Going concern risk and VLN nicotine strategy at 22nd Century (NASDAQ: XXII)
22nd Century Group, Inc. files its annual report describing a niche tobacco business built around VLN® reduced-nicotine cigarettes, the only combustible products with FDA Modified Risk Tobacco Product orders. The company leases a North Carolina factory capable of producing more than 45 million cartons annually and also does contract manufacturing.
Management discloses a long history of losses, negative cash flow and “substantial doubt” about its ability to continue as a going concern, with approximately $3.8 million of cash and cash equivalents as of March 20, 2026. It depends heavily on raising additional capital, and warns it may need to liquidate assets, curtail operations or seek bankruptcy protection if funding is unavailable.
The report highlights significant regulatory and competitive risk: operations rely on FDA marketing and MRTP orders for its very low nicotine cigarettes, with current exposure‑modification authority expiring in December 2026 and an extension request submitted in 2025. As of June 30, 2025, aggregate market value of common stock was about $3.5 million, with 662,023 shares outstanding on March 20, 2026 and only 32 employees, underscoring the company’s small scale, Nasdaq listing vulnerability and potential dilution from outstanding warrants and convertible preferred shares.
Positive
- None.
Negative
- Severe going concern risk and funding dependence: the company reports sustained losses, negative cash flows, only $3.8 million cash as of March 20, 2026, and states it may need to liquidate assets, curtail operations or seek bankruptcy protection if additional capital cannot be raised.
Insights
Going concern warning and heavy financing risk dominate this update.
22nd Century Group remains an early-stage, niche tobacco manufacturer built around FDA‑authorized VLN® very low nicotine cigarettes. It controls proprietary non‑GMO low‑nicotine tobaccos, holds MRTP exposure‑modification orders, and operates a North Carolina plant with meaningful spare capacity and contract manufacturing relationships.
The core risk is financial. Management reports a long history of losses and negative operating cash flow, plus only $3.8 million of cash as of March 20, 2026, explicitly citing “substantial doubt” about its ability to continue as a going concern. The company states it must raise additional capital, monetize assets, or find strategic partners to execute its plan and service obligations.
Equity holders face notable structural pressures: tiny public equity value of about $3.5 million as of June 30, 2025, outstanding warrants totaling 5,408,786 shares and Series B preferred convertible into up to 22,408,964 shares. Prior Nasdaq compliance issues, intense competition from global tobacco majors, and dependence on renewing FDA MRTP orders beyond December 2026 add to execution and dilution risk.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Exchange Act of 1934
For the fiscal year ended
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Securities Exchange Act of 1934
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction | (IRS Employer |
of incorporation) | Identification No.) |
(Address of principal executive offices)
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class | | Trading Symbol | | Name of Exchange on Which Registered |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act
Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes☐
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ | Accelerated Filer ☐ | Smaller Reporting Company | |
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| Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act). Yes
The aggregate market value of the registrant’s common stock as of June 30, 2025, the last day of the registrant’s most recently completed second fiscal quarter, was approximately $
DOCUMENTS INCORPORATED BY REFERENCE
None.
Table of Contents
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PART I |
| 5 |
| Cautionary Note Regarding Forward Looking Statements and Risk Factor Summary | 3 |
Item 1. | Business | 5 |
Item 1A. | Risk Factors | 12 |
Item 1B. | Unresolved Staff Comments | 24 |
Item 1C. | Cybersecurity | 24 |
Item 2. | Properties | 25 |
Item 3. | Legal Proceedings | 25 |
Item 4. | Mine Safety Disclosures | 25 |
PART II |
| 25 |
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 25 |
Item 6. | [Reserved] | 26 |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 26 |
Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | 35 |
Item 8. | Financial Statements and Supplementary Data | 35 |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 35 |
Item 9A. | Controls and Procedures | 36 |
Item 9B. | Other Information | 36 |
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 38 |
PART III |
| 38 |
Item 10. | Directors, Executive Officers and Corporate Governance | 38 |
Item 11. | Executive Compensation | 44 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 53 |
Item 13. | Certain Relationships and Related Transactions and Director Independence | 54 |
Item 14. | Principal Accountant Fees and Services | 55 |
PART IV |
| 56 |
Item 15. | Exhibits and Financial Statement Schedules | 56 |
Item 16 | Form 10-K Summary | 47 |
SIGNATURES | 48 | |
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Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary
This Annual Report on Form 10-K contains forward-looking statements concerning our business, operations and financial performance and condition as well as our plans, objectives and expectations for our business operations and financial performance and condition that are subject to risks and uncertainties. All statements other than statements of historical fact included in this Annual Report on Form 10-K are forward-looking statements. You can identify these statements by words such as “aim,” “anticipate,” “assume,” “believe,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “potential,” “positioned,” “predict,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends. These forward-looking statements are based on current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expected, including the following summary of risks related to our business:
| ● | We have a history of losses, and we expect to incur significant expenses and continuing losses for the foreseeable future and there is substantial doubt regarding our ability to continue as a going concern. |
| ● | Our competitors generally have greater financial resources, brand 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 research and development process may not develop marketable products, which would result in the loss of our investment into such processes. |
| ● | We may be unsuccessful at commercializing our Reduced Nicotine Content (RNC) tobacco and the VLN® brand RNC cigarettes using the reduced exposure claims authorized by the Food and Drug Administration (FDA). |
| ● | The manufacturing of tobacco products subjects us to significant government 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. |
| ● | We may become subject to litigation related to cigarette smoking which could severely impair our results of operations and liquidity. |
| ● | The loss of a significant customer for whom we manufacture tobacco products could have an adverse impact on our results of operation. |
| ● | Tobacco is an agricultural product and is subject to conditions that may affect the annual harvest which would limit our ability to sell our products. |
| ● | Product liability claims, product recalls, or other claims could cause us to incur losses or damage our reputation. |
| ● | The FDA could force the removal of our products from the U.S. market. |
| ● | The States or National Association of Attorneys General (NAAG) may not approve our products in certain states which, could have an adverse impact on our results of operations. |
| ● | Certain of our proprietary rights have expired or may expire or may not otherwise adequately protect our intellectual property. |
| ● | We license certain patent rights from third-party owners. If such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects could be harmed. |
| ● | The failure of our information systems to function as intended or their penetration by outside parties with the intent to corrupt them could result in business disruption, litigation and regulatory action, and loss of revenue, assets, or personal or confidential data (cybersecurity). |
| ● | We may be unable to remain listed on the NASDAQ stock market. |
| ● | Our stock price may be highly volatile and could decline in value. |
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| ● | Future sales of our common stock will result in dilution to our common stockholders. |
| ● | We do not expect to declare any dividends on our common stock in the foreseeable future. |
For the discussion of these risks and uncertainties and others that could cause actual results to differ materially from those contained in our forward-looking statements, please refer to “Risk Factors” in this Annual Report on Form 10-K. The forward-looking statements included in this Annual Report on Form 10-K are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.
Unless the context otherwise requires, references to the “Company,” “22nd Century,” “we,” “us,” and “our” refer to 22nd Century Group, Inc., a Nevada corporation, and its subsidiaries.
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PART I
Item 1.Business.
Overview
22nd Century Group, Inc. is a tobacco products company that enables cigarette smokers to take control of their consumption of nicotine, the addictive drug in cigarettes. We manufacture and distribute the only combustible tobacco products containing minimally or non-addictive levels of nicotine that are authorized by the US Food and Drug Administration (FDA) for retail purchase. We also provide turnkey contract manufacturing of cigarettes and filtered cigars for other established tobacco brands.
We created our flagship product, the VLN® cigarette, to give traditional cigarette smokers an authentic and familiar alternative that helps them decide their consumption of nicotine. VLN® cigarettes have 95% less nicotine than the traditional cigarette and have been proven to greatly reduce nicotine consumption. Instead of offering new ways of delivering the nicotine drug to addicted smokers, we offer smokers the option to make their own informed and health conscious productive choices, including the choice to avoid addictive levels of nicotine altogether and help adult smokers smoke less.
Nicotine Harm Reduction
Since the US Surgeon General first warned of the dangers of cigarette smoking in 1964, the debate over tobacco health harm has been largely dominated by two powerful voices: Big Tobacco and the US Government. After decades of litigation, lobbying and lawmaking, the major tobacco producers still decide the nicotine levels contained in the tobacco products consumed by smokers. In addition, despite prominent and omnipresent government warnings that “Nicotine is an Addictive Chemical,” sales of tobacco products containing addictive levels of nicotine continue unabated, including even delivery of smoke-free nicotine in pure form.
22nd Century believes it is time for the individual tobacco user to decide for themselves how much nicotine they choose to consume. If a consumer chooses to smoke tobacco without nicotine addiction, we offer that alternative.
Transition to Growth
We received Modified Risk Tobacco Product (MRTP) granted orders from the FDA for marketing and sale of our revolutionary RNC cigarettes in December 2021, the first and only such orders ever awarded for a combusted tobacco product. The authorized products are based on our proprietary RNC tobacco blends made possible by comprehensive and patented technologies that regulate nicotine biosynthesis activities in the tobacco plant, resulting in full flavor non-genetically modified organism (GMO) tobacco strains and high yield with 95% less nicotine.
We designed a pilot program to study retailer and consumer reaction to the RNC concept and our VLN® cigarettes in selected retail outlets during 2022. We commissioned a comprehensive market study to evaluate the results, including participants’ smoking behaviors and history, awareness and purchase of VLN® cigarettes, attitudes and perceptions, and responses to messaging. The program was expanded in 2023, progressing state by state and region by region to a store footprint spanning more than 5,000 stores in 26 states.
Based on extensive consumer feedback and point-of-sale data, we made significant enhancements to nearly every aspect of the consumer and retailer VLN® experience, including improved and revitalized branding, packaging, and messaging. Beginning in 2025, we implemented a new marketing and distribution approach. We created a VLN® version of popular cigarette brands that we already manufacture for existing clients and offer for sale through their extensive distribution channels. This strategic pivot leverages our numerous contract manufacturing relationships together with cross branding strategies for integrative volume growth and enhanced retail access. We will continue to expand national distribution in 2026, with an eye toward the approximately 270,000 domestic tobacco retail outlets and a meaningful share of those adult consumers in the estimated $58 billion combustible cigarette marketing in the U.S. that want to smoke less.
A New and Disruptive Category
Our VLN® cigarettes are currently available in a number of top retailers in US markets and present a groundbreaking alternative with 95% less nicotine content than conventional cigarettes. Maintaining a familiar combustible product format, VLN® products present the conventional cigarette smoking experience, encompassing sensory and experiential elements such as enjoyment, taste, scent, smell, and the familiar “hand-to-mouth” behavior.
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Our approach is not to continue making and selling VLN® cigarettes as a novel idea, but to build an entire RNC category of products, including tiers of proprietary and partner or “flanker” brands that we manufacture and distribute. We expect this “House of Brands” to drive retail shelf visibility, consumer recognition, and overall volume expansion. At the same time, we are leveraging our contract manufacturing operations (CMO) relationships for cross-sale of brand families to increase distribution and points-of-sale for each of us.
As a category, we expect RNC tobacco to be no less disruptive than the zero- and low-proof spirits segment, which has gone from a dubious notion to a multi-billion-dollar market in only a few years. Rather than attempting to compete against traditional adult beverages, the low-proof spirits category breaks the paradigm by offering individuals the option to participate in a personal routine or social ritual without the alcohol intake, either on occasion or as a lifestyle commitment, for whatever reasons they choose. Moreover, this choice is provided at an above-premium price point with high margin delivery.
Instead of an all-or-nothing proposition – either quit smoking or remain forever addicted to nicotine – the VLN® message is that tobacco users have the option to “Take Control” of their nicotine consumption. As the only manufacturer in the US that makes and sells full-flavored cigarettes with minimally or non-addictive levels of nicotine, we are uniquely positioned to fulfill this choice.
Manufacturing
We lease a 60,000 square foot manufacturing facility in Mocksville, North Carolina capable of producing more than 45 million cartons of combusted tobacco products annually with additional space for expansion. Our factory is operated by NASCO Products, LLC, a federally licensed tobacco product manufacturer and our wholly owned subsidiary. The cigarette and filtered cigar manufacturing equipment we own is high speed and automated, allowing for minimal direct labor costs. Our manufacturing operations are vertically integrated, allowing us to control production priorities and maintain the required high quality of our products, including our VLN® cigarettes which have the only MRTP-designation from the FDA.
Through the acquisition of NASCO and our North Carolina factory in 2014, we qualified as a subsequent participating manufacturer under the Master Settlement Agreement (MSA), an accord reached in 1998 between the State Attorneys General of 46 states, five U.S. territories, the District of Columbia and the four largest tobacco companies in the United States concerning the advertising, marketing and promotion of tobacco products. As a subsequent participating manufacturer (SPM) under the MSA, we are released from claims by the Settling States for smoking-related health costs and contribute actively toward the goal of reducing cigarette smoking among youth and raising public awareness about smoking and the tobacco industry, while adhering to higher standard in all aspects of marketing and sales.
We began producing our proprietary RNC cigarettes in 2015, including our SPECTRUM® variable nicotine research cigarettes provided for independent clinical studies largely funded by the National Institute on Drug Abuse (NIDA) and the FDA. Low nicotine SPECTRUM® cigarettes also served as the basis for our Premarket Tobacco Product Application (PMTA) to the FDA in 2018 to enable commercialization as a new tobacco product. In 2022, our factory began production of VLN® Gold King and VLN® Menthol King cigarettes following their authorization by the FDA as Modified Risk tobacco products.
We also operate as a turnkey contract manufacturing facility for partnership brands both domestically and internationally. With high-speed manufacturing capabilities, we continue to attract additional contract manufacturing business, including third-party filtered cigar brands and MSA-compliant cigarette brands, to absorb our manufacturing overhead and help keep our unit cost profile low.
Tobacco Sources of Raw Materials
We obtain our reduced nicotine tobacco leaf from third party-growers, in multiple states in the United States who are under direct contracts with us. These contracts prohibit the transfer of our proprietary tobaccos, seeds and plant materials to any other party. We purchase conventional tobacco destined for contract manufacturing operations through third parties.
Sales, Distribution, and Growth
Our pilot VLN® cigarette retail programs during 2022-23 proved the viability and potential of RNC tobacco products, and the appeal to consumers of having a choice in their nicotine consumption. The motivation to provide tobacco users with lower nicotine options has only increased with the FDA’s January 2025 Notice of Proposed Rulemaking that, if approved, would mandate substantially reduced nicotine content in all combusted tobacco products sold in the US.
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Our sales and distribution expansion strategy is being executed with a route-to-market plan allowing maximum impact for retail development and account depth. Our initial focus is in the convenience store segment, which accounts for the overwhelming share of tobacco revenue, with other channels to follow. We plan to deploy a comprehensive digital marketing campaign, targeting adult smokers to drive point purchase direction with connectivity through age-gated social media platforms and interactive websites for adult smokers. All of this is supported by recently redesigned VLN® product packaging, including partner brands with a vibrant, modern look to drive an emotional consumer connection with adult smokers.
With the VLN® concept now validated, our focus is upon rate-of-sale of our exclusively positioned products and profitable growth. We plan to build our House of Brands in strategic increments, with time-to-market and profitability as our measures of success. Our goal is to release what we see as the enormous untapped value of a disruptive product alternative capable of fulfilling unmet demand within a nearly $58 billion market segment that includes adult smokers who have already declared the need or want to change their smoking habit.
Research & Development (R&D) & Intellectual Property (IP)
Since our inception, most of our research and development (R&D) efforts have been outsourced to highly qualified groups in their respective fields. Since 1998, we have had multiple R&D agreements with North Carolina State University (NCSU) and others resulting in exclusive worldwide licenses to various patented technologies. We have utilized the same model employed by many public-sector research organizations, in which we obtain an exclusive option or license agreement to any invention arising out of our funded research. In each case, we fund and control all patent filings as the exclusive licensee. This model of contracting with public-sector researchers has enabled us to control R&D costs while staying at the forefront of low nicotine tobacco technology.
Pre-Commercialization R&D
Founded as a biotechnology research company, our activities were initially centered on continued development of genetic transformation options for control of nicotine levels in the tobacco plant. In addition to the breakthrough genome modification techniques licensed from NCSU in 1998, we independently invented or obtained exclusive licenses to ways of further affecting the nicotine biosynthetic pathway, including regulation of additional enzymes and transcription factors. These discoveries were instrumental in our formulation of experimental variable-nicotine tobacco products, millions of which were manufactured and furnished for independent clinical trials funded by NIDA and the National Cancer Institute (NCI). The results of those trials showed that having a reduced nicotine cigarette option available could substantially affect behaviors and choices among smokers, which charted our course going forward.
In 2014, we entered into sponsored research and license agreements with NCSU for exclusive worldwide rights to bioengineering technologies for achieving low nicotine content in tobacco without having the plant strains regulated as GMOs. We subsequently entered into a separate license agreement with the University of Kentucky to license other next-generation very low nicotine content non-GMO tobacco plant lines. In addition, we began assembling studies and data in support of a Premarket Tobacco Product Application (PMTA), a submission authorized under the 2009 Tobacco Control Act, for potential commercialization of consumer tobacco products based on our proprietary low nicotine tobacco. The PMTA for marketing of our SPECTRUM® cigarettes was submitted to the FDA in December of 2018.
Our R&D Today
We received a marketing order from the FDA on December 17, 2019, authorizing commercialization of our RNC cigarettes. Shortly after, based on further studies and data provided, we received FDA granting orders authorizing our marketing of VLN® cigarettes as Modified Risk Tobacco Products. Since the launch of our VLN® cigarette pilot program in 2022, our research and development activity has been devoted to supporting further VLN® product development and improvements, regulatory compliance, and expanding the RNC portfolio of products. We have authority to market our VLN® cigarettes as MRTPs for a period of five years, which is the maximum duration for a marketing granted order for such products under the Family Smoking Prevention & Tobacco Control Act. During 2025, we reapplied to the FDA to extend the FDA’s exposure modification order beyond December 23, 2026.
