuring efforts and concluded that certain definite-lived intangible assets, including patents, were impaired due to obsolescence or abandonment in the amount of $1,375.
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.
All results and information presented exclude the hemp/cannabis segment and disposal group unless otherwise noted. ​ Refer to Note 2 “Discontinued Operations and Divestitures” of the Notes to Consolidated Financial Statements contained in Item 15 of this report for additional information about the divestiture of the GVB and hemp/cannabis disposal group. ​ Financial Overview – Fourth Quarter and Full Year 2023 Results ● Net revenues for the fourth quarter of 2023 were $7,357, a decrease of 26.1% from $9,951 in 2022, primarily driven by a decrease in volumes of filtered cigars. o Fourth quarter 2023 cartons sold of 823 compared to 1,354 in the comparable prior year period. ● Net revenues for the full year 2023 were $32,204, a decrease of 20.5% from $40,501 in 2022. ● Gross profit for the fourth quarter of 2023 was a loss of $7,829 compared to gross loss of $44 in the prior year period. ● Gross profit for the full year 2023 was a loss of $8,696, compared to a gross profit of $1,847 in 2022. ● Total operating expenses for the fourth quarter 2023 decreased to $6,403 compared to $10,172 in the prior year quarter driven by: o Sales, general and administrative expenses decreased to $4,005 driven primarily by a decrease in personnel costs, strategic consulting, and sales and marketing due to our cost savings initiatives. o Research and development expenses decreased to $493, driven by a decrease in personnel expenses and costs associated with the Company’s research programs. o Other operating expenses, net was $1,905, primarily reflecting restructuring costs of $1,871, including impairment and legal charges. ​ ● Operating loss for the fourth quarter 2023 was $14,232, compared to a loss of $10,216 in the prior year period.
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.
The decrease in cash provided by investing activities of $5,762 was primarily the result of (i) a decrease in net proceeds from short-term investments of $10,338; (ii) $1,188 related to the acquisition of patents, trademarks and property, plant and equipment; and (iii) $126 of proceeds from the sale of property, plant and equipment.
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.
Summary of Cash Flow ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ Change ​ 2023 2022 ​ $ Cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ ​ Operating activities ​ $ (54,987) ​ $ (51,714) ​ (3,273) Investing activities ​ 16,816 22,578 ​ (5,762) Financing activities ​ 37,209 30,820 ​ 6,389 Net change in cash and cash equivalents ​ $ (962) $ 1,684 ​ ​ ​ Net cash used in operating activities Cash used in operations increased $3,273 from $51,714 in 2022 to $54,987 in 2023.
Refer below to “Cash demands on operations.” Summary of Cash Flow ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ Change ​ 2024 2023 ​ $ 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.
These cash inflows were offset by a decrease in net proceeds of issuance of common stock of $9,605, payments of long-term debt of $9,700, increased note payable payments of $1,759, taxes paid related to net share settlement of RSUs of $271 and $174 of option exercises that occurred in 2022.
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.
We had negative cash flow from operations of $54,987 for the year ended December 31, 2023 and an accumulated deficit of $378,707 as of December 31, 2023. As of December 31, 2023, we had cash and cash equivalents of $2,058, and working capital of ($6,826) (compared to working capital of $22,079 at December 31, 2022).
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.
Net cash provided by financing activities During the year ended December 31, 2023, cash provided by financing activities increased by $6,389 resulting from the net proceeds of $16,048 from issuance of long-term debt, proceeds of $6,016 from issuance of detachable warrants, net proceeds of $3,044 from warrant exercises, net proceeds of $2,563 from issuance of common stock related to the prior ATM facility, increased proceeds of $198 from the issuance of notes payable, and a decrease in other financing of $29.
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. 36 Table of Contents 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.
In connection with evaluation of strategic alternatives and tobacco focused restructuring efforts, during the fourth quarter of 2023, the Company increased the reserve for excess, obsolete or expired leaf inventory by $7,720.
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) $ (2,239) Strategic consulting (b) ​ (393) Sales and marketing (c) ​ 986 Administrative, public company and other expenses (d) ​ 274 Legal (e) ​ 205 Net decrease in SG&A expenses $ (1,167) ​ ​ ​ (a) Decreases in compensation and benefits primarily resulted from $3,200 benefit of lower equity based compensation expense due to current year headcount reduction and forfeitures, and compared with prior year accelerated vesting of an employee’s outstanding equity awards as part of a termination severance agreement; $218 decrease in severance expenses offset by an increase of $1,179 in personnel costs due to increased headcount during the year compared to the prior year period.
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.