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We continue to pursue improvements in our ability to control nicotine biosynthesis in tobacco, including gene editing techniques that provide for greater crop yields and disease resistance. Our original GMO tobacco strains have been replaced with fully non-GMO engineered low nicotine varieties, which expands accessibility to international markets where GMO agricultural products are disfavored or banned. We have successfully applied our non-GMO bioengineering techniques to increasingly diverse tobacco lines, including bright, burley, and oriental tobaccos. We expect to develop new versions of our RNC cigarettes utilizing these cutting-edge technologies for future commercialization in the U.S. and globally, including an “American blend” of cigarettes in low nicotine form featuring a mix of bright, burley, and oriental proprietary RNC tobacco varieties.
Intellectual Property
Our intellectual property enables us to alter the level of nicotine and other nicotinic alkaloids in tobacco plants through genetic engineering and modern plant breeding. The basic techniques include, but are not limited to, those that are used in the production of genetically modified and gene-edited varieties of other crops, which are also known as “biotech crops.”
We have extensive patent protection and exclusive rights in the US and internationally covering tobacco plants with altered nicotine content produced by modifying the expression of genes that control important steps in the biosynthesis of nicotine in the tobacco plant. The terms of certain patents filed in the 2000s will expire between 2026 and 2029, but those of others will extend into the next decade and beyond. Patent applications currently pending claim substantially improved quality and yield in genetically modified low nicotine varieties, and ways of achieving organically even further reductions in levels of nicotine and those of nicotine nitrosamines upon tobacco combustion, which are among the most carcinogenic and dangerous byproducts of cigarette smoking.
In addition to our patents, patent applications, and exclusive patent license rights, we own valuable trade secrets related to the growth, harvesting, curing and use of our proprietary tobacco plants and the manufacture of our tobacco products. We also own various registered trademarks in the United States and around the world.
Government Regulation
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. The FDA requires any manufacturers of new tobacco products to undergo premarket review and obtain premarket authorization prior to commercialization, and to comply with post-authorization monitoring and reporting requirements. The Tobacco Control Act granted FDA the authority to require the reduction of nicotine to any level other than zero or require reduction of other compounds in tobacco and cigarette smoke. The FDA has further authority to restrict marketing and advertising, impose regulations on packaging, mandate warnings and disclosure of flavors or other ingredients, prohibit the sale of tobacco products with certain flavors or other characteristics, limit or prohibit the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packaging sizes, and seek to hold retailers and distributors responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.
The Tobacco Control Act requires manufacturers of tobacco products to, among, other things, provide the FDA with a list of ingredients added to tobacco products in the manufacturing process and register any establishment engaged in the manufacture, preparation, or processing of a tobacco product. The manufacture of products is subject to strict quality control, testing and record-keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. The FDA has several investigatory and enforcement tools available, including document requests and other required information submissions, facility inspections, examinations and investigations, injunction proceedings, monetary penalties, product withdrawal and recall orders, and product seizures. All tobacco products we make and sell in the US are subject to FDA jurisdiction.
Premarket Tobacco Product Application (PMTA)
Under the Tobacco Control Act, a PMTA must be submitted to the FDA for any new tobacco product seeking a marketing order to enable commercialization of the product in the United States. For the 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.
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A marketing order may include restrictions on the sale and distribution of the product, including restrictions on the access to, and the advertising and promotion of, the tobacco product, and requirements for record-keeping and post-market reporting. Holders of authorized PMTAs are required to submit detailed periodic and annual reports to the FDA within specified timelines and are further required to submit reports for serious and unexpected adverse events associated with the product. Once granted, the FDA may suspend or withdraw any marketing order on various grounds, such as a determination that the continued marketing of the tobacco product is no longer appropriate for the protection of public health, or where the PMTA holder has failed to comply with applicable post-market requirements.
We submitted a PMTA to the FDA in December 2018 for proposed marketing of our proprietary RNC cigarettes, and, on December 17, 2019, the FDA issued a marketing order authorizing commercialization. Any new tobacco products we wish to commercialize in the US that are not substantially equivalent to products already authorized or exempt from premarket review will require new PMTA authorization. Determination by the FDA of whether to accept the application may take several months. While the FDA endeavors to complete its review of a PMTA within 180 days of acceptance, the FDA’s review period may take significantly longer.
Modified Risk Tobacco Products (MRTP)
The Tobacco Control Act grants the FDA authority to regulate the labeling and marketing of Modified Risk Tobacco Products (MRTP), which include, among other things, tobacco products that may reduce harm or the risk of tobacco-related disease or reduce or eliminate exposure to a substance. Before an MRTP can be introduced or delivered into interstate commerce in the United States, the FDA must issue either a “risk modification order” or “exposure modification order” pursuant to the Tobacco Control Act. An order permitting the sale of an MRTP, if granted by the FDA, enables the applicant to utilize certain claims with respect to a single, specific product, not an entire class of tobacco products.
To obtain a risk modification order, an applicant must demonstrate that the product will significantly reduce harm and the risk of tobacco-related disease to individual tobacco users and benefit the health of the population as a whole, taking into account both users of tobacco products and persons who do not currently use tobacco products. The FDA must also find that the applicant has demonstrated that the magnitude of overall reductions in exposure to the substance specified in the application is substantial and that the product as used exposes consumers overall to lower levels of harmful substances.
On May 13, 2019, we submitted to the FDA an MRTP application, seeking FDA authorization to market our reduced nicotine combustible cigarettes with reduced exposure claims. In the application, we requested authorization from the FDA to market our reduced nicotine tobacco cigarettes with certain product labeling claims under the brand name of VLN®. On December 23, 2021, we secured the first ever MRTP designation for a combustible cigarette for VLN® King and VLN® Menthol King 95% reduced nicotine content cigarettes. The FDA authorized the marketing of VLN® with the following reduced exposure claims: “95% less nicotine”, “Helps reduce your nicotine consumption”, and “Greatly reduces your nicotine consumption,”. The FDA also required that any use of these claims be accompanied by the statement that the product “Helps You Smoke Less,” which we consider an evidence-based claim supporting our products. In issuing its granting orders for our VLN® products, the FDA observed that “the data on these products show they can help addicted adult smokers transition away from highly addictive combusted cigarettes.”
Independent scientific research has consistently affirmed the effectiveness of our VLN® products. Most recently, a 2024 marketplace research study using our 95% less nicotine Spectrum research cigarettes, conducted among 438 randomized trial subjects, concluded that more than 40% of low nicotine cigarette users changed their smoking habits dramatically and reduced their consumption over the 12-week period.
We have authority to market our VLN® cigarettes as MRTPs for a period of five years, which is the maximum duration for a marketing granted order for such products under the Tobacco Control Act. During 2025, we reapplied to the FDA to extend the FDA’s exposure modification order beyond December 23, 2026. 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.
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Proposed Mandate Limiting Nicotine Content in Cigarettes
On January 15, 2025, the FDA issued a notice of proposed rulemaking (NPRM) that would establish a maximum nicotine level of 0.7 mg/g in cigarettes and certain other combusted tobacco products. According to the FDA, the proposed product standard would limit the addictiveness of the most toxic and widely used tobacco products, which would have significant public health benefits for all age groups. The FDA referenced abundant scientific evidence and clinical studies in support of the proposal, including many furnished by us, and noted the current commercial availability of low nicotine content cigarettes such as those currently produced by us. We submitted a response in support of the FDA in public comment letter in September 2025. The complete submission is available online at https://downloads.regulations.gov/FDA-2024-N-5471-4171/attachment_1.pdf. The period for public comment on the proposed rule closed on September 15, 2025.
Proposed Regulation of Menthol Cigarettes
In April 2022, the FDA announced proposed product standards to prohibit menthol as a characterizing flavor in cigarettes) and prohibit all characterizing flavors (other than tobacco) in cigars. This product standard, if enacted, would prohibit menthol as a characterizing flavor in cigarettes. In January 2024, the FDA formally withdrew its plans to prohibit menthol as a characterizing flavor in cigarettes and prohibit all characterizing flavors (other than tobacco) in cigars. Although some activity has occurred on state and local levels with respect to scrutiny of menthol and flavored tobacco products, the FDA proposal remains unresolved. For example, states like California introduced their own menthol and flavor bans.
Tobacco Master Settlement Agreement
The Master Settlement Agreement (MSA) is an accord reached in November 1998 between the State Attorneys General of 46 states, five U.S. territories, the District of Columbia and the four largest tobacco companies in the United States concerning the advertising, marketing and promotion of tobacco products. The MSA also set standards for, and imposes restrictions on, the sale and marketing of cigarettes by participating cigarette manufacturers. On August 29, 2014, we entered into an Amended Adherence Agreement with the 46 Settling States under the MSA pursuant to which the Company was approved to acquire NASCO Products, LLC, a federally licensed tobacco product manufacturer and subsequent participating manufacturer under the MSA. On that same date, we closed the NASCO Acquisition and became an SPM under the MSA.
The National Association of Attorneys General (NAAG) coordinates with Settling States through its Center for Tobacco and Public Health to preserve and enforce the monetary and public health mandates of the MSA, including monitoring the compliance of tobacco companies with its terms. As a participating manufacturer under the MSA, we are released from claims by the Settling States for smoking-related health costs and contribute actively toward the goal of reducing cigarette smoking among youth and raising public awareness about smoking and the tobacco industry.
Excise Taxes
Tobacco products are subject to substantial excise taxes in the U.S. and other countries. Significant increases in tobacco-related taxes or fees have been proposed or enacted and are likely to continue to be proposed or enacted at the federal, state and local levels within the U.S. and other countries. The frequency and magnitude of excise tax increases can be influenced by various factors, including the composition of executive and legislative bodies. Federal, state and local cigarette excise taxes have increased substantially over the past two decades. Tax increases have an adverse impact on sales of tobacco products.
Environmental Regulations
We are subject to a variety of federal, state and local environmental laws and regulations. We have developed specific programs across our business units to ensure high standards of environmental compliance, including, standard operating practices and procedures at our manufacturing facility as well at our research and development centers. We believe that our manufacturing facility complies with all federal, state, and local environmental regulations, including the Clean Air Act, the Clean Water Act, and the Resource Conservation and Recovery Act.
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Any new tobacco products introduced by us are subject to a comprehensive environmental assessment by an independent third-party expert, including an assessment of how such products may create environmental risks. For our PMTA product, the FDA prepared a programmatic environmental assessment (PEA), based on our submitted data in accordance with the Council on Environmental Quality's regulations (40 CFR 1500-1508) implementing the National Environmental Policy Act (NEPA) and FDA’s NEPA regulations (21 CFR 25.40). The PEA concluded that the marketing orders would have no significant impact and that environmental impact statements would not be required.
Competition
Although our products are not approved as smoking cessation aids, we believe that our RNC tobacco cigarettes may compete with FDA-approved smoking cessation aids. In the market for FDA-approved smoking cessation aids, principal competitors would include Pfizer Inc., GlaxoSmithKline plc, Perrigo Company plc, Novartis International AG, and Niconovum AB, a subsidiary of Reynolds American Inc. The industry consists of major domestic and international companies, most of which have existing relationships in the markets into which we plan to sell, as well as financial, technical, marketing, sales, manufacturing, scaling capacity, distribution and other resources, and name recognition substantially greater than ours. We are also aware that several domestic and international cigarette companies and other research groups are working to research and grow reduced nicotine tobacco and have filed patent applications.
Cigarette and filtered cigar companies compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising, retail shelf space, and price. Cigarette sales can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors’ introduction of low-price products or innovative products, higher taxes, higher absolute prices and larger gaps between price categories, and product regulation that diminishes the ability to differentiate or market tobacco products. Domestic cigarette competitors included Philip Morris USA Inc., Reynolds American Inc., ITG Brands, and Vector Group Ltd. International competitors included Philip Morris International Inc., British American Tobacco, JT International SA, Imperial Brands plc, and regional and local tobacco companies; and in some instances, government-owned tobacco enterprises such as the China National Tobacco Corporation.
Human Capital Resources
As of December 31, 2025, we had 32 employees. All employees are located in the United States. Our human capital resource objectives are designed to attract, and retain, highly motivated and well-qualified employees. We believe that we offer a competitive compensation package and have also worked diligently to provide a flexible and safe work environment.
Corporate Information
22nd Century Group, Inc. was incorporated under the laws of the State of Nevada on September 12, 2005 under the name Touchstone Mining Limited. On January 25, 2011, we entered into a reverse merger transaction with 22nd Century Limited, LLC, which we refer to herein as the “merger.” Upon the closing of the merger, 22nd Century Limited, LLC became our wholly-owned subsidiary. After the merger, we succeeded to the business of 22nd Century Limited, LLC as our sole line of business.
22nd Century Limited, LLC was originally formed as a New York limited liability company on February 20, 1998 as 21st Century Limited, LLC and subsequently merged with a newly-formed Delaware limited liability company, 22nd Century Limited, LLC, on November 29, 1999.
We are a Nevada corporation, and our corporate headquarters is located at 321 Farmington Road, Mocksville, North Carolina 27028. Our telephone number is (336) 940-3769. Our internet address is www.xxiicentury.com. All of our filings with the Securities and Exchange Commission, including our Annual Reports on Form 10-K, our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K can be accessed free of charge through our website promptly after filing; however, in the event that the website is inaccessible, we will provide paper copies of our most recent Annual Report on Form 10-K, the most recent Quarterly Report on Form 10-Q, Current Reports filed or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request. These filings are also accessible on the SEC’s website at www.sec.gov. We do not incorporate the information on our website into this Annual Report on Form 10-K and our web site address is included as an inactive textual reference only.
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Item 1A. Risk Factors
You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K. The matters discussed in the risk factors, and additional risks and uncertainties not currently known to us or that we currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operation and future growth prospects and could cause the trading price of our common stock to decline.
Risks Related to Our Business and Operations
We have a history of losses, and we expect to incur significant expenses and continuing losses for the foreseeable future and there is substantial doubt regarding our ability to continue as a going concern.
We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business, which casts substantial doubt regarding our ability to continue as a going concern. As of March 20, 2026, we had cash and cash equivalents of approximately $3.8 million.
Doubts about our ability to continue as a going concern have and could continue to negatively impact our relationships with our commercial partners and our employees.
We need additional funding to execute our business plan and to continue operations and service our outstanding obligations. We continue to seek and evaluate opportunities to raise additional funds through the issuance of our securities, asset sales, and through arrangements with strategic partners. If capital is not available to us when, and in the amounts needed, we could be required to liquidate our inventory and assets, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that we will be able to raise the capital we need to continue our operations. Without additional capital, we will be unable to continue our operations in the future.
Our competitors generally have greater financial resources and name recognition than we do, and they may therefore develop products or other technologies similar or superior to ours, or otherwise compete more successfully than we do.
We are competing with large tobacco companies and large pharmaceutical companies that have greater resources than us. The tobacco industry consists of major domestic and international companies, most of which have existing commercial relationships, as well as financial, technical, research and development, marketing, sales, manufacturing, scaling capacity, distribution, lobbying and other resources, brand and name recognition substantially greater than ours. In addition, we expect new competitors will enter the markets for similar or novel tobacco products in the future and the nature and extent of this market entrance cannot be quantified at this time.
Potential customers and other business partners may choose to do business with more established competitors because of their perception that our competitors are more stable, can scale operations more quickly, have greater manufacturing capacity, have robust marketing and sale programs and lend greater credibility to governmental regulators and others. In addition, large companies have the ability to provide entry-level pricing for premium products in order make us less competitive. If we are unable to compete successfully against larger companies with more financial resources and name recognition, our business and prospects would be materially adversely affected.
Our competitors may develop products that are less expensive, safer or otherwise more appealing, which may diminish or eliminate the commercial success of our VLN® cigarettes or any other potential products that we may commercialize.
If our competitors develop very low nicotine tobacco without infringing on our intellectual property or other products that are less expensive, safer or otherwise more appealing than our RNC cigarettes or any of our other potential products, or that reach the market before ours, we may not achieve commercial success. Currently, there are numerous companies developing products for which they may submit MRTPAs, working to develop low nicotine tobacco and other tobacco alternative products to provide products that are potentially safer for human consumption or to otherwise assist consumers to cease or begin to switch from smoking. If one of such competitors develops a cigarette that is safe for human consumption, a safer alternative for nicotine that is widely accepted, superior low nicotine tobacco or otherwise develops a superior quitting method, it could render our RNC tobacco and cigarettes obsolete, which would have a material adverse impact on our business and operations and our ability to achieve profitability.
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Our competitors may render our technologies obsolete by advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages that we believe we derive from our research approach and proprietary technologies.
Our competitors may:
| ● | develop and market similar or new products that are less expensive, safer, or otherwise more appealing than our products; |
| ● | develop similar or new technologies and products that render our products obsolete; |
| ● | operate larger research and development programs or have substantially greater financial resources than we do; |
| ● | have greater success in recruiting skilled technical and scientific workers from the limited pool of available talent; |
| ● | more effectively negotiate third-party licenses and strategic relationships; |
| ● | commercialize competing products before we or our partners can launch our products; |
| ● | be more effective in marketing and creating brand awareness of their products that we are; |
| ● | develop tobacco with superior traits to ours; |
| ● | initiate or withstand substantial price competition more successfully than we can; and/or |
| ● | take advantage of acquisition or other opportunities more readily than we can. |
Our research and development process may not develop marketable products cost-effectively or at all, which would result in loss of our investment into such process.
We do not know whether our research and development process will result in marketable products. Even if we develop marketable products, we may not be able to obtain the necessary marketing authorizations for these potential products or our anticipated time of bringing these potential products to the market may be substantially delayed. The development of new products is costly, time-consuming, and has no guarantee of success. Any such delays or the inability to effectively develop new products in a cost-effective manner, or at all, would have a material adverse effect on our business and a loss of our financial resources.
The failure of our information systems to function as intended or their penetration by outside parties with the intent to corrupt them could result in business disruption, litigation and regulatory action, and loss of revenue, assets, or personal or confidential data (cybersecurity).
We use information systems to help manage business processes, collect and interpret business data and communicate internally and externally with employees, suppliers, customers and others. Some of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place, and we take care to protect our systems and data from unauthorized access. However, a failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could interrupt our business and place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs. In addition, we currently use some artificial intelligence (AI) solutions for certain sales, back office, administrative and other functions. The use of AI by us and/or our business partners creates the additional risk for the potential loss or misuse of personal data or the dissemination of confidential information, either of which may result in significantly increased business and security costs, a damaged reputation, administrative penalties, or costs related to defending legal claims. Any cybersecurity incident could cause substantial harm to our business and result in regulatory action, fines, and/or substantial costs.
Business interruptions, whether caused by natural disaster, terrorism, economic downturns, global pandemics or other events, could negatively impact our business.
A natural disaster (such as an earthquake, hurricane, fire, or flood), pandemics, widespread power outage or internet failure or hack, or an act of terrorism could cause substantial delays in our operations, damage or destroy our equipment or facilities, and cause us to incur additional expenses and lose revenue. The insurance we maintain against natural disasters may not be adequate to cover our losses in any particular case, which would require us to expend significant resources to replace any destroyed assets, thereby materially and adversely affecting our financial condition and prospects. Other global incidents could have a similar effect of disrupting our business to the extent they reach and impact the areas in which we operate, the availability of inventory we need, the
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customers we serve, the partners on whom we rely for products or services or the employees who operate our businesses. For example, another pandemic or comparable heath concern could disrupt our supply chain for tobacco, as well as negatively impact employee productivity, including affecting the availability of employees reporting for work. Any business interruption caused by such unforeseen events could have a material adverse impact on our business and operations.
Risks Related to the Tobacco Industry
We may be unsuccessful in our efforts to commercialize our RNC tobacco using the reduced exposure claims authorized by the FDA.
While the FDA issued an exposure modification order in connection with our MRTPA and we have been commercializing our VLN® cigarettes in select markets across the United States, there are no guarantees regarding the commercial viability of our RNC tobacco cigarettes. To date, we have only commercialized the cigarettes on a limited basis. We have obtained an exposure modification order for our VLN® cigarettes, which enables us to make certain claims regarding the reduction of nicotine within these products. Specifically, we are permitted to market the products with the claims “95% less nicotine,” “helps reduce your nicotine consumption,” and “greatly reduces your nicotine consumption,” and we are required to use the claim “helps you smoke less” in connection with the other authorized claims; we may not market our VLN® cigarettes for claims that have not been authorized pursuant to an FDA order. Although we believe these claims have the potential to increase our product sales, these products may never achieve consumer acceptance at levels that make the product commercially viable for profitable sales. In addition, the process of commercializing such product and creating consumer awareness could take longer and cost more than we expect.
In addition, even if we believe that certain legislative or regulatory changes may increase product demand, such as the proposals that FDA has historically made with respect to requiring minimally or non-addictive levels of nicotine in all cigarettes sold in the U.S., there can be no assurance that such regulations, if implemented, would increase or create demand for our RNC cigarettes.
The commercial success of our RNC tobacco cigarettes will depend on a number of factors, including, but not limited to our ability to:
| ● | achieve, maintain and grow market identify of, acceptance of, and demand for, such products; |
| ● | successfully create consumer awareness of such products; |
| ● | achieve the necessary rate of sale to keep products within distribution at retail; |
| ● | market the product with the phrase “Helps You Smoke Less” and any other required warnings or statements; |
| ● | maintain, manage or scale the necessary sales, marketing, manufacturing and other capabilities and infrastructure that are required to successfully commercialize such products; |
| ● | grow or otherwise maintain an adequate supply of RNC tobacco; |
| ● | maintain and extend intellectual property protection for such products; |
| ● | comply with applicable legal and regulatory requirements, including FDA and MSA regulations or requirements with respect to product advertising and our obligations in connection with our PMTAs and MRTPs; |
| ● | competitively price our products; |
| ● | compete with other similar products or new technologies (if any); |
| ● | obtain cost-effective distribution outlets; and |
| ● | effectively sell our products into established markets where there is substantial market dominance by large tobacco enterprises. |
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If we are unsuccessful in commercializing our RNC tobacco cigarettes, our financial results, business and future prospects would be materially adversely effected.
We may be unable to renew our MRTP Application for our VLN® cigarettes.
The FDA has broad authority over the regulation of tobacco products. The FDA could, among other things, force us to remove from the U.S. market our RNC tobacco cigarettes even after the FDA authorization on December 17, 2019 of our PMTA for us to market our RNC tobacco cigarettes, or the authorization of our MRTP application on December 23, 2021, to enable us to use certain modified exposure claims with respect to our VLN® cigarettes. In addition, the exposure modification order that enables us to market our VLN® cigarettes as MRTPs was granted for a period of five years, which is the maximum duration for a marketing granted order for such products under the Family Smoking Prevention & Tobacco Control Act (PUBLIC LAW 111–31—JUNE 22, 2009). Consequently during 2025, we have reapplied to the FDA to extend the FDA’s exposure modification order beyond December 23, 2026. The MRTP authorization process is a complex, substantial and lengthy regulatory undertaking. The FDA may or may not grant continued authorization of these product claims, including based on FDA's assessment of whether the product application(s) satisfy the statutory requirements for such an order, and whether we have adequately complied with the conditions imposed on us in connection with the FDA’s exposure modification order, such as requirements relating to recordkeeping, reporting and post-market studies. Any action by the FDA to remove our products from the U.S. market, including the termination or non-renewal of the exposure modification orders for our VLN® cigarettes would have a material adverse impact on our business.
We have limited experience marketing and selling Modified Exposure Cigarettes and our working capital and inventory estimates based on demand expectations may be incorrect, which could harm our operating results and financial condition.
We have limited experience in introducing a new low nicotine category for selling our VLN® cigarettes pursuant to an exposure modification order. As we work to commercialize one or more of our products for sale, including our VLN® cigarettes, we base our working capital and inventory decisions on management’s estimates of future demand. If demand for such potential new products does not increase as quickly as we have estimated, our inventory costs, demands on working capital, expenses could increase, and our business and operating results could suffer. Alternatively, if we experience sales that exceed our estimates, our working capital and inventory needs may be higher than those currently anticipated. Since our RNC tobacco is not widely available and must be grown specifically for our potential products, any shortage in such tobacco could prevent us from increasing sales to meet demand and any surplus could result in inventory obsolescence and become a total loss. Our inability to correctly estimate demand for future products could negatively harm our operating results and financial condition.
The manufacturing and sale of tobacco products subjects us to significant government regulation and the failure to comply with such regulations could have a material adverse effect on our business and subject us to substantial fines or other regulatory actions.
Companies that manufacture and/or sell tobacco products face significant governmental regulation, especially in the United States pursuant to the Tobacco Control Act, including but not limited to efforts aimed at reducing the incidence of tobacco use, restricting marketing and advertising, imposing regulations on packaging, mandating warnings and disclosure of flavors or other ingredients, prohibiting the sale of tobacco products with certain flavors or other characteristics, requiring compliance with certain environmental standards, limiting or prohibiting the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packaging sizes, and seeking to hold retailers and distributors responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.
The Tobacco Control Act requires manufacturers of tobacco products to, among other things, provide the FDA with a list of ingredients added to tobacco products in the manufacturing process and register any establishment engaged in the manufacture, preparation, or processing of a tobacco product. The manufacture of products is subject to strict quality control, testing and record-keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. The Tobacco Control Act also authorizes the FDA to promulgate regulations requiring that the methods used in, and the facilities and controls used for, the manufacture, preproduction design validation, packing, and storage of a tobacco product conform to current good manufacturing practice (CGMP), also known as tobacco product manufacturing practices (TPMP).
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We cannot guarantee that our current manufacturing facility or any other manufacturing will successfully complete FDA and/or similar inspections, or that future TPMP regulations will not also negatively affect the cost or sustainability of our manufacturing facility. Our failure to comply with applicable manufacturing regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of marketing orders, seizures or recalls, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our financial position. In addition, we and our customers for whom we manufacture tobacco products also face significant governmental regulation, including efforts aimed at reducing the incidence of tobacco use. We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. Actions by the FDA and other foreign, federal, state or local governments or agencies may impact the adult tobacco consumer acceptability of or access to tobacco products (for example, through product standards proposed by the FDA for nicotine and flavors including menthol), delay or prevent the launch of new or modified tobacco products or products with reduced exposure claims, require the recall or other removal of tobacco products from the marketplace, impose additional manufacturing, labeling or packing requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business. Any one or more of these actions may have a material adverse impact on us or the business of our customers for whom we make tobacco products, which could have a negative impact on our results of operations.
It is possible that significant regulatory developments will take place over the next few years across global markets, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. In addition, the FCTC has led to increased efforts by tobacco control advocates and public health organizations to reduce the appeal of tobacco products. Our operating results could be significantly affected by any significant increase in the cost of complying with new regulatory requirements.
Compliance with current and future regulations regarding tobacco could have a material impact on our business and operations and could result in fines, government actions to restrict or prevent sales of products, as well as result in substantial costs and expenses.
We may become subject to litigation related to cigarette smoking and/or exposure to environmental tobacco smoke, or ETS, which could severely impair our results of operations and liquidity.
Although we are not currently subject to legal proceedings related to cigarette smoking or ETS, we may become subject to litigation related to the sale of our Modified Exposure Cigarettes or other tobacco products we sell or manufacture in the future. Legal proceedings covering a wide range of matters related to tobacco use are pending or threatened in various U.S. and foreign jurisdictions. Various types of claims are raised in these proceedings, including product liability, consumer protection, antitrust, tax, contraband shipments, patent infringement, employment matters, claims for contribution, and claims of competitors and distributors.
Litigation is subject to uncertainty, and it is possible that there could be adverse developments in pending cases. An unfavorable outcome or settlement of pending tobacco related litigation could encourage the commencement of additional litigation. The variability in pleadings, together with the actual experience of management in litigating claims, demonstrates that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome.
Damages claimed in some tobacco-related litigations are significant and, in certain cases, range into the billions of dollars. We anticipate that new cases will continue to be filed. The FCTC encourages litigation against tobacco product manufacturers. It is possible that our results of operations, cash flows, or financial position could be materially affected by an unfavorable outcome or settlement of litigation.
Our North Carolina manufacturing facility is integral to our tobacco business and adverse changes or developments affecting our facility may have an adverse impact on our business.
Our manufacturing facility in North Carolina is integral to our tobacco business. Adverse changes or developments affecting this facility, including, but not limited to, disease or infestation of our raw materials, a fire, an explosion, a serious injury or fatality, a power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations.
A significant failure of our site security measures and other facility requirements, including failure to comply with applicable regulatory requirements, could have an impact on our ability to continue operating under our facility licenses and our prospects of renewing our licenses, and could also result in a suspension or revocation of these licenses.
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The loss of a significant customer for whom we manufacture tobacco products could have an adverse impact on our results of operation.
Currently, a significant portion of our revenues (and corresponding accounts receivable) from manufacturing tobacco products are derived from a small number of large customers, and we do not have agreements with such customers requiring them to purchase a minimum amount of products from us or guaranteeing any minimum future purchase amounts from us. Such customers may, at any time, delay or decrease their level of purchases from us or cease doing business with us altogether. Since many of our manufacturing costs are fixed, if sales to such customers cease or are reduced, we may not obtain sufficient purchase orders from other customers necessary to offset any such losses or reductions, which could have a negative impact on our results of operations.
Product liability claims, product recalls, or other claims could cause us to incur losses or damage our reputation.
The risk of product liability claims, product recalls, and associated adverse publicity, is inherent in the development, manufacturing, marketing, and sale of tobacco products. Any product recall or lawsuit seeking significant monetary damages may have a material adverse effect on our business and financial condition. A successful product liability claim against us could require us to pay a substantial monetary award. Though we currently have no pending product liability claims against us, we cannot assure you that such claims will not be made in the future and any such claim could cause us to incur substantial losses or damage our reputation.
Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. These tax increases may affect the sales of our potential products and our third-parties customers’ tobacco products manufactured at our factory, which could result in decreased sales and profitability of our manufacturing business.
Tax regimes, including excise taxes, sales taxes, and import duties, can disproportionately affect the retail price of manufactured cigarettes versus other tobacco products, or disproportionately affect the relative retail price of our Modified Exposure Cigarettes versus lower-priced cigarette brands manufactured by our competitors. Increases in cigarette taxes are expected to continue to have an adverse impact on sales of cigarettes resulting in (i) lower consumption levels, (ii) a shift in sales from manufactured cigarettes to other tobacco products or to lower-price cigarette categories, (iii) a shift from local sales to legal cross-border purchases of lower price products, and (iv) illicit products such as contraband and counterfeit.
Government mandated prices or taxes, production control programs, shifts in crops driven by economic conditions, climatic or adverse weather patterns may increase the cost or reduce the quality and/or supply of the tobacco and other agricultural products used to manufacture our products.
We depend on a small number of independent tobacco farmers to grow our specialty proprietary tobaccos with specific nicotine contents for our products. As with other agricultural commodities, the price of tobacco leaf can be influenced by imbalances in supply and demand, and crop quality can be influenced by variations in weather patterns, diseases, and pests. This risk is greater for us, as there would be no alternative supply of RNC tobacco in the event that one of our growers experiences a material adverse event, such as a natural disaster, with respect to a particular RNC tobacco crop or the quantity or quality was not as we anticipated, and we would not be able to supply leaf for our VLN® cigarettes.
We must also compete with other tobacco companies for contract production with independent tobacco farmers. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the patterns of demand for agricultural products could cause farmers to plant less tobacco. Any significant change in tobacco leaf prices or taxes, quality and quantity could affect our profitability and our business.
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We may distribute and sell our products outside of the U.S., which subjects us to other regulatory risks.
We may seek governmental authorizations required to market our RNC tobacco cigarettes and our other products in other countries. Marketing of our products is not permitted in certain countries until we have obtained required authorizations or exemptions in these individual countries. The regulatory review process varies from country to country, and authorization by foreign governmental authorities is unpredictable, uncertain, and generally expensive. Our ability to market our potential products could be substantially limited due to delays in receipt of, or failure to receive, the necessary authorizations or exemptions. We anticipate commencing the applications required in some or all of these countries in the future. Failure to obtain necessary regulatory authorizations or exemptions could impair our ability to generate revenue from international sources.
We may become subject to governmental investigations on a range of matters.
Tobacco companies are often subject to investigations, including allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of custom duties and/or excise taxes, and allegations of false and misleading usage of descriptors such as “lights” and “ultra-lights.” We cannot predict the outcome of any investigations to which we may become subject, but we may be materially affected by an unfavorable outcome of potential future investigations.
We may be unsuccessful in anticipating changes in adult consumer preferences, responding to changes in consumer purchase behavior or managing through difficult competitive and economic conditions, which could have an adverse effect on business.
In the tobacco industry, we are subject to intense competition and changes in adult consumer preferences. To be successful, we must:
| ● | anticipate and respond to new and evolving adult consumer preferences; |
| ● | develop, manufacture, market and distribute new and innovative products that appeal to adult consumers (including, where appropriate, through arrangements with, or investments in, third parties); |
| ● | improve productivity; |
| ● | protect or enhance margins through cost savings and price increases; and |
| ● | market our products appropriately to ensure consumer awareness. |
The willingness of adult consumers to purchase premium consumer tobacco products, such as our RNC cigarettes, depends in part on economic conditions. In periods of economic uncertainty, adult consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-priced tobacco products, which could have a material adverse effect on the business and profitability.
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We may be unsuccessful in developing and commercializing adjacent products or processes, including innovative tobacco products that may reduce the health risks associated with certain other tobacco products and that appeal to adult tobacco consumers.
Some innovative tobacco products may reduce the health risks associated with certain other tobacco products, while continuing to offer adult tobacco consumers products that meet their taste expectations and evolving preferences. Examples include tobacco-containing and nicotine-containing products that reduce or eliminate exposure to cigarette smoke and/or constituents identified by public health authorities as harmful, such as electronically heated tobacco products, oral nicotine pouches, and e-vapor products. We may not succeed in our efforts to develop and commercialize any adjacent products.
Further, we cannot predict whether regulators, including the FDA, will permit the marketing or sale of any particular innovative products (including products with claims of reduced risk to adult consumers), the speed with which they may make such determinations or whether regulators will impose an unduly burdensome regulatory framework on such products. In addition, the FDA could, for a variety of reasons, determine that innovative products currently on the market, or those that have previously received authorization, including with a claim of reduced exposure, are not appropriate for the public health and the FDA could require such products be taken off the market. We also cannot predict whether any products will appeal to adult tobacco consumers or whether adult tobacco consumers’ purchasing decisions would be affected by reduced-risk claims on such products if permitted. Adverse developments on any of these matters could negatively impact the commercial viability of such products.
If we do not succeed in our efforts to develop and commercialize innovative tobacco products or to obtain or maintain regulatory authorizations for the marketing or sale of products, including for the use of claims of reduced exposure, but one or more of our competitors does succeed, we may be at a competitive disadvantage, which could have an adverse effect on our ability to commercialize our products.