In addition to 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.” ● Commenced pilot market sales in Chicago during the first quarter of 2022 of VLN® King and VLN® Menthol King 95% reduced nicotine content cigarettes, the first and only FDA authorized MRTP designated combustible cigarettes, and subsequently expanded sales and distribution channels throughout 2022 and 2023 to more than 5,000 stores across 26 states. ● 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. ● Appointed Larry Firestone as Chairman and Chief Executive Officer in November 2023, and announced plans 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. ​ Tobacco Business Highlights ● Continued a multi-state VLN ® rollout strategy, having launched sales in more than 5,000 locations across 26 states at year-end 2023, aimed at penetrating geographies and markets with large adult smoker populations, including those with favorable MRTP state excise tax savings, which can be used toward consumer incentives, distribution support, and additional programming to raise awareness of VLN ® products. ● Initiated agreements with national-scale C-store distribution partners, including Core-Mark/Eby-Brown, McLane and others pending, to facilitate state-wide or multi-state launches of VLN ® at hundreds of stores within our target markets in an accelerated timeline. ● Launched a private label premium cigarette brand, Pinnacle, for sale at one of the nation’s top 10 gas station convenience store chains, comprising almost 1,700 stores in 27 states. ● Announced expansion into Texas, California and Florida, expected in conjunction with the largest multi-state U.S.
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: 30 Table of Contents 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 $8,124 reduction in long-term debt. ​ Tobacco Business Highlights ● Poised to benefit from the January 2025 proposed FDA rule mandating reduced nicotine content in all combustible cigarette products, if advanced.
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($ in thousands, except per share data or unless otherwise specified) 36 Table of Contents Executive Overview ● On December 23, 2021, the FDA issued modified risk granted orders for our reduced nicotine cigarettes, VLN ® King and VLN ® Menthol King.
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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.
Removed
C-store chain leveraging these new national scale distribution capabilities. ● Secured additional retail point of sale placements with regional C-stores, such as Texas based CEFCO, and new regional distribution agreements with Hub, Inc., serving regional Midwestern and tribal accounts, and Chambers & Owen, Inc., serving the upper Midwest. ● Gained authorization to test VLN ® sales at four United States military bases located in California, Arizona and North Carolina, beginning in the second quarter. ● Launched sales at a top U.S. drugstore chain at approximately 1,200 locations across five states in the third quarter. ● Poised to benefit from federal, state and international regulatory appetite for banning menthol and mandating reduced nicotine content.
Added
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.
Removed
The Company has the only FDA-authorized combustible cigarette able to meet the stringent reduced nicotine content product standard under the FDA’s Comprehensive Plan requiring that all cigarettes be made “minimally or non-addictive.” o Proposed FDA menthol cigarette ban , in final rules status, could leave VLN ® Menthol King as the only combustible menthol cigarette on the market , providing a critical off-ramp to help current menthol smokers to smoke less , a final decision is now expected in 2024. 37 Table of Contents ​ Recent Business Divestiture ​ On December 22, 2023, we completed the sale of substantially all of the assets of the GVB hemp/cannabis business to Specialty Acquisition Corporation.
Added
(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. ​ 33 Table of Contents 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.
Removed
As a result, we classified the results of operations of the hemp/cannabis segment and disposal group as discontinued operations in the Consolidated Statements of Operations for all periods presented and classified the related assets and liabilities associated with the discontinued operations as held for sale in the Consolidated Balance Sheets as of December 31, 2023 and 2022, respectively.
Added
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.
Removed
Full year 2023 cartons sold were of 3,459 compared to 5,782 in the comparable prior year period. ​ ​ 39 Table of Contents Gross profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31 ​ December 31 ​ 2023 ​ 2022 Gross (loss) profit ​ $ (8,696) ​ ​ $ 1,847 ​ Percent of Revenues, net ​ ​ (27.0) % ​ ​ 4.6 % ​ The decrease in gross profit and gross profit as a percent of revenues, net for the year ended December 31, 2023, compared to the year ended December 31, 2022, was primarily driven by lower volume due to an intentional shift during 2023 in product mix.
Added
Additionally, these amounts are offset by $5,158 for extinguishment of debt in the prior year period.
Removed
(b) Decrease of strategic consulting due to restructuring efforts and implementation of cost savings initiatives. (c) Increased sales and marketing related to expansion of VLN ® . (d) Other expenses increased due to $291 of technology expenses, $579 in public company fees, $270 of facilities expense offset by a decrease in insurance expenses of $469 and other of $397.
Added
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).
Removed
(e) Increased legal expenses due to regulatory compliance, business development, and contract matters. ​ 40 Table of Contents Research and development expense ​ ​ ​ ​ ​ ​ Changes From Prior Year Compensation and benefits (a) ​ $ (164) Royalty, license and contract costs (b) ​ ​ (376) Consulting and professional services (c) ​ ​ (478) Other ​ ​ 84 Net decrease in R&D expenses ​ $ (934) ​ (a) Decreased compensation and benefits primarily related to personnel bonus expense of $255 in the prior year period as compared to $0 in the current year.