An extended disruption at our North Carolina manufacturing facility or in service by a supplier, distributor or distribution chain service provider could have a material adverse effect on our business.
We face risks inherent in reliance on one manufacturing facility and a small number of key suppliers, distributors and distribution chain service providers. A pandemic, natural or man-made disaster or other disruption that affects the manufacturing operations, the operations of any key supplier, distributor or distribution chain service provider or any other disruption in the supply or distribution of goods or services (including a key supplier’s inability to comply with government regulations or unwillingness to supply goods or services to a tobacco company) could have a material adverse effect on our business.
A ban on menthol or flavored tobacco products could have a material adverse impact on our business.
There has been increasing activity on the state and local levels with respect to scrutiny of menthol and flavored tobacco products, including a recent law passed by the State of California prohibiting tobacco retailers from selling most flavored and menthol tobacco products, including VLN® Menthol King. If these proposed rules are finalized and implemented, if new rules are proposed or if additional states or governments pass laws similar to the State of California, we could be negatively impacted through decreased sales, a requirement to remove non-compliant tobacco products from the marketplace, associated interruptions in manufacturing or business disruptions.
Risks Related to Intellectual Property
We may be unable to adequately protect our intellectual property, products and potential products, and if we cannot obtain adequate protection of our intellectual property.
Our commercial success will depend, in part, on obtaining and maintaining intellectual property protection for our technologies, products, and potential products. We will only be able to protect our technologies, products, and potential products from unauthorized use by third parties to the extent that valid and enforceable patents cover them, or to the extent that other market exclusionary rights apply.
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Patent positions can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. Accordingly, we cannot predict the breadth of claims that may be allowed or that the scope of these patent rights could provide a sufficient degree of future protection that could permit us to gain or keep our competitive advantage with respect to these products and technology. Additionally, companies like ours are often dependent on creating a pipeline of products. We may not be able to develop additional potential products or proprietary technologies that produce commercially viable products or that are themselves patentable.
Our issued patents may be subject to challenge and potential invalidation by third parties and our competitors may develop processes to achieve similar results without infringing on our patents. Changes in either the patent laws or in the interpretations of patent laws in the United States, or in other countries, may diminish the value of our intellectual property. In addition, others may independently develop similar or alternative products and technologies that may be outside the scope of our intellectual property. Should third parties develop alternative methods of regulating nicotine in tobacco or obtain patent rights to similar products or technology without infringing on our intellectual property rights, this may have an adverse effect on our business.
The expiration of a portion of the QPT patent family in 2018 may provide third parties with the freedom to target the QPT gene in the tobacco plant. This could result in experiments to try to reduce nicotine levels in tobacco plants to levels that may satisfy the planned new nicotine reduction regulations coming from the FDA. There can be no assurance about whether any third-parties will or will not be successful in such efforts, how long or short in time such efforts will entail and/or if such efforts will or will not infringe other genes and other intellectual property on which we have continuing patent protection that would need to be used, in combination with QPT, to result in RNC tobacco. If independent researchers or our competitors are able to successfully reduce nicotine levels in tobacco plants without violating our patent protections, our ability to license our technology would be negatively impacted and we would likely face increased competition.
We also rely on license agreements and trade secrets to protect our technology, products, and potential products, especially where we do not believe patent protection is appropriate or obtainable. Trade secrets, however, are difficult to protect. While we believe that we use reasonable efforts to protect our trade secrets, our own, our licensees’ or our strategic partners’ employees, consultants, contractors or advisors may unintentionally or willfully disclose our information to competitors. We seek to protect this information, in part, through the use of non-disclosure and confidentiality agreements with employees, consultants, advisors, and others. These agreements may be breached, and we may not have adequate remedies for a breach. In addition, we cannot ensure that those agreements will provide adequate protection for our trade secrets, know-how, or other proprietary information, or prevent their unauthorized use or disclosure.
To the extent that consultants or key employees apply technological information independently developed by them or by others to our products and potential products, disputes may arise as to the proprietary rights of the information, which may not be resolved in our favor. Key employees are required to assign all intellectual property rights in their discoveries to us. However, these key employees may terminate their relationship with us, and we cannot preclude them indefinitely from dealing with our competitors. If our trade secrets become known to competitors with greater experience and financial resources, the competitors may copy or use our trade secrets and other proprietary information in the advancement of their products, methods, or technologies. If we were to prosecute a claim that a third party had illegally obtained and was using our trade secrets, it could be expensive and time consuming and the outcome could be unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets than courts in the United States. Moreover, if our competitors independently develop equivalent knowledge, we would lack any contractual claim to this information, and our business could be harmed.
The ability to commercialize our existing and potential products will depend on our ability to sell such products without infringing the patent or proprietary rights of third parties.
The ability to commercialize our potential products will depend on our ability to sell such products without infringing the patents or other proprietary rights of third parties. Third-party intellectual property rights in our field are complicated, and third-party intellectual property rights in these fields are continuously evolving. While we have conducted searches for such third-party intellectual property rights, we have not performed specific searches for third-party intellectual property rights that may raise freedom-to-operate issues, and we have not obtained legal opinions regarding commercialization of our potential products. As such, there may be existing patents that may affect our ability to commercialize our potential products.
In addition, because patent applications are published up to 18 months after their filing, and because patent applications can take several years to issue, there may be currently pending third-party patent applications and freedom-to-operate issues that are unknown to us, which may later result in issued patents.
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If a third-party claims that we infringe on its patents or other proprietary rights, we could face a number of issues that could seriously harm our competitive position, including:
| ● | infringement claims that, with or without merit, can be costly and time consuming to litigate, can delay regulatory authorization processes, and can divert management’s attention from our core business strategy; |
| ● | substantial damages for past infringement which we may have to pay if a court determines that our products or technologies infringe upon a competitor’s patent or other proprietary rights; |
| ● | a court order prohibiting us from commercializing our potential products or technologies unless the holder licenses the patent or other proprietary rights to us, which such holder is not required to do; |
| ● | if a license is available from a holder, we may have to pay substantial royalties or grant cross licenses to our patents or other proprietary rights; and |
| ● | redesigning our process so that it does not infringe the third-party intellectual property, which may not be possible, or which may require substantial time and expense including delays in bringing our potential products to market. |
Such actions could harm our competitive position and our ability to generate revenue and could result in increased costs.
Our patent applications may not result in issued patents, which may have a material adverse effect on our ability to prevent others from commercially exploiting products similar to ours.
We own or exclusively control many issued patents and pending patent applications. We cannot be certain that these patent applications will issue, in whole or in part, as patents. Patent applications in the United States are maintained in secrecy until the patents are published or are issued. Since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions. We also cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor. In addition, patent applications filed in foreign countries are subject to laws, rules and procedures that differ from those of the United States, and thus we cannot be certain that foreign patent applications related to U.S. patents will be issued. Furthermore, if these patent applications issue, some foreign countries provide significantly less effective patent enforcement than in the United States.
The status of patents involves complex legal and factual questions and the breadth of claims allowed is uncertain. Accordingly, we cannot be certain that the patent applications that we or our licensors file will result in patents being issued, or that our patents and any patents that may be issued to us in the near future will afford protection against competitors with similar technology. In addition, patents issued to us may be infringed upon or designed around by others and others may obtain patents that we need to license or design around, either of which would increase costs and may adversely affect our operations.
We license certain patent rights from third-party owners. If such owners do not properly maintain or enforce the patents underlying such licenses, our competitive position and business prospects could be harmed.
We license rights to third-party intellectual property that is necessary or useful for our business, and we may enter into additional licensing agreements in the future. Our success could depend in part on the ability of some of our licensors to obtain, maintain, and enforce patent protection for their intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed and may in some instances retain rights to the intellectual property that allows them to compete with us. Even if patents are issued with respect to these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we could. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.
If any of our license agreements or other intellectual property agreements are not effective at preventing others from competing with us and/or using our intellectual property, our business could be adversely affected.
21
Risks Related to Ownership of Our Common Stock
Nasdaq may delist our common stock from trading on its exchange which could limit investors’ ability to make transactions in our common stock and subject us to additional trading restrictions.
Our common stock is currently listed on the Nasdaq Capital Market (“NASDAQ”). If Nasdaq delists our common stock from trading on its exchange, we could face significant material adverse consequences, including:
| ● | a limited availability of market quotations for our common stock; |
| ● | reduced liquidity with respect to our securities; |
| ● | a determination that shares of our common stock are “penny stock” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares; |
| ● | a limited amount of news and analyst coverage; and |
| ● | a decreased ability to issue additional common stock or obtain additional financing in the future. |
Over the past two years, the Company has received deficiency letters from the Nasdaq Listing Qualifications Department notifying the Company not been in compliance with certain Nasdaq trading rules. Although such deficiencies have been addressed and remedied, there can be no assurance of our ability to comply with such rules in the future. If we are ever no longer listed on the NASDAQ or other national stock exchange in the future, then it would be more difficult to dispose of shares or to obtain accurate quotations as to the market value of our common stock compared to securities of companies whose shares are traded on national stock exchanges.
Our stock price may be highly volatile and could decline in value.
The market price for our common stock has been volatile. Further, the market prices for securities in general have been highly volatile and may continue to be highly volatile in the future. The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:
| ● | general economic conditions, including adverse changes in the global financial markets; |
| ● | equity sales by us of our common stock or securities convertible into common stock to fund our operations. |
| ● | actual and anticipated fluctuations in our quarterly financial and operating results; |
| ● | developments or disputes concerning our intellectual property or other proprietary rights; |
| ● | introduction of technological innovations or new commercial products by us or our competitors; |
| ● | issues in manufacturing or distributing our products or potential products; |
| ● | market acceptance of our products or potential products; |
| ● | FDA or other United States or foreign regulatory actions affecting us or our industry; |
| ● | litigation or public concern about the safety of our products or potential products; |
| ● | negative press or publicity regarding us or our common stock; |
| ● | the announcement of litigation against us or the results of on-going litigation; |
| ● | additions or departures of key personnel; |
| ● | third-party sales of large blocks of our common stock or third party short-selling activity; |
| ● | third-party articles regarding us or our securities; |
| ● | pending or future shareholder litigation; |
| ● | sales of our common stock by our executive officers, directors, or significant stockholders; and |
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| ● | the announcement by us of a reverse stock split or other corporate transaction. |
These and other external factors may cause the market price and demand for our common stock to fluctuate substantially, which may limit or prevent investors from readily selling their shares of common stock and may otherwise negatively affect the liquidity of our common stock. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock, such as the current class action and derivative lawsuits. Such lawsuits and any future related lawsuits could cause us to incur substantial costs defending the lawsuit and can also divert the time and attention of our management, which would have a negative adverse impact on our business.
Future sales of our common stock will result in dilution to our common stockholders.
Sales of a substantial number of shares of our common stock in the public market may depress the prevailing market price for our common stock and could impair our ability to raise capital through the future sale of our equity securities. Additionally, as of March 23, 2026, we have outstanding 5,408,786 warrants to purchase an equal number of shares of common stock and 16.0 million in Series B convertible preferred stock (convertible into a maximum of 22,408,964 shares). If any of the holders of outstanding warrants or notes exercise or convert them, as applicable, our common stockholders will incur dilution in their relative percentage ownership. The prospect of this possible dilution may also impact the price of our common stock.
We have a significant number of outstanding securities with anti-dilution price protection.
We have approximately 5,408,786 outstanding warrants with anti-dilution price protection. The exercise price on these warrants will have the exercise price reduced in the event of any future offerings of securities at a lower price than the current exercise price (subject to limited exceptions) of $3.57. In addition, our Series B Convertible Preferred Stock is convertible into common stock at any time at an initial conversion price of $3.57, which price is subject to adjustment for any future offerings of securities at a lower price than the current exercise price (subject to limited exceptions). Such securities may deter future investors and can result in further dilution to our investors.
We do not expect to declare any dividends on our common stock in the foreseeable future.
We have not paid cash dividends to date on our common stock. We currently intend to retain our future earnings, if any, to fund the development and growth of our business, reduce our outstanding debt obligations, and we do not anticipate paying any cash dividends on our common stock for the foreseeable future. Additionally, the terms of any future debt facilities may preclude us from paying dividends on the common stock. As a result, capital appreciation, if any, of our common stock could be the sole source of gain for the foreseeable future.
Our common stock may become the target of a “short squeeze.”
In recent years, the securities of several companies have increasingly experienced significant and extreme volatility in stock price due to short sellers of common stock and buy-and-hold decisions of longer investors, resulting in what is sometimes described as a “short squeeze.” Short squeezes have caused extreme volatility in those companies and in the market and have led to the price per share of those companies to trade at a significantly inflated rate that is disconnected from the underlying value of the company. Sharp rises in a company’s stock price may force traders in a short position to buy the shares to avoid even greater losses. Many investors who have purchased shares in those companies at an inflated rate face the risk of losing a significant portion of their original investment as the price per share has declined steadily as interest in those shares have abated. We may be a target of a short squeeze, and investors may lose a significant portion or all of their investment if they purchase our shares at a rate that is significantly disconnected from our underlying value.
Anti-takeover provisions contained in our articles of incorporation and bylaws, as well as provisions of Nevada law, could impair a takeover attempt.
Our amended and restated articles of incorporation and bylaws currently contain provisions that, together with Nevada law, could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors. Our corporate governance documents presently include the following provisions:
| ● | providing for a “staggered” board of directors in which only one-third (1/3) of the directors can be elected in any year; |
| ● | authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend, and other rights superior to our common stock; and |
| ● | limiting the liability of, and providing indemnifications to, our directors and officers. |
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These provisions, alone or together, could delay hostile takeovers and changes in control of our Company or changes in our management.
As a Nevada corporation, we also may become subject to the provisions of Nevada Revised Statutes Sections 78.378 through 78.3793, which prohibit an acquirer, under certain circumstances, from voting shares of a corporation’s stock after crossing specific threshold ownership percentages, unless the acquirer obtains the approval of the stockholders of the issuer corporation. The first such threshold is the acquisition of at least one-fifth, but less than one-third of the outstanding voting power of the issuer. We may become subject to the above referenced Statutes if we have 200 or more stockholders of record, at least 100 of whom are residents of the State of Nevada and do business in the State of Nevada directly or through an affiliated corporation.
As a Nevada corporation, we are subject to the provisions of Nevada Revised Statutes Sections 78.411 through 78.444, which prohibit an “interested stockholder” from entering into a combination with the corporation, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years did own) 10 percent or more of the corporation’s voting stock.
Any provision of our amended and restated articles of incorporation, our bylaws or Nevada law that has the effect of delaying or deterring a change in control of our Company could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
The Company recognizes the critical importance of maintaining the trust and confidence of our customers, clients, business partners and employees.
Risk Management and Strategy
As one of the critical elements of the Company’s overall ERM approach, the Company’s
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.
Technical Safeguards: The Company deploys technical safeguards that are designed to protect the Company’s information systems from cybersecurity threats, including firewalls, intrusion prevention and detection systems, anti-malware functionality and access controls, which are evaluated and improved through vulnerability assessments and cybersecurity threat intelligence.
Third-Party Risk Management: The Company maintains a comprehensive, risk-based approach to
Education and Awareness: The Company provides regular, mandatory training for personnel regarding cybersecurity threats as a means to equip the Company’s personnel with effective tools to address cybersecurity threats, and to communicate the Company’s evolving information security policies, standards, processes and practices.
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Governance
The Audit Committee oversees the Company’s ERM process, including the management of risks arising from cybersecurity threats.
Item 2.Properties.
As of December 31, 2025, we operated two 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 one leased inventory storage facility. 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.
See Note 11 - Commitments and Contingencies – Litigation - to our consolidated financial statements included in this Annual Report for information concerning our ongoing litigation. In addition to the lawsuits described in Note 11 to our consolidated financial statements, from time to time we may be involved in claims arising in the ordinary course of business. To our knowledge, other than the cases described in Note 11 to our consolidated financial statements, no material legal proceedings, governmental actions, investigations or claims are currently pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial condition.
Item 4.Mine Safety Disclosures.
Not applicable
PART II
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 23, 2026, there were approximately 136 holders of record of our common stock based on the records of our transfer agent. However, because many of our shares of common stock are held by brokers and other institutions on behalf of shareholders, we believe there are considerably more beneficial holders of our common stock than record holders.
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Dividend Policy
We have not previously and do not plan to declare or pay any dividends on our common stock. Our current policy is to retain all funds and any earnings for use in the operation, debt reduction and expansion of our business. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.
Issuer Purchases of Equity Securities
None.
Shares authorized for issuance under equity compensation plans
The following table summarizes the number of shares of common stock to be issued upon exercise of outstanding options and vesting of restricted stock units under the amended and restated 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “Plan”), 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, 2025:
| | | | | | | | | |
| | | | | | | | 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 |
| 97,307 | (1) | | $ | 31.12 |
| 3,772,848 | |
Equity compensation plans not approved by security holders |
| — | | |
| N/A |
| — | |
Total |
| 97,307 | | |
| — |
| 3,772,848 | (2) |
| | | | | | | | | |
(1) Consists of 72,973 stock options and 24,334 restricted stock units. | | | | | | | | | |
(2) Consists of shares available for award under the Plan | | | | | | | | | |
Item 6.[Reserved]
Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This discussion should be read in conjunction with the other sections of this Form 10-K, including “Risk Factors,” and the Financial Statements and notes thereto. The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Annual Report on Form 10-K. See “Cautionary Note Regarding Forward-Looking Statements and Risk Factor Summary.” Our actual results may differ materially. For purposes of this Management’s Discussion and Analysis of Financial Condition and Results of Operations, references to the “Company,” “we,” us” or “our” refer to the operations of 22nd Century Group, Inc. and its direct and indirect subsidiaries for the periods described herein.
All historical share and per-share amounts reflected throughout this section have been adjusted to reflect prior reverse stock splits. The par value per share of our common stock was not affected.
All figures reported below reflect continuing operations, excluding discontinued operations related to the sale and exit of the Company’s hemp/cannabis business in late 2023, except as noted.
Dollars are in thousands, except per share data or unless otherwise specified.
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Overview
The Company remains dedicated to being the leader of the tobacco harm reduction movement through science-based innovation, regulatory alignment, and responsible commercialization of reduced nicotine content combustibles. Our mission is to provide adult smokers with alternatives in the form factor that they are comfortable with, cigarettes, that significantly reduce nicotine exposure, supporting the potential for reduced dependence while preserving consumer choice.
Tobacco Operations Highlights
| ● | Poised to benefit from the January 2025 proposed FDA rule mandating reduced nicotine content in all combustible cigarette products, if advanced. The Company has the only FDA-authorized combustible cigarette able to meet the proposed stringent reduced nicotine content product standard. |
| ● | The Company filed its submission of public comment in support of the FDA proposed “Tobacco Product Standard for Nicotine Yield of Cigarettes and Certain Other Combusted Tobacco Products,” in September 2025. |
| ● | Continued agreements with national-scale C-store distribution partners to support state-wide or multi-state availability of VLN® and partner VLN® at hundreds of stores within our target markets. |
| ● | Began shipments of its new VLN® product branding and launched marketing initiatives designed to drive greater customer engagement, as well as the development of partner VLN® brands to be sold alongside proprietary VLN® products. |
| ● | 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 moist snuff other tobacco 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. |
| ● | Exited 2025 with a significantly strengthened balance sheet, including the elimination of debt and improved liquidity, providing flexibility to execute our strategy. |
Financial Overview – Fourth Quarter and Full Year 2025 Results
| ● | Net revenues for the fourth quarter of 2025 were $3,537, a decrease of 12.0% from $4,020 in 2024, primarily driven by a decrease in cigarettes and filtered cigars sales offset by an increase other tobacco products. |
| o | Fourth quarter 2025 total cartons sold of 248 compared to 338 in the comparable prior year period. |
| ● | Net revenues for the full year 2025 were $17,587, a decrease of 27.9% from $24,382 in 2024. |
| ● | Gross loss for the fourth quarter of 2025 improved to a loss of $834 compared to loss of $1,254 in the prior year period. |
| ● | Gross loss for the full year 2025 was a loss of $3,137, compared to a loss of $2,400 in 2024. |
| ● | Total operating expenses for the fourth quarter 2025 decreased 30.6% to $1,969 compared to $2,837 in the prior year quarter driven by: |
| o | Sales, general and administrative expenses decreased to $1,825, driven primarily by decreases in strategic consulting, legal, and other public company expenses. |
| o | Research and development expenses decreased to $105, driven by a decrease in contract and IP related costs. |
| o | Other operating expense, net was $39 compared to $147 in the prior year period, driven by an increase in non-recurring charges in 2024. |
| ● | Operating loss for the fourth quarter 2025 was $2,803, compared to a loss of $4,091 in the prior year period. Operating loss for the full year 2025 was $11,566, compared to a loss of $13,950 in 2024. |
| ● | Net loss in the fourth quarter of 2025 was $2,783 representing a net loss per share of $5.89 compared with net loss in the fourth quarter of 2024 of $4,246, representing a net loss per share of $3,257.47. Net loss for the full year 2025 was $13,117, representing a net loss per share of $71.26 compared with net loss for the full year 2024 of $15,495, representing a net loss per share of $27,812.56. |
| ● | As of December 31, 2025, we had $7,149 in cash and cash equivalents. |
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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 | ||||
| | 2025 | | | 2024 | | | $ | | % | ||
Revenues, net | | $ | 17,587 | | | $ | 24,382 | | | (6,795) | | (27.9) |
Cost of goods sold | | | 10,186 | | | | 14,278 | | | (4,092) | | (28.7) |
Excise taxes and fees on products | | | 10,538 | | | | 12,504 | | | (1,966) | | (15.7) |
Gross loss | | | (3,137) | | | | (2,400) | | | (737) | | 30.7 |
Gross loss as a % of revenues, net | | | (17.8) | % | | | (9.8) | % | | | | |
Operating expenses: | | | | | | | | | | | | |
Sales, general and administrative ("SG&A") | | | 7,591 | | | | 10,287 | | | (2,696) | | (26.2) |
SG&A as a % of revenues, net | | | 43.2 | % | | | 42.2 | % | | | | |
Research and development ("R&D") | | | 688 | | | | 1,133 | | | (445) | | (39.3) |
R&D as a % of revenues, net | | | 3.9 | % | | | 4.6 | % | | | | |
Other operating expense, net ("OOE") | | | 150 | | | | 130 | | | 20 | | 15.4 |
Total operating expenses | | | 8,429 | | | | 11,550 | | | (3,121) | | (27.0) |
Operating loss from continuing operations | | | (11,566) | | | | (13,950) | | | 2,384 | | (17.1) |
Operating loss as a % of revenues, net | | | (65.8) | % | | | (57.2) | % | | | | |
Other income (expense): | | | | | | | | | | | | |
Other income (expense), net | | | (207) | | | | 507 | | | (714) | | (140.8) |
Interest income | | | 83 | | | | 72 | | | 11 | | 15.3 |
Interest expense | | | (1,455) | | | | (2,094) | | | 639 | | (30.5) |
Total other income (expense), net | | | (1,579) | | | | (1,515) | | | (64) | | 4.2 |
Loss from continuing operations before income taxes | | | (13,145) | | | | (15,465) | | | 2,320 | | (15.0) |
(Benefit) provision for income taxes | | | (28) | | | | 30 | | | (58) | | (193.3) |
Net loss from continuing operations | | | (13,117) | | | | (15,495) | | | 2,378 | | (15.3) |
Net loss as a % of revenues, net | | | (74.6) | % | | | (63.6) | % | | | | |
Net loss per common share from continuing operations (basic and diluted) | | $ | (71.26) | | | $ | (27,812.56) | | | 27,741.30 | | (99.7) |
| | | | | | | | | | | | |
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2025 Compared with 2024
Product line revenue, net
| | | | | | | | | |
| | Year Ended | |||||||
| | December 31, | | | | ||||
| | 2025 | | 2024 | | Change | |||
| | $ | Cartons | | $ | Cartons | | $ | Cartons |
Contract manufacturing | | | | | | | | | |
Cigarettes | | 12,897 | 1,525 | | 14,219 | 644 | | (1,322) | 881 |
Filtered cigars | | 4,110 | 549 | | 9,427 | 1,361 | | (5,317) | (812) |
Other tobacco products | | 442 | 54 | | 756 | 120 | | (314) | (66) |
Total contract manufacturing | | 17,449 | 2,128 | | 24,402 | 2,125 | | (6,953) | 3 |
VLN® | | 138 | 4 | | (20) | - | | 158 | 4 |
Total product line revenues | | 17,587 | 2,132 | | 24,382 | 2,125 | | (6,795) | 7 |
For the year ended December 31, 2025, total product line revenue was $17,587, a decrease of 27.9% from $24,382 in the prior year.
| ● | Cigarette volume increased to 1,525 cartons in 2025, including products sold for export, as compared to the prior year. Cigarette sales net revenues decreased from 2024 due to pricing arrangements recorded as consideration payable to the customer recognized within revenue, which in 2024 was recorded within cost of goods sold. During April 2024, the Company also benefitted from a one-time Spectrum® research cigarette order which provided a $889 benefit in 2024. |
| ● | Filtered cigars net revenues decreased $5,317 reflecting lower volumes as the Company implemented repricing of customer contracts and shifts in its product mix into higher margin branded cigarettes, including natural styles, and VLN® cigarettes. |
| ● | Other tobacco products include new moist snuff sales of $387 in 2025 compared to none in the prior year. A decrease in cigarillo sales of $661 occurred in 2025 due to initial stocking orders in 2024. |
| ● | VLN® cigarette net revenues reflect VLN® and partner VLN® shipments for initial stocking orders offset by return accruals for product previously sold that will be returned or exchanged. |
Gross loss
| | | | | | | | |
| | Year Ended | ||||||
| | December 31 | | December 31 | ||||
| | 2025 | | 2024 | ||||
Gross loss | | $ | (3,137) | | | $ | (2,400) | |
Percent of Revenues, net | | | (17.8) | % | | | (9.8) | % |
The increase in gross loss and gross loss as a percent of revenues, net for the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily driven by the shift in product mix during 2025, with cigarettes inclusive of products sold for export representing higher volume as compared to filtered cigars in the prior year comparable period. Domestic cigarette excise taxes included amounts payable under the Master Settlement Agreement (“MSA), whereas filtered cigar volume has no comparable excise tax. Gross margin improvements in cigarettes began in the fourth quarter 2025, which demonstrates the steady shift in product mix to higher margin cigarette products.
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Sales, general and administrative expense
| | | |
| | Changes From Prior Year | |
Compensation and benefits (a) | | $ | (408) |
Strategic consulting (b) | | | (873) |
Legal (c) | | | (627) |
Insurance (d) | | | (439) |
Other expenses (e) | | | (349) |
Net decrease in SG&A expenses | | $ | (2,696) |
(a) Compensation and benefits decreased for the year ended December 31, 2025 compared to the prior year due to a reduction of headcount as part of our cost cutting initiatives.
(b) Decreases of strategic consulting for the year ended December 31, 2025 compared to the prior year were due to reduced spending of $482 for investor and public relations and $391 in other consulting related to MRTP post-market studies.
(c) Legal expenses decreased for the year ended December 31, 2025 compared to the prior year period due to decreased regulatory and corporate legal expense.
(d) Insurance expense decreased for the year ended December 31, 2025 compared to the prior year period due to lower insurance premiums.
(e) Other expenses decreased for the year ended December 31, 2025 compared to the prior year ended December 31, 2024 mainly due to decreases in public company expenses of $149, sales and marketing expenses of $134, supplies, repairs and maintenance expenses of $121, technology expenses of $55, depreciation expense of $75, offset by increased travel and entertainment of $60, facilities expense of $25 and other expenses mainly related to state registration fees of $100.
Research and development expense
| | |
| Changes From Prior Year | |
Compensation and benefits (a) | $ | (85) |
Contract, IP and other expenses (b) | | (360) |
Net decrease in R&D expenses | $ | (445) |
(a) Decreased compensation and benefits primarily relate to the decrease in headcount in 2025 compared to the prior year.
(b) Contract, IP and other expenses decreased for the year ended December 31, 2025 compared to the prior year primarily due to a decrease in contract and royalty costs of $276 and IP related consulting and expenses of $84 due to our cost cutting initiatives.
Other operating expenses, net
| | | | | | |
| | Year Ended | ||||
| | December 31, | ||||
| | 2025 | | 2024 | ||
Impairment of intangible assets | | $ | 150 | | $ | 68 |
Loss on sale or disposal of property, plant and equipment | | | — | | | 62 |
Total other operating expense, net | | $ | 150 | | $ | 130 |
Other operating expenses, net increased $20 due to increased impairment charges of $82 for patents and disposal of trademarks that we are no longer pursuing for the year ended December 31, 2025 compared to the prior year period, offset by a loss of $62 in 2024 for the sale of property, plant and equipment.
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Other income (expense), net
| | | |
| | Changes From Prior Year | |
Other income (expense), net (a) | | $ | (714) |
Interest income | | | 11 |
Interest expense (b) | | | 639 |
Net (decrease) increase in other expense | | $ | (64) |
| (a) | Other income (expense), net decreased for the year ended December 31, 2025, compared to the prior year, due to a loss resulting from change in fair value of the Omnia warrant liabilities that did not occur in 2024. |
| (b) | For the year ended December 31, 2025 compared to the prior year period, cash interest decreased $443, non-cash interest amortization increased $842 due to $1,091 of extinguishment charges recognized from the Senior Secured Credit Facility (of these totals, interest that was allocated to discontinued operations increased by $88), and other interest charges decreased by $76, offset by a gain that occurred in the prior year period of $556 as a result of change in fair value of conversion option derivative liability. Additionally, interest expense decreased $1,430 from the Subordinated Note, which was due to a $400 loss on extinguishment prior to maturity in April 2024. |
Liquidity and Capital Resources
We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business. We had negative cash flow from operations of $7,723 for the year ended December 31, 2025 and an accumulated deficit of $398,925 as of December 31, 2025. As of December 31, 2025, we had cash and cash equivalents of $7,149 and working capital from continuing operations of $10,359 (compared to working capital from continuing operations of $1,790 at December 31, 2024). Given our projected operating requirements and existing cash and cash equivalents, there is substantial doubt about our ability to continue as a going concern through one year following the date that the Consolidated Financial Statements included herein are issued.
In response to these conditions, management is currently evaluating different strategies for reducing expenses, as well as pursuing financing strategies which include raising additional funds through the issuance of securities, asset sales, and through arrangements with strategic partners. If capital is not available to the Company when, and in the amounts needed, it could be required to liquidate inventory or assets, cease or curtail operations, seek to negotiate new business deals with our business partners or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that the Company will be able to raise the capital it needs to continue operations. Accordingly, there is substantial doubt regarding our ability to continue in operations. Management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern through one year following the date that the Consolidated Financial Statements are issued.
Our cash and cash equivalents, and working capital as of December 31, 2025 and 2024, are set forth below:
| | | | | | |
| | December 31 | | December 31 | ||
| | 2025 | | 2024 | ||
Cash and cash equivalents | | $ | 7,149 | | $ | 4,422 |
Working capital | | $ | 10,359 |
| $ | 1,790 |
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Working Capital
As of December 31, 2025, we had working capital from continuing operations, excluding assets and liabilities held for sale, of approximately $10,359 compared to working capital of approximately $1,790 as of December 31, 2024, an improvement of $8,569. This increase in working capital was primarily due to an increase in net current assets of $7,160 and a decrease in current liabilities of $1,409. Cash and cash equivalents increased by $2,727 and the remaining net current assets increased by $4,381.
Summary of Cash Flow
| | | | | | | | |
| | Year Ended | | | ||||
| | December 31, | | Change | ||||
| | 2025 | | 2024 | | $ | ||
Cash provided by (used in): | | | | | | | | |
Operating activities | | $ | (7,723) | | $ | (14,345) | | 6,622 |
Investing activities | |
| (505) |
|
| (139) | | (366) |
Financing activities | |
| 10,955 |
|
| 16,848 | | (5,893) |
Net change in cash and cash equivalents | | $ | 2,727 |
| $ | 2,364 | | |
Net cash used in operating activities
Cash used in operations decreased $6,622 from $14,345 in 2024 to $7,723 in 2025. The primary driver for this decrease was lower consolidated net loss of $10,110, an increase of $6,257 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 $9,745 for the year ended December 31, 2025, as compared to the year ended December 31, 2024.
Net cash used in investing activities
Cash used in investing activities amounted to $505 in 2025 as compared to $139 in 2024. The increase in cash used in investing activities of $366 was primarily the result decreases of cash outflows of $714 related to the acquisitions of patents, trademarks and property, plant and equipment and $500 from the issuance of the 2025 GVB promissory note. These cash outflows were offset by cash inflows of $748 of proceeds from the sale of property, plant and equipment primarily from the sale of Needlerock farms in 2025 and $100 payments received from the 2025 GVB promissory note.
Net cash provided by financing activities
During the year ended December 31, 2025, cash provided by financing activities decreased by $5,893, from $16,848 in 2024, to $10,955 in 2025, resulting from decreases in net proceeds from common stock issuances of $15,087, increases in payments of long-term debt of $3,034 and payments of deferred offering costs of $130 offset by increases in cash inflows from net proceeds from Series A convertible preferred stock of $9,893, warrant exercises of $1,721, issuance of notes payable of $399 and decreases of cash outflows from taxes paid related to net share settlement of RSUs of $1 and in payments on notes payable of $344.
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.
In April 2025, we received net proceeds of $5,075 from the inducement and exercise of 5,074 existing warrants for shares of common stock and issuance of an additional 5,074 warrants to purchase common stock. In August 2025, we received net proceeds of $9,893 from the issuance of new shares of Series A convertible preferred stock and issuance of 668,554 warrants to purchase common stock. The proceeds were used to fully repay the remaining principal balance of the Senior Secured Credit Facility.
Additionally, in September 2025, the Company settled its outstanding litigation with its insurer related to the November 2022 fire at the Company’s Grass Valley manufacturing facility in Oregon. Under the terms of the settlement, the insurer paid the Company an aggregate amount of $9,500 in cash.
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We entered into a sales agreement (the “Sales Agreement”) with Needham & Company, LLC (the “Sales Agent”) which permits us to sell up to $25,000 of our common stock from time to time at prevailing market prices. During the three months ended December 31, 2025, we sold no shares under the Sales Agreement. Subsequent to December 31, 2025, the Company sold 44,381 shares of common stock under the ATM Program for gross proceeds of $200 at a weighted average price of $4.51.
March 2026 Series B Convertible Preferred Stock Offering
On March 20, 2026, we and certain investors entered into a securities purchase agreement with respect to the offer and sale of $20,000 of shares of Series B Convertible Preferred Stock, stated value $1,000 per share (the “Series B Preferred Stock”), initially convertible into shares of common stock at an initial conversion price of $3.57 (subject to adjustment in certain circumstances with a floor price of $0.714) and, alternatively, at a 15% discount to the lowest daily volume-weighted average price (“VWAP”) during the prior 20 trading days (the “Alternative Conversion Price”) and warrants to purchase shares of Common Stock pursuant to a registered direct offering. The Company has the ability to reset the fixed conversion price (lower), subject to board approval and the floor price. Stockholder approval for the offering was obtained at the February 20, 2026 Special Meeting of the Stockholders.