Added
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.
Removed
(b) Decreased expenses primarily due to a decrease in royalty fees due in the current year period. (c) Decreased consulting due to an evaluation of strategic opportunities related to our tobacco patent portfolio that occurred in the period year period.
Added
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.
Removed
This decrease in working capital is primarily driven by the decrease in short-term investment securities resulting from cash burn, increase in current portion of long-term debt, and other normal fluctuations from operations in accounts receivable, inventory, accounts payable and accrued expenses.
Added
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.
Removed
The primary driver for this increase was higher net loss of $80,974, driven by increased spending in SG&A and R&D both from the acquisition of GVB and acceleration of the launch of VLN ® , an increase of $67,866 related to net adjustments to reconcile net loss to cash, and an increase in cash used for working capital components related to operations in the amount of $9,835 for the year ended December 31, 2023, as compared to the year ended December 31, 2022. 43 Table of Contents Net cash provided by investing activities Cash provided by investing activities amounted to $16,816 in 2023 as compared to cash provided by investing activities of $22,578 in 2022.
Added
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.
Removed
These decreased cash outflows were partially offset by an increase in cash inflows of (i) $3,500 of property, plant, and equipment casualty loss insurance proceeds collected in the current year; (ii) $1,043 from the acquisition of RXP in the current year and GVB in the prior year period; (iii) $682 from the investment in Change Agronomy Ltd. in the prior year and (iv) $665 from proceeds from the sale of discontinued operations.
Added
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.
Removed
Cash demands on operations As of December 31, 2023, we had approximately $2,058 of cash and cash equivalents.
Added
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.
Removed
Our principal sources of liquidity are our cash and cash equivalents and cash generated from our tobacco contract manufacturing business and proceeds from debt and equity financing activities, which cash flows provided by financing activities for the year ended December 31, 2023 were $37,209. 44 Table of Contents As discussed above, in response to the cash demands on operations, management has implemented programs to evaluate strategic alternatives for the Company’s assets and cost cut initiatives intended to reduce our operating costs to provide additional cash runway.
Added
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.
Removed
However, our cash, cash equivalents, potential business interruption insurance proceeds, and debt/equity financings, as well as the sustained tobacco contract manufacturing, currently are not forecasted to provide sufficient cash resources or liquidity for a period of twelve months from issuance of these consolidated financial statements.
Added
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.
Removed
Senior Secured Credit Facility On March 3, 2023, the Company entered into that certain Securities Purchase Agreement (the “SPA”) with JGB Partners, LP (“JGB Partners”), JGB Capital, LP (“JGB Capital”) and JGB Capital Offshore Ltd.
Added
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.
Removed
(“JGB Offshore” and collectively with JGB Partners and JGB Capital, the “Holders”) and JGB Collateral, LLC, as collateral agent for the Holders (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.
Added
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.
Removed
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.
Added
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.
Removed
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”).
Added
The Holders exercised conversion notices in the amount of $3,132 in January 2025 and the Company issued 518,600 shares of common stock.
Removed
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”).
Added
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. ​ 37 Table of Contents 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 ​ 32 ​ $ 66,420.00 ​ $ 66,420.00 ​ July 25, 2027 Senior Secured Credit Facility - JGB ​ 154 ​ $ 41,310.00 ​ $ 27,708.00 ​ September 3, 2028 July 19, 2023 RDO warrants (3) ​ 209 ​ $ 5,227.20 ​ $ 4.3021 ​ July 20, 2028 October 2023 CMPO warrants (3) ​ 93 ​ $ 1,134.00 ​ $ 4.3021 ​ October 19, 2028 2023 Inducement warrants (3) ​ 19 ​ $ 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.
Removed
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.
Added
(2) Expiration date is 5-years following shareholder approval date.
Removed
Commencing on May 1, 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 JGB Warrants are exercisable for five years from September 3, 2023, at an exercise price of $19.125 per share, a 50% premium to the VWAP on the closing date, subject, with certain exceptions, to adjustments in the event of stock splits, dividends, subsequent dilutive offerings and certain fundamental transactions.
Added
(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.
Removed
As a result of the June 19, 2023 offering, the Company’s outstanding JGB warrants to purchase up to 333,334 shares of the Company’s common stock for an exercise price of $19.125 per share were automatically adjusted to be $12.828 exercise price for up to 496,960 shares of common stock. There are no further anti-dilution adjustments on such warrants.
Added
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.