At the initial closing, the investors purchased $16,000 of shares of Series B convertible preferred stock and warrants. The remaining $4,000 of shares of Series B Preferred Stock and warrants are expected to be purchased at a second closing. The investors may request the second closing at any time until the one-year anniversary of the initial closing date and we may require the second closing at any time until the one-year anniversary of the initial closing date by individual investor once less than 50% of such Investor’s Series B Preferred Stock purchased at the initial closing remains outstanding and certain equity conditions have been satisfied for at least 7 of the prior 10 trading days, including: (1) the Common Stock closes above 2.5 times the floor price and (2) the daily dollar trading volume of the Common Stock exceeds $500. The warrants are immediately exercisable at an exercise price of $3.57 per share of common stock and expire on the date that is five years after issuance. In addition, the Company issued placement agent warrants to purchase an aggregate of 187,816 shares of common stock with substantially the same terms as the Warrants, except that the exercise price of the Placement Agent Warrants is $3.927.
We used the net proceeds from the offering to repurchase at par all of the shares of outstanding Series A Convertible Preferred Stock issued in August 2025 in the amount of $9.65 million. The balance of the net proceeds from the offering was approximately $5,680, after deducting placement agent case fees but before any other offering expenses.
Following the offering, 130 shares of Series B Preferred Stock were converted into 33,929 shares of common stock, with 15,870 Series B Preferred Stock shares remaining outstanding.
Outstanding Warrants
As of March 23, 2026, we had the following warrants outstanding:
| | | | | | | |
| | # of warrants outstanding | | Weighted average exercise price | | Weighted average expiration date | |
Amended October 2024 PIPE warrants (1) | | 70,618 | | $ | N/A | | July 15, 2030 |
August 2025 warrants (2) | | 630,713 | | $ | 3.57 | | August 27, 2030 |
August 2025 Placement Agent warrants (2) | | 37,844 | | $ | 3.57 | | August 27, 2030 |
March 2026 warrants (2) | | 4,481,795 | | $ | 3.57 | | March 24, 2031 |
March 2026 Placement Agent warrants (2) | | 187,816 | | $ | 3.93 | | March 24, 2031 |
| | 5,408,786 | | | | | |
(1) The warrants contain anti-dilution protection provisions relating to subsequent equity sales of shares of the Company’s common stock or common stock equivalents at an effective price per share lower than the then effective exercise price of such warrants. Additionally, the warrants allow the holder of such warrants to also effect an alternative form of cashless exercise on or after the initial exercise date whereby the aggregate number of shares of common stock issuable in such alternative form of cashless exercise pursuant to any given notice of exercise shall equal the product of (x) the aggregate number of shares of common stock that would be issuable upon exercise of the warrant in accordance with the terms of the warrant if such exercise were by means of a cash exercise rather than a cashless exercise and (y) 2.0 (a “Zero Exercise Price Exercise”). Accordingly, a Zero Exercise Price Exercise for the warrants will result in the issuance of two (2) shares for no additional consideration. | |||||||
(2) The warrants contain anti-dilution 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. | |||||||
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Impact of Recently Issued Accounting Standards
In the normal course of business, we evaluate all new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), SEC, or other authoritative accounting bodies to determine the potential impact they may have on our Consolidated Financial Statements. Refer to Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements contained in Item 15 of this report for additional information about these recently issued accounting standards and their potential impact on our financial condition or results of operations.
Critical Accounting Estimates
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. We make estimates and assumptions in the preparation of our consolidated financial statements that affect the reported amounts of assets and liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We base our estimates and judgments upon historical experience and other factors that are believed to be reasonable under the circumstances. Changes in estimates or assumptions could result in a material adjustment to the consolidated financial statements.
We have identified several critical accounting estimates. An accounting estimate is considered critical if both: (a) the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment involved, and (b) the impact of changes in the estimates and assumptions have had or are reasonably likely to have a material effect on the consolidated financial statements. This listing is not a comprehensive list of all of our accounting policies. For further information regarding the application of these and other accounting policies, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements contained in Item 15 of this report.
Inventories
Inventories are measured on a first-in, first-out basis at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The valuation of inventory requires us to estimate obsolete or excess inventory, as well as inventory that is not of saleable quality.
Historically, our adjustments or write-off charges recorded against inventory have been adequate to cover our losses. However, variations in methods or assumptions could have a material impact on our results. Additionally, if our demand forecasts for specific products is greater than actual demand and we fail to reduce manufacturing output accordingly, we could be required to record additional inventory write-down or expense a greater amount of overhead costs, which would negatively impact our gross profit and net income.
Valuation of Long-Lived Assets
We make assumptions in establishing the carrying value, fair value and, if applicable, the estimated lives of our intangible and other long-lived assets. Intangible assets determined to have an indefinite useful life are not amortized. Instead, these assets are evaluated for impairment on an annual basis on December 1, the measurement date, and whenever events or business conditions change that could indicate that the asset is impaired. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable.
Evaluation of indefinite-lived intangible assets for impairment
Our indefinite-lived intangible assets include the MSA, cigarette brand predicate and trademarks. We perform an annual impairment review of our indefinite-lived intangible assets on December 1, the measurement date, unless events occur that trigger the need for an interim impairment review. We have the option to first assess qualitative factors in determining whether it is more-likely-than-not that an indefinite-lived intangible asset is impaired. If we elect not to use this option, or we determine that it is more-likely-than-not that the asset is impaired, we perform a quantitative assessment that requires us to estimate the fair value of each indefinite-lived intangible asset and compare that amount to its carrying value. Impairment, if any, is based on the excess of the carrying value over the fair value of these assets.
34
For our indefinite-lived intangible assets, we performed a qualitative evaluation and considered factors such as current and future sales projections, strategic objectives, future market and economic conditions, competition, and federal and state regulations. We determined as of December 1, 2025 it is more likely than not that that the assets are not impaired.
Evaluation of long-lived assets for impairment
When impairment indicators exist, we determine if the carrying value of the long-lived asset(s) including, but not limited to, PP&E, right-of-use lease assets, and definite-lived intangible asset(s) exceeds the related undiscounted future cash flows. In cases where the carrying value exceeds the undiscounted future cash flows, the carrying value is written down to fair value. Fair value is generally determined using a discounted cash flow analysis. When it is determined that the useful life of an asset (asset group) is shorter than the originally estimated life, and there are sufficient cash flows to support the carrying value of the asset (asset group), we accelerate the rate of depreciation/amortization in order to fully depreciate/amortize the asset over its shorter useful life.
Estimation of the cash flows and useful lives of long-lived assets and definite-lived intangible assets requires significant management judgment. Events could occur that would materially affect our estimates and assumptions. Unforeseen changes, such as the loss of one or more significant customers, technology obsolescence, or significant manufacturing disruption, among other factors, could substantially alter the assumptions regarding the ability to realize the return of our investment in long-lived assets, definite-lived intangible assets or their estimated useful lives.
For our long-lived assets, we determined that no impairment indicators occurred during 2025.
Detachable Warrants
Warrants issued pursuant to debt or equity offerings that the Company may be required to redeem through payment of cash or other assets outside its control are classified as liabilities and therefore measured at fair value. The Company uses a Monte Carlo valuation model to estimate fair value at each issuance and period-end date. The key assumptions used in the model are the expected future volatility in the price of the Company’s shares and the expected life of the warrants.
Off-Balance Sheet Arrangement
We do not have any off-balance sheet arrangements as defined by Item 303(a)(4) of Regulation S-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 8.Financial Statements and Supplementary Data.
The required financial statements and the notes thereto are contained in a separate section of this Form 10-K beginning with the page following Item 15 (Exhibits and Financial Statement Schedules) and are incorporated by reference into this Item 8.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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Item 9A.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2025.
Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting due to a permanent exemption for smaller reporting companies.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2025 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
Item 9B.Other Information.
(a)
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
On March 23, 2026, we filed a Certificate of Designation of Preferences, Rights and Limitations with the Secretary of State of the State of Nevada designating 20,000 shares out of the authorized but unissued shares of preferred stock as Series B Convertible Preferred Stock with a stated value of $1,000 per share (the “Series B Certificate of Designation”). The Series B Certificate of Designation is attached as Exhibit 3.1.7 hereto. The following is a summary of the principal terms of the Series B Preferred Stock as set forth in the Series B Certificate of Designation. The summary below is not intended to be complete and is qualified in its entirety by reference to such exhibit which is incorporated herein by reference.
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Dividends
The holders of Series B Preferred Stock will be entitled to dividends when and as declared by the board of directors of the Company (the “Board”), from time to time, in its sole discretion, which dividends will be paid by the Company out of funds legally available therefor, payable, subject to the conditions and other terms of the Certificate of Designations, in cash, in securities of the Corporation or using assets as determined by the Board on the stated value of such Preferred Stock.
Voting Rights
The shares of Series B Preferred Stock have no voting rights, except to the extent required by applicable law. As long as any shares of Series B Preferred Stock are outstanding, the Company may not, without the approval of a majority of the then outstanding shares of Series B Preferred Stock (a) alter or change the powers, preferences or rights given to the Series B Preferred Stock, (b) alter or amend the Certificate of Incorporation or the bylaws of the Company in such a manner so as to materially adversely affect any rights given to the Series B Preferred Stock, (c) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined below) senior to, or otherwise pari passu with, the Series B Preferred Stock, (d) increase the number of authorized shares of Series B Preferred Stock, or (e) enter into any agreement to do any of the foregoing.
Liquidation
Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the then holders of the Series B Preferred Stock are entitled to receive out of the assets available for distribution to stockholders of the Company an amount equal to either (i) 100% of the stated value or (ii) the amount the holder would receive if the Series B Preferred Stock had been converted into Common Stock; in each instance, prior to and in preference to the Common Stock or any other series of preferred stock.
Conversion
The Series B Preferred Stock is convertible into Common Stock at any time at a fixed conversion price of $3.57, subject to adjustment for certain anti-dilution provisions set forth in the Series B Certificate of Designation, subject to a floor price equal to 20% of the Nasdaq minimum price on the date of the Securities Purchase Agreement ($0.714) (the “Series B Conversion Price”). The fixed conversion price has anti-dilution price protection for future dilutive issuances. The Company has the ability to reset the fixed conversion price (lower), subject to board approval. The Series B Preferred Stock is also convertible at any time at the Alternative Conversion Price, which is a 15% discount to the lowest daily VWAP in the prior 20 trading days, subject to the floor price.
Conversion at the Option of the Holder
The Series B Preferred Stock is convertible at the then-effective Series B Conversion Price (or the Alternative Conversion Price, at the holder’s election) at the option of the holder at any time and from time to time.
Mandatory Conversion at the Option of the Company
If, at any time from and after issuance, (i) the closing price of the Common Stock equals or exceeds 200% of the then fixed conversion price for 10 consecutive trading days and (ii) the daily dollar trading volume for the Common Stock exceeds $500,000 per day during such period, the Company may require the holders to convert the Series B Preferred Stock into Common Stock at the Series B Conversion Price.
Beneficial Ownership Limitation
The Series B Preferred Stock cannot be converted to Common Stock if the holder and its affiliates would beneficially own more than 4.99% (or 9.99% at the election of the holder) of the outstanding Common Stock. However, any holder may increase or decrease such percentage to any other percentage not in excess of 9.99% upon notice to us, provided that any increase in this limitation will not be effective until 61 days after such notice from the holder to us and such increase or decrease will apply only to the holder providing such notice.
Preemptive Rights
The Securities Purchase Agreement also provides that certain of the Investors in the Offering that fund at least $2,000,000 have a right of participation in future equity or equity-linked offerings by the Company in an amount equal to 50% of such subsequent financing for a period of 9 months after no shares of Series B Preferred Stock are outstanding.
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Redemption
At any time six (6) months after the issuance date, the Company may redeem all or a portion of the shares of Series B Preferred Stock outstanding by delivering notice at least 30 calendar days prior equal to 110% of the stated value per share of Series B Preferred Stock being redeemed. During the 30-day notice period, holders shall be permitted to convert their Series B Preferred Stock. Such redemption right may also be exercised in advance of a change in control of the Company.
Negative Covenants
As long as any Series B Preferred Stock is outstanding, unless the holders of more than 50% of the then outstanding shares of Series B Preferred Stock shall have otherwise given prior written consent, the Company cannot, subject to certain exceptions, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness (as defined in the Certificate of Designations) exceeding $100,000, with the exception of a working capital line of credit with a commercial bank or other similar financial institution up to $1,000,000.
Term
The Series B Preferred Stock is perpetual and has no stated maturity date.
Trading Market
There is no established trading market for any of the Series B Preferred Stock, and we do not expect a market to develop. We do not intend to apply for a listing for any of the Series B Preferred Stock on any securities exchange or other nationally recognized trading system. Without an active trading market, the liquidity of the Series B Preferred Stock will be limited.
(b)
Our directors and executive officers may purchase or sell shares of our common stock in the market from time to time, including pursuant to equity trading plans adopted in accordance with Rule 10b5-1 under the Exchange Act (“Rule 10b5-1”) and in compliance with guidelines specified by the Company. In accordance with Rule 10b5-1 and the Company’s insider trading policy, directors, officers and certain employees who, at such time, are not in possession of material non-public information about the Company are permitted to enter into written plans that pre-establish amounts, prices and dates (or formula for determining the amounts, prices and dates) of future purchases or sales of the Company’s common stock, including shares acquired pursuant to the Company’s equity plans (“Rule 10b5-1 Trading Plans”). Under a Rule 10b5-1 Trading Plan, a broker executes trades pursuant to parameters established by the director or executive officer when entering into the plan, without further direction from them. No contracts, instructions or written plans for the sale or purchase of our securities were
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Not applicable.
PART III
Item 10.Directors, Executive Officers and Corporate Governance.
Directors
Our Board of Directors represents the best interests of our stockholders by overseeing the business and affairs of the Company. Members of the Board participate in quarterly Board and Committee meetings, engage with senior management of the Company, review, provide input, approve the Company’s strategic plan and principal issues, and discuss feedback from stockholders and other stakeholders.
Under the Company’s current Amended and Restated Articles of Incorporation, directors hold office for a term ending on the date of the third annual stockholders’ meeting following the Annual Meeting at which such director’s class was most recently elected until the earlier of their death, resignation, removal or until their successors have been duly elected and qualified.
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Our Bylaws provide that the number of members of our Board of Directors may be changed from time to time by resolutions adopted by the Board of Directors. Our Board of Directors currently consists of four (4) members with no vacancies.
The information below identifies and sets forth certain biographical and other information regarding our directors as of March 23, 2026.
| | | | |
Name | Age | Position/Office Held With the Company | Director Since | Independent |
Lawrence D. Firestone | 67 | Chairman, Chief Executive Officer | 2023 | No |
Andrew Arno | 66 | Lead Director | 2023 | Yes |
Lucille S. Salhany | 79 | Director | 2022 | Yes |
David Keys | 69 | Director | 2025 | Yes |
Lawrence Firestone
Mr. Firestone has served as Chief Executive Officer and Chairman of the Board since December 2023. Mr. Firestone brings over 40 years of enterprise, operations, and financial management experience in both public and private companies, including tenures as CEO, CFO and COO across multiple industry sectors. Mr. Firestone most recently served as Chief Financial Officer of Oakland Manager, a privately-held purveyor of cannabis with both retail and wholesale market penetration, and as Chairman of FirePower Technology, a privately held manufacturer of ATX power supplies for the IT and instrumentation markets. In the public company sector, Mr. Firestone has served as Chief Executive Officer of Eastside Distilling, Inc. (NASDAQ: EAST), Chief Executive Officer of Qualstar Corporation (NASDAQ: QBAK), Chief Financial Officer of Advanced Energy Industries (NASDAQ: AEIS), and Chief Financial Officer of Applied Films Corporation (NASDAQ: AFCO). He has served on numerous boards, including those of Eastside Distilling, Qualstar, CVD Equipment Corporation (NASDAQ: CVD), Amtech Systems, Inc. (NASDAQ: ASYS) and HyperSpace Communications, Inc. (NYSE: HYPR). Mr. Firestone received his Bachelor of Science in Business Administration with a concentration in Accounting from Slippery Rock University of Pennsylvania.
Andy Arno
Mr. Arno joined our Board of Directors in 2011 and has more than 30 years of experience handling a wide range of corporate and financial matters, primarily including work as an investment banker and strategic advisor to emerging growth companies. Mr. Arno currently serves as a managing member of Unterberg Legacy, LLC, a merchant bank and multi-family office, where he has served since 2023. He previously served, from 2015 to 2023, as vice chairman of Special Equities Group, LLC, a privately held investment banking firm affiliated with Dawson James Securities Inc. and previously affiliated with Bradley Woods & Co. Ltd. and Chardan Capital Markets LLC. From 2013 until 2015, Mr. Arno served as managing director of Emerging Growth Equities, an investment banking firm, and was previously president of LOMUSA Limited, an investment banking firm. Earlier in his career, Mr. Arno served as vice chairman and chief marketing officer of Unterberg Capital, LLC, an investment advisory firm that he co-founded. He was also vice chairman and head of the equity capital markets division of Merriman Capital LLC, an investment banking firm, and served on the board of the parent company, Merriman Holdings, Inc. Mr. Arno currently serves on the boards of Insight Molecular Diagnostic Inc. (IMDX), a precision diagnostics company, where he serves as chairman; SmithMicro Software, Inc. (SMSI), a software technology company; Catheter Precision, Inc. (VTAK), a medical device company; Independa, Inc., a privately held software company; and ComHear Inc., a privately held audio technology R&D company, where he serves as chairman. Mr. Arno received a Bachelor of Science degree from George Washington University. He is currently the Lead Independent Director, Chair of the Compensation Committee and a member of the Corporate Governance & Nominating Committee and Audit Committee.
Lucille S. Salhany
Ms. Salhany is currently President and CEO of her own consulting company, JHMedia, which she founded in 1997. She was also one of the founding partners of Echo Bridge Entertainment and CEO & President of LifeFX Networks, Inc. Prior to this, she served as Chairperson of the Twentieth Television division of Fox, and was appointed the first woman in history to head a major television network when she accepted the Chairmanship of Fox Broadcasting. After chairing Fox, Salhany accepted the post of Chief Executive Officer and President of United Paramount Network (UPN), launching and growing UPN to become the fifth major broadcast network. She also served on the Board of Directors for Echo Bridge Entertainment, Compaq / Hewlett-Packard, Fox, Inc., Avid Technologies, and American Media, Inc. Ms. Salhany was also a trustee of Emerson College and Lasell College, where she received Honorary Doctorates. She is currently Chair of the Corporate Governance & Nominating Committee and is a member of the Audit Committee and Compensation Committees of the Board.
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David Keys
Mr. Keys began his career with Deloitte serving in the audit group in the Las Vegas and New York City executive offices. David was the Executive Vice President, CFO and member of the executive committee of the Board of Directors of American Pacific Corporation, a chemical company that was publicly traded on The Nasdaq Stock Market for the entirety of the time he was a director and executive officer. Since 2004, Mr. Keys has been an independent financial and operations consultant. Mr. Keys currently serves as Chairman of the Audit Committee of SurgPays Inc (NASDAQ:SURG) since July 2019. Mr. Keys currently serves on the Board and is the Chair of the Audit Committee of ARCpoint Inc. (TSXV: ARC). He previously served on the Boards of Directors of AmFed Financial Inc., RSI International Systems, Inc. (NEX: RSY.H), Norwest Bank of Nevada and Wells Fargo Bank of Nevada. Mr. Keys also served on the Advisory Board of Directors of FM Global, a leading provider of property and casualty insurance. Mr. Keys is a Certified Public Accountant (CPA), Certified Valuation Analyst (CVA), Certified Management Accountant (CMA), Chartered Global Management Accountant (CGMA), Certified Information Technology Professional (CITP), Certified in Financial Forensics (CFF), and Certified in Financial Management (CFM). David was a member of the National Roster of Neutrals of the American Arbitration Association for over fifteen years. He received a Bachelor of Science in accounting from Oklahoma State University. He is currently Chair of the Audit Committee and is a member of the Corporate Governance & Nominating Committee and Compensation Committees of the Board.
Executive Officers
The information below identifies and sets forth certain biographical and other information regarding our executive officers as of March 23, 2026.
| | |
Name | Age | Position/Office Held With the Company |
Lawrence D. Firestone | 67 | Chairman, Chief Executive Officer |
Daniel A. Otto | 36 | Chief Financial Officer |
Jonathan Staffeldt | 44 | General Counsel and Corporate Secretary |
Robert Manfredonia | 61 | Senior Vice President of Sales and Marketing |
Scott Marion | 46 | Vice President of Manufacturing Operations |
Mr. Firestone’s biographical information is set forth above under “Directors.”
Daniel A. Otto has served as the Company’s Chief Financial Officer since April 2024 and previously as the Company’s Corporate Controller since July 2022 where he is responsible for capital markets, investor relations, accounting, SEC external reporting, treasury, tax and other finance management functions. Prior to joining the Company, Mr. Otto served as a Senior Manager at Deloitte & Touche LLP providing audit and accounting advisory services to public companies, ranging from small to large cap issuers, for over ten years. Mr. Otto is also a certified public accountant. Mr. Otto received his Master’s in Business Administration and B.A. in Accounting from Niagara University.
Jonathan Staffeldt has served as General Counsel of the Company since April 2024 and previously as Deputy General Counsel since January 2023. Prior to that, Mr. Staffeldt was Chief Legal Officer of GVB Biopharma, the former subsidiary of the Company that was acquired in May 2022, and served in that role since September 2019. Mr. Staffeldt was previously in private practice with significant experience in corporate, mergers and acquisitions, and litigation. Mr. Staffeldt received his B.S. in Accounting from the University of Southern California and his Juris Doctorate from the University of California Los Angeles.
Robert Manfredonia has served as our Executive Vice President of Sales and Marketing since August 2024. Previously, Mr. Manfredonia served as Chief Executive Officer for Bonavita Beverage a privately-held service company providing business structure support, strategy development, national sales team coverage, wholesaler and corporate retail access with back of the house solutions. Prior he served as the President of Eastside Distilling Company Inc. (NASDAQ: EAST), where he was responsible for providing strategic leadership with establishing long-range goals, strategies, plans, and policies. Previously he held positions including Vice President of Corporate Retail for Roust, the second largest Global Vodka Producer and Western Regional Manager of Artisanal Brands for Molson Coors (NYSE: TAP). Mr. Manfredonia early in his career worked for Southern Glazer’s Wine and Spirits the largest wine and spirits distributor in the United States. Mr. Manfredonia proudly served in the United States Air Force as a Logistics Planner in Asia and Europe.
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Scott Marion has served as our Vice President of Manufacturing Operations since February 2023. Previously, Mr. Marion served as head of Manufacturing and Supply Chain Finance at Reynolds American. Mr. Marion has over twenty years’ experience in the tobacco industry where he has held various management roles in finance working closely with manufacturing operations. He holds a Bachelor of Science Degree in Business Administration from High Point University and an MBA from Wake Forest University.
Family Relationships
There are no family relationships among our directors and executive officers.
Independent Directors
Our Board of Directors has determined that David Keys, Lucille S. Salhany, and Andrew Arno are “independent” as defined by applicable Nasdaq Stock Market listing standards. Each director serving on the Audit Committee and the Compensation Committee of our Board also meets the more stringent independence requirements established by SEC and Nasdaq rules applicable to audit and compensation committees. Our Board has determined that no director or nominee has a relationship that would interfere with the exercise of independent judgment in carrying out their responsibilities as a director. There are no family relationships among our directors, nominees, or executive officers. The Board annually reviews all business and other relationships of directors and determines whether directors meet these categorical independence tests.
Board Leadership Structure and the Role of the Board in Oversight of Risk Management
Our Board of Directors has not adopted a policy requiring that the roles of Chief Executive Officer and chairperson of the Board be separate. Our Board reserves the right to assign the responsibilities of the Chief Executive Officer and chair position as determined by our Board to be in the best interest of our Company. In the circumstance where the responsibilities of the Chief Executive Officer and chair are vested in the same individual or in other circumstances when deemed appropriate, the Board will designate a Lead Independent Director from among the independent directors to preside at the meetings of non-employee director executive sessions.
Currently, Lawrence D. Firestone serves as Board Chair and Chief Executive Officer, and Andrew Arno serves as the Lead Independent Director. Our Board reviews our leadership structure annually and retains the authority to modify this structure to best address our Company’s unique circumstances as and when appropriate.
Our Board is actively involved in oversight of risks that could affect the Company. Our Board has assigned responsibility for addressing certain risks, and the steps management has taken to monitor, control and report such risk, to our Audit Committee, including risks relating to execution of our growth strategy, with appropriate reporting to the full Board. Our Board relies on our Compensation Committee to address significant risk exposures facing our Company with respect to compensation. Our Board receives reports by each committee chair regarding the applicable committee’s considerations and actions, as well as through regular reports directly from officers responsible for oversight of particular risks within the Company.
Stockholder Communications with the Board
Stockholders wishing to communicate with the Board of Directors or with an individual Board member concerning the Company may do so by writing to the Board or to the particular Board member care of the Corporate Secretary, 22nd Century Group, Inc. The envelope or subject line should indicate that it contains a stockholder communication.
Meetings of Board of Directors
Our Board held eight meetings throughout 2025. All directors attended at least 75% of meetings of the Board and Board committees on which they served in 2025.
Executive Sessions of Independent Directors
The independent directors hold regularly scheduled executive sessions of the Board and its committees no management directors or employees present. The independent directors met in executive session at most of the regularly scheduled Board and committee meetings held in 2025.
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Standing Committees
Our Board of Directors currently has three (3) standing committees: (i) an Audit Committee, (ii) a Compensation Committee, and (iii) a Corporate Governance and Nominating Committee. Members of these committees are elected annually by the Board. The charters of each committee are each available on the investor relations section of our website at www.xxiicentury.com.
The Audit Committee oversees the Company’s financial reporting process and system of internal accounting controls, as well as appointment and oversight of the independent public accountants engaged to audit the Company’s financial statements. The Audit Committee also assists the Board in monitoring compliance with legal and regulatory requirements and oversees the Company’s policies with respect to risk assessment and management, including but not limited to cybersecurity risks.
The Audit Committee is comprised solely of non-employee directors who satisfy current Nasdaq standards with respect to independence, financial expertise and experience. The Audit Committee is comprised of Mr. Keys, Ms. Salhany and Mr. Arno as Chair. Our Board of Directors has determined that Mr. Arno meets the SEC’s definition of “audit committee financial expert,” and that all members of the Audit Committee meet the financial literacy requirements of the Nasdaq Stock Market. No members of the Audit Committee serve on the audit committees of more than three public companies. The Audit Committee held four meetings during 2025. To ensure independence, the Audit Committee also meets separately with our independent public accountants apart from meetings with members of management.
The Compensation Committee is comprised solely of directors who meet the current Nasdaq requirements for independence. The Compensation Committee is comprised of Mr. Arno, Mr. Keys and Ms. Salhany as Chair. The Compensation Committee establishes and regularly reviews our compensation and benefits philosophy and program in a manner consistent with corporate financial goals and objectives. The Compensation Committee also approves compensation arrangements for senior management, including annual incentive and long-term compensation; administers grants under our equity incentive plans; annually evaluates the performance of our Chief Executive Officer; and reviews leadership development and succession planning. The Compensation Committee held two meetings in 2025.
The Corporate Governance and Nominating Committee is comprised solely of independent directors and is comprised of Mr. Arno, Ms. Salhany and Mr. Keys as Chair. The Corporate Governance and Nominating Committee develops and recommends to the Board corporate governance guidelines applicable to the Company; identifies, evaluates and recommends candidates for election to the Board; leads the Board in its annual review of the Board’s performance; and recommends Board members to serve on each committee of the Board. The Corporate Governance and Nominating Committee held one meeting in 2025.
The guidelines and procedures for identifying and evaluating nominees for election to the Board are set forth in the charter of the Corporate Governance and Nominating Committee. In general, persons considered for nomination to the Board must have demonstrated outstanding achievement, integrity and judgment and such other skills and experience as will enhance the Board’s ability to serve the long−term interests of the Company and its stockholders. Candidates must also be willing and able to devote the necessary time for Board service. The Corporate Governance and Nominating Committee also considers diversity in terms of gender, ethnicity, age, and other attributes that could contribute to Board effectiveness, and assesses diversity in the course of the Committee’s annual evaluation of Board structure and composition. The Corporate Governance and Nominating Committee considers potential candidates recommended by current directors, company officers, employees and others, and will consider candidates recommended by stockholders for consideration as director nominees. Nominations of persons for election to the Board at the Annual Meeting may be made by any stockholder entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in our Bylaws. Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary. To be timely, a stockholder’s notice shall be delivered to the Secretary at our principal executive offices not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year’s Annual Meeting; provided, however, that in the event that the date of the Annual Meeting is more than thirty (30) days before or more than seventy (70) days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the one hundred twentieth (120th) day prior to such Annual Meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such Annual Meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made.
Code of Business Conduct and Corporate Ethics
Our Board of Directors has long maintained a Code of Ethics that applies to all our directors, officers, and employees. A copy of our Code of Ethics is available on our website at http://www.xxiicentury.com. We intend to satisfy any disclosure requirements pursuant to Item 5.05 of Form 8-K regarding any amendment to, or waiver from, certain provisions of the Code of Ethics by posting such information on our website.
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Our directors, executive officers, and employees are required to comply with the 22nd Century Group, Inc. Insider Trading Policy and may not engage in any transaction (such as short-selling) to hedge against the potential decline in value of any of our securities. Our Insider Trading policy also clearly sets forth the prohibition on trading based on material non-public information.
Compensation of Directors
Elements of 2025 Non-Employee Director Compensation
Non-employee directors are compensated for their service on our Board as shown below. Directors who are employees of the Company receive no additional compensation for serving as directors. The Compensation Committee periodically reviews the compensation of our non-employee directors and considers market practices.
The Board approved the following compensation for 2025 as follows:
| | |
2025 Director Compensation (non-employee) | ||
Annual cash retainer: | $ | 20,000 |
Chair of Board or Lead Independent Director | $ | 20,000 |
Chair of Audit Committee | $ | 10,000 |
Chair of Compensation or Corporate Governance & Nominating Committee | $ | 5,000 |
Member of a Board Committee | $ | 5,000 |
Annual equity award value: | | |
Chair of Board or Lead Independent Director | $ | 60,000 |
Member of a Board Committee | $ | 35,000 |
For fiscal 2026, compensation will consist of cash and equity-based awards, as set forth below:
| | |
2026 Director Compensation (non-employee) | ||
Annual cash retainer: | $ | 20,000 |
Chair of Board or Lead Independent Director | $ | 20,000 |
Chair of Audit Committee | $ | 10,000 |
Chair of Compensation or Corporate Governance & Nominating Committee | $ | 5,000 |
Member of a Board Committee | $ | 5,000 |
Annual equity award value: | | |
Chair of Board or Lead Independent Director | $ | 60,000 |
Member of a Board Committee | $ | 35,000 |
Non-employee director equity-based awards will vest annually, and consist of a mix weighted as 75% non-qualifying stock options (NQSO’s) and 25% restricted stock units (RSU’s). Additionally, a one-time special award in November 2025 was granted of NQSOs and RSUs which vest in equal increments over three years.
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NON-EMPLOYEE DIRECTOR COMPENSATION FOR 2025
| | | | | | | | | | |
| Fees | | | | | | ||||
| earned | | Restricted | | | | ||||
| or paid in | Option | Stock Unit | All Other | | | ||||
Name | cash | Awards (1) | Awards(2) | Compensation | Total | |||||
Andrew Arno | $ | 57,500 | $ | 80,001 | $ | 30,517 | $ | - | $ | 168,018 |
Lucille S. Salhany | $ | 35,000 | $ | 49,764 | $ | 18,970 | $ | - | $ | 103,734 |
David Keys (3) | $ | 20,000 | $ | 62,399 | $ | 19,808 | $ | - | $ | 102,207 |
Anthony Johnson (4) | $ | 17,500 | $ | - | $ | - | $ | - | $ | 17,500 |
| (1) | Represents the grant date fair value computed in accordance with FASB ASC 718. The assumptions used for the option awards are set forth in Note 14 “Equity Based Compensation” of the Notes to the Financial Statements contained in Item 8 of this report. |
| (2) | The fair value of each restricted stock unit is based on the stock price of the Company’s common stock on the grant date of the award. |
| (3) | Mr. Keys was appointed as a director on July 14, 2025 and received pro rata compensation for service during 2025. |
| (4) | Former director. |
Item 11.Executive Compensation.
COMPENSATION DISCUSSION AND ANALYSIS
This section contains a discussion of the material elements of compensation awarded to, earned by, or paid to our principal executive officer, our principal financial officer, and our other executive officers who were serving as executive officers of the Company on December 31, 2025. These individuals are identified in the Summary Compensation Table and other compensation tables that follow this section, and are referred to throughout this report as our “named executive officers.”
Executive Summary and Overview of 2025 Compensation
Our Company’s long-term success depends on our ability to fulfill the expectations of our customers and clients in a competitive environment and deliver value to stockholders. To achieve these goals, it is critical that we are able to attract, motivate, and retain highly talented individuals at all levels of the organization that are committed to our values and objectives.
We strive to provide compensation that is (a) linked to stockholder value creation, (b) reflective of the overall performance of the Company and each individual executive, and (c) considerate of the competitive market levels of compensation needed to recruit, retain and motivate top executive talent, while remaining consistent with the other objectives.
Compensation Philosophy and Objectives
The Company’s executive compensation program is based on the same principles that guide us in establishing all of the Company’s compensation programs:
| ● | Compensation fosters the long−term focus required for the Company’s success. In general, the compensation of Company executives includes longer−term incentives because they are in a greater position to influence longer−term results. |
| ● | Compensation reflects the level of job responsibility, individual performance, and Company performance. As employees progress to higher levels in the organization, an increasing proportion of their pay should be linked to Company performance and stockholder returns because those employees are more able to affect the Company’s results. |
| ● | Compensation reflects the value of the job in the marketplace. To attract and retain a highly skilled workforce, we must remain competitive with the pay of other premier employers who compete with us for talent. |
| ● | While compensation programs and individual pay levels will always reflect differences in job responsibilities, geographies and marketplace considerations, the overall structure of the compensation and benefit programs should be broadly similar and equitable across the organization. |
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Overview of Executive Compensation
The Compensation Committee
Our Compensation Committee has primary responsibility for, among other things, determining our compensation philosophy, evaluating the performance of our executive officers, setting the compensation and other benefits of our executive officers, and considering the outcome of the advisory votes of stockholders on executive compensation.
To ensure alignment of compensation programs with the Company’s needs and goals, the Compensation Committee is informed by and responsive to the overall mission and strategies of the Company as determined by the full Board of Directors. As the strategic focus of the Company evolves, as for example toward commercialization of its products and profitability, the Compensation Committee has and will continue to adapt the Company’s compensation programs to meet these evolving needs.
The Compensation Committee also evaluates risks and rewards associated with the Company’s overall compensation philosophy and structure. To the extent our compensation programs provide for incentive−based compensation, the Compensation Committee evaluates whether these programs are designed to pay for performance, and thus encourage only appropriate risk−taking. These programs are also subject to oversight of the Compensation Committee and various functional departments of the Company to ensure that our employees, including our executive officers, are not encouraged to take excessive or unnecessary risks in managing our business.