Removed
In connection with the JGB October Amendment, the Company and Holders agreed to exercise the outstanding put provision to redeem 166,667 Warrants for an aggregate put price equal to $2,500. ​ Following the JGB October and December Amendments (as further described in Note 13 “Debt” of the Notes to Consolidated Financial Statements contained in Item 15 of this report) , as of December 31, 2023 the remaining principal loan balance is approximately $10,752, exit fee of $1,052 and remaining $500 of the put price will be due at maturity in March 2026 in accordance with the original terms of the debenture agreements.
Removed
As of December 31, 2023, the Company has pledged to JGB the $2,000 GVB promissory note and $1,000 assignment of Needle Rock Farms to be applied as principal reduction in 2024. ​ Omnia 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”).
Removed
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. ​ 45 Table of Contents Under the terms of the Subordinated Note, the Company is obligated to make interest payments in-kind (the “PIK Interest”).
Removed
The PIK Interest accrues at a 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.
Removed
The maturity date of the Subordinated Note is May 1, 2024. ​ In connection with the Subordinated Note, the Company issued to Omnia, warrants to purchase up to 45,000 shares of the Company’s common stock.
Removed
The Omnia Warrants are exercisable for seven years from September 3, 2023, at an exercise price of $12.828 per share subject, with certain exceptions, to adjustments in the event of stock splits, dividends, subsequent dilutive offerings and certain fundamental transactions. ​ ATM Offering ​ On March 9, 2023 the Company entered into a Sales Agreement (the “Sales Agreement”) with Cowen and Company, LLC (the “Sales Agent”) under which the Company was previously able issue and sell in a registered offering shares of our common stock having an aggregate offering price of up to $50,000 from time to time through or to the Sales Agent (the “ATM Offering”).
Removed
The Company paid 3.00% sales commission based on the gross proceeds of the sales price per share of common stock sold. Total net proceeds during the second quarter of 2023 were $2,563.
Removed
On June 19, 2023, the Company terminated the ATM Program in connection with the June 2023 offering described below. ​ 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 747,974 shares of common stock and 747,974 warrants to purchase an equal number of shares, at a purchase price of $7.05 per unit.
Removed
The net proceeds to the Company from the offering were approximately $4,800. ​ The warrants were exercisable immediately upon issuance at an exercise price of $7.05 per share of common stock, expire on June 22, 2028 and are subject to adjustment in certain circumstances, including upon any subsequent equity sales at a price per share lower than the then effective exercise price of such warrants, then such exercise price shall be lowered to such price at which the shares were offered. ​ As part of the offering, the Company entered into a warrant reprice letter and agreed to reduce the exercise price on the previously issued 747,974 warrants owned by the investors participating in the Offering from $30.75 to $7.05 and to add a provision in the warrants that upon any subsequent equity sales at a price per share lower than the then effective exercise price of such warrants, such exercise price shall be lowered to such price at which the shares were offered.
Removed
As a result of the offerings completed in July 2023, the exercise price on the 1,495,948 warrants was automatically adjusted to $2.42 per share and subsequently adjusted to $0.525 per share in October.
Removed
All of the outstanding warrants were subsequently exercised in connection with the Warrant Inducement Offering. ​ The remaining 390,247 previously issued warrants were not repriced and remain at an exercise price of $30.75 on their original terms.
Removed
On December 7, 2023, the Company was provided notice of irrevocable abandonment of 325,205 warrants. ​ In addition, as a result of the offering, the Company’s outstanding warrants to purchase up to 333,334 shares of the Company’s common stock for an exercise price of $19.125 per share were automatically adjusted as follows: $12.828 exercise price for up to 496,960 shares of common stock, of which 166,667 were redeemed in October 2023 (see above discussion of amendment and waiver under Senior Secured Credit Facility). ​ 46 Table of Contents 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 778,634 shares of common stock and 1,557,268 warrants to purchase an equal number of shares, at a purchase price of $3.80 per unit.
Removed
The warrants are exercisable six months after issuance at an exercise price of $3.80 per share of common stock and expire on January 10, 2029. The net proceeds to the Company from the offering were approximately $2,722.
Removed
As a result of the subsequent offering completed in July 2023, the exercise price on the 1,557,268 warrants was automatically adjusted to $2.42 per share and subsequently adjusted to $0.525 per share in October.
Removed
All of the outstanding warrants were subsequently exercised in connection with the Warrant Inducement Offering. ​ 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 4,373,219 shares of common stock and 8,746,438 warrants to purchase an equal number of shares, at a purchase price of $2.67 per unit.
Removed
The warrants are exercisable immediately at an exercise price of $2.42 per share of common stock and expire five years after issuance. The net proceeds to the Company from the offering were approximately $10,742.

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