Role of Executive Officers in Compensation Discussions
The Compensation Committee meets with our Chief Executive Officer in order to obtain recommendations with respect to the Company’s compensation programs and practices for executives and other employees. Management discusses with the Compensation Committee the practices that have been put in place to identify and mitigate, as necessary, potential risks. The Chief Executive Officer annually reviews the performance of each executive officer, other than himself. The Chief Executive Officer’s performance is reviewed annually by the Compensation Committee.
With support from market compensation data, performance reviews and other information, management makes recommendations to the Compensation Committee on the base salaries, bonus targets and equity compensation for the executive officers and other employees. The Compensation Committee takes management’s recommendations into consideration, but is not bound by management’s recommendations with respect to executive compensation.
While management attends certain meetings of the Compensation Committee, the Compensation Committee also holds executive sessions not attended by any members of management or by non−independent directors. The Compensation Committee annually reviews and recommends for approval to the full Board all elements of compensation of the Chief Executive Officer, and reviews, counsels, and makes recommendations regarding the compensation elements of other senior executives. The Compensation Committee also approves equity awards to all employees and directors of the Company.
Elements of Executive Compensation
For 2025, the principal components of compensation for named executive officers were: (1) Base Salary, (2) Performance−Based Incentive Compensation, (3) Long−Term Equity Incentive Compensation, (4) Personal Benefits, and (5) Other Compensation. In determining the amount and relative allocation among each component of compensation for each named executive officer, the Compensation Committee considered, among other factors, each executive officer’s experience level and historical performance, compensation paid by companies comparable in size, data obtained from management’s recruitment activities, historical rates of executive compensation, Company revenues and financial outlook, and alignment with the Company’s overall compensation philosophy.
Base Salary
Base salaries are set at levels that the Compensation Committee deems to be sufficient to attract and retain highly talented executive officers capable of fulfilling the Company’s key objectives. Base salaries are also set with the goal of rewarding executive officers on a day−to−day basis for their time and services while encouraging them to strive for performance−based and long−term incentives.
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The table below shows the base salary established by the Compensation Committee for each of our named executive officers for 2025 and 2026, and the percentage change compared to the prior fiscal year. Salary adjustments typically do not coincide with the beginning of the fiscal year, so the amounts shown below may differ from those shown in the 2025 Summary Compensation Table.
| | | | |
| | Percentage Increase | | Percentage Increase |
| 2025 | Over 2024 | 2026 | Over 2025 |
Name | Base Salary | Base Salary | Base Salary | Base Salary |
Lawrence D. Firestone | $425,000 | 0% | $425,000 | 0% |
Chief Executive Officer | | | | |
Daniel A. Otto | $315,000 | 0% | $315,000 | 0% |
Chief Financial Officer | | | | |
Jonathan Staffeldt | $315,000 | 0% | $315,000 | 0% |
General Counsel | | | | |
Robert Manfredonia | $275,000 | 0% | $275,000 | 0% |
Executive Vice President Sales and Marketing | | | | |
Scott Marion | $275,000 | 0% | $275,000 | 0% |
Vice President Manufacturing Operations | | | | |
Performance−Based Incentive Compensation
Historically, the Compensation Committee has considered, and in some cases established, incentive bonus plans for other executive officers that align pay with performance. Because the Company has not in the Committee’s judgment achieved sufficient levels of revenues or profits, the Committee did not approve performance-based incentive compensation awards for named executive officers in 2024.
During 2024, the Compensation Committee developed a new performance-based incentive compensation plan for our executive officers, which became effective initially for fiscal year 2025. The performance-based incentive compensation program for 2025 consists of (i) annual performance-based cash bonus opportunity and (ii) long-term equity incentive compensation consisting of equity awards.
The Compensation Committee also developed a performance-based annual cash bonus plan for 2025. Cash bonus amounts awarded were determined based on (i) a percentage of each executive position’s base pay, (ii) Company performance, (iii) individual performance. Weighting of Company performance was 80% and individual performance was 20%.
The cash bonus pool was based on achievement of key financial metrics for the fiscal year, funded as 25% of Adjusted EBITDA greater than $2.0 million, and up to 150% of target. Individual performance was tied to the achievement of quarterly initiatives, which was based on at least 5 measurable objectives defined for that position that were strategic for the Company in achieving its goals.
In order to calculate EBITDA, the Company adjusts net (loss) income by adding back interest expense (income), provision (benefit) for income taxes, and depreciation and amortization expense. Adjusted EBITDA consists of EBITDA adjusted by the Company for certain non-cash and/or non-operating expenses, including adding back equity-based employee compensation expense, restructuring and restructuring-related charges such as impairment, acquisition and transaction costs, and other unusual or infrequently occurring items, if applicable, such as inventory reserves and adjustments, gains or losses on disposal of property, plant and equipment, and gains or losses on investments.
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For fiscal 2025, the Compensation Committee target bonus levels and achieved bonus amounts as follows:
| | | |
Name | Target Bonus % of Base Salary | Target Cash Bonus | Achieved 2025 Cash Bonus (1) |
Lawrence D. Firestone | 100% | $425,000 | $0 |
Chief Executive Officer | | | |
Daniel A. Otto | 75% | $236,250 | $0 |
Chief Financial Officer | | | |
Jonathan Staffeldt | 75% | $236,250 | $0 |
General Counsel | | | |
Robert Manfredonia | 75% | $206,250 | $0 |
Executive Vice President Sales and Marketing | | | |
Scott Marion | 75% | $206,250 | $0 |
Vice President Manufacturing Operations | | | |
| | | |
(1) The Company's adjusted EBITDA loss for the year ended December 31, 2025 resulted in a $0 payout. | |||
Long-Term Equity Incentive Program Compensation
Our 2021 Omnibus Incentive Plan, as amended and restated, authorizes the Company to grant various types of equity awards, including stock options and restricted stock units, as incentives for management to increase stockholder value. Equity awards are granted to executive officers as long−term incentives in order to align executives’ performance with the interests of the Company’s stockholders. In addition, the multi-year nature of the vesting periods of such awards encourages executive retention.
Our Compensation Committee has authority to determine eligible participants, the types of awards, and the terms and conditions of awards. Upon review of the Company’s financial performance for 2024, the Committee determined to forego issuance of long-term equity incentive awards for 2024.
For 2025, the Compensation Committee developed a new long-term equity incentive program, whereby recipients’ equity awards are aligned to the prior fiscal years achieved cash bonus, with initial grants for fiscal 2025 being set as equal to the target cash bonus amounts. Equity awards are split as 75% in either non-qualifying stock options (NQSO’s) or incentive stock options (ISO’s) and 25% restricted stock units (RSU’s), and the number of shares to award was determined by taking the target cash bonus as the numerator divided by the 30-day average of closing stock price prior to grant as the denominator. All equity awards will vest in equal annual installments over a three-year period, subject to continued service with us.
For fiscal 2025, the table below summarized the number of NQSO’s and RSU’s granted to our executives:
| | | |
Name | ISO's (#) | NQSO's (#) | RSU's (#) |
Lawrence D. Firestone | 13,365 | 261 | 4,542 |
Chief Executive Officer | | | |
Daniel A. Otto | 7,430 | 146 | 2,526 |
Chief Financial Officer | | | |
Jonathan Staffeldt | 7,430 | 146 | 2,526 |
General Counsel | | | |
Robert Manfredonia | 6,486 | 127 | 2,205 |
Executive Vice President Sales and Marketing | | | |
Scott Marion | 6,486 | 127 | 2,205 |
Vice President Manufacturing Operations | | | |
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Retirement and Other Benefits
As employees, the executives were eligible to participate in health and welfare benefits, as offered to our general workforce, designed to attract and retain a skilled workforce in a competitive marketplace. These benefits help ensure that the Company has a healthy and focused workforce through reliable and competitive health and other personal benefits. We do not maintain any pension or non-qualified deferred compensation plans, but we do sponsor a 401(k)-plan pursuant to which we make a safe harbor non-elective contribution of 3% of the employee’s annual compensation, subject to certain wage maximums, to provide employees with the opportunity to save for retirement on a tax deferred basis. These benefits were considered in relation to total compensation packages, but did not materially impact decisions regarding other elements of executive officer compensation.
Compensation on Termination of Employment
Each of our NEOs has an employment agreement that provides for severance in the event they are terminated without cause or they leave for good reason. We believe these agreements are important to attract and retain NEOs since many companies we compete with offer severance compensation. For additional information on compensation on termination of employment, see “Executive Compensation — Employment Agreements with Named Executive Officers” and “Executive Compensation — Compensation on Termination of Employment.”
Policy on Hedging Transactions
We prohibit our officers and directors from engaging in hedging transactions or arrangements designed to lock in the value of their company securities. This prevents our officers and directors from continuing to own company securities without having the full risks and rewards of ownership.
Recoupment/Clawback Policies
The Sarbanes-Oxley Act of 2002 subjects incentive compensation and stock sale profits of our CEO and CFO to forfeiture in the event of an accounting restatement resulting from any non-compliance, as a result of misconduct, with any financial reporting requirement under GAAP and SEC rules. On June 22, 2023 we adopted the 22nd Century Group, Inc. Compensation Recovery Policy in full compliance with Listing Rule 5608(a).
Compensation Committee Interlocks and Insider Participation
During the last fiscal year, no member of the Compensation Committee had a relationship with us that required disclosure under Item 404 of Regulation S-K. During the past fiscal year, none of our executive officers served as a member of the Board of Directors or Compensation Committee, or other committee serving an equivalent function, for any entity that has one (1) or more executive officers who served as members of our Board of Directors or our Compensation Committee. None of the members of our Compensation Committee is an officer or employee of our Company, nor have they ever been an officer or employee of our Company.
Compensation Committee Report
For the year ended December 31, 2025, the Compensation Committee reviewed and discussed the foregoing Compensation Discussion and Analysis with the Company’s management and Board of Directors. Based on this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included herein.
Submitted by the members of the Compensation Committee
David Keys, Chair
Andrew Arno
Lucille S. Salhany
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Executive Compensation
SUMMARY COMPENSATION TABLE FOR 2025
The following table summarizes the compensation of our NEOs for 2025. The amounts reported for salary represent annual wages as reported to the internal revenue service reflective of any lawful withholdings or deductions, and therefore may differ from stated annual salary rates for the NEO’s. The amounts reported for stock awards may not represent the amounts that the NEOs will actually realize from the awards. Whether, and to what extent, a named executive officer realizes value will depend on our performance, stock price and continued employment.
| | | | | | | | | | | | | |
| | | | | | | | | Restricted | | | | |
| | | | | | | Option | | Stock | | All Other | | |
Name and Principal Position | Year | | Salary | | Bonus (1) | | Awards (2) | | Awards (3) | | Compensation (4) | | Total |
Lawrence D. Firestone | 2025 | $ | 391,800 | $ | - | $ | 382,295 | $ | 145,197 | $ | 20,443 | $ | 939,735 |
Chief Executive Officer | 2024 | $ | 411,219 | $ | - | $ | - | $ | - | $ | 15,460 | $ | 426,679 |
Daniel A. Otto | 2025 | $ | 277,390 | $ | - | $ | 212,540 | $ | 80,738 | $ | 33,688 | $ | 604,356 |
Chief Financial Officer | 2024 | $ | 279,412 | $ | 60,000 | $ | - | $ | - | $ | 30,570 | $ | 369,982 |
Jonathan Staffeldt | 2025 | $ | 288,553 | $ | - | $ | 212,540 | $ | 80,738 | $ | 19,448 | $ | 601,279 |
General Counsel | 2024 | $ | 294,048 | $ | 62,500 | $ | - | $ | - | $ | 17,393 | $ | 373,941 |
Robert Manfredonia | 2025 | $ | 240,064 | $ | - | $ | 185,529 | $ | 70,495 | $ | 25,173 | $ | 521,261 |
Executive Vice President Sales and Marketing | 2024 | $ | 104,007 | $ | - | $ | - | $ | - | $ | 5,035 | $ | 109,042 |
Scott Marion | 2025 | $ | 241,788 | $ | - | $ | 185,529 | $ | 70,495 | $ | 35,594 | $ | 533,406 |
Vice President Manufacturing Operations | 2024 | $ | 237,429 | $ | - | $ | - | $ | - | $ | 29,155 | $ | 266,584 |
| (1) | Bonus amounts relate to amounts paid under retention agreements executed during July 2023 with the respective individuals. Remaining amounts owed under the retention agreements were terminated in April 2024. |
| (2) | Represents the grant date fair value computed in accordance with FASB ASC 718. The assumptions used for the option awards are set forth in Note 14 “Equity Based Compensation” of the Notes to the Financial Statements contained in Item 8 of this report. |
| (3) | The fair value of each restricted stock unit is based on the stock price of the Company’s common stock on the grant date of the award. |
| (4) | All Other Compensation consists of the following: |
| | | | | | | |
| | | | | Employer | | |
| | | | | Contributions | | |
| | | | | to Company | | All Other |
| | | Fringe | | 401(k) | | Compensation |
Name | Year | | Benefits * | | Plan | | Total |
Lawrence D. Firestone | 2025 | $ | 9,943 | $ | 10,500 | $ | 20,443 |
Daniel A. Otto | 2025 | $ | 24,238 | $ | 9,450 | $ | 33,688 |
Jonathan Staffeldt | 2025 | $ | 9,998 | $ | 9,450 | $ | 19,448 |
Robert Manfredonia | 2025 | $ | 18,827 | $ | 6,346 | $ | 25,173 |
Scott Marion | 2025 | $ | 27,344 | $ | 8,250 | $ | 35,594 |
*Includes Company paid premiums for health insurance, dental insurance, vision insurance, group-term life insurance, and long and short-term disability insurance. Certain executives had health insurance premiums over $10,000 (Daniel A. Otto - $18,634 and Scott Marions - $18,834).
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GRANTS OF PLAN BASED AWARDS DURING 2025
| | | | | | | | | | | | | |
| | | | | | | | | | | | Grant Date | |
| | | | | | Restricted | | Stock | | | | Fair Value | |
| | | | | | Stock Unit | | Option | | Exercise | | Restricted | |
| | | | | | Awards: | | Awards: | | Price of | | Stock Units, | |
| | | | | | Number of | | Number | | Option | | Stock Awards | |
| | | | Date of Board | | Shares of | | of Shares | | Awards | | and Option | |
Name | | Grant Date | | Action | | Stock (#) | | (#) | | ($) | | Awards ($) (3) | |
Lawrence D. Firestone | | 3/10/2025 | | 3/10/2025 | | 87 | (1) | 261 | (1) | 605 | | $ | 218,234 |
| | 11/5/2025 | | 11/5/2025 | | 4,455 | (2) | 13,365 | (2) | 19.05 | | $ | 309,257 |
Daniel A. Otto | | 3/10/2025 | | 3/10/2025 | | 49 | (1) | 146 | (1) | 605 | | $ | 121,368 |
| | 11/5/2025 | | 11/5/2025 | | 2,477 | (2) | 7,430 | (2) | 19.05 | | $ | 171,911 |
Jonathan Staffeldt | | 3/10/2025 | | 3/10/2025 | | 49 | (1) | 146 | (1) | 605 | | $ | 121,368 |
| | 11/5/2025 | | 11/5/2025 | | 2,477 | (2) | 7,430 | (2) | 19.05 | | $ | 171,911 |
Robert Manfredonia | | 3/10/2025 | | 3/10/2025 | | 43 | (1) | 127 | (1) | 605 | | $ | 105,943 |
| | 11/5/2025 | | 11/5/2025 | | 2,162 | (2) | 6,486 | (2) | 19.05 | | $ | 150,081 |
Scott Marion | | 3/10/2025 | | 3/10/2025 | | 43 | (1) | 127 | (1) | 605 | | $ | 105,943 |
| | 11/5/2025 | | 11/5/2025 | | 2,162 | (2) | 6,486 | (2) | 19.05 | | $ | 150,081 |
| (1) | Represents RSUs and Stock Options which vest in equal increments over three years on March 10, 2026, 2027 and 2028, subject to continued service. |
| (2) | Represents RSUs and Stock Options which vest in equal increments over three years on November 5, 2026, 2027 and 2028, subject to continued service. |
| (3) | Represents the grant date fair value computed in accordance with FASB ASC 718. The assumptions used for the option awards are set forth in Note 14 “Equity Based Compensation” of the Notes to the Financial Statements contained in Item 8 of this report. The fair value of each restricted stock unit is based on the stock price of the Company’s common stock on the grant date of the award. |
OUTSTANDING EQUITY AWARDS AT FISCAL-YEAR END
| | | | | | | | | | | | | | | | | |
| | Option awards | | Stock awards | |||||||||||||
| | | | | | | | | | | | | | Equity | | Equity Incentive | |
| | | | | | | Equity | | | | | | | Incentive | | Plan Awards: | |
| | | | | | | Incentive | | | | | | | Plan Awards: | | Market or | |
| | | | | | | Plan Awards: | | | | | | | Number of | | Payout Value of | |
| | Number of | | Number of | | | Number of | | | | | | | Unearned | | Unearned | |
| | Securities | | Securities | | | Securities | | | | | | | Shares, | | Shares, | |
| | Underlying | | Underlying | | | Underlying | | | | | | | Restricted Stock | | Restricted Stock | |
| | Unexercised | | Unexercised | | | Unexercised | | | | | | | Units or Other | | Units or Other | |
| | Options | | Options | | | Unearned | | Option | | Option | | Rights That | | Rights That | ||
| | Exercisable | | Unexercisable | | | Options | | Exercise | | Expiration | | Have Not Vested | | Have Not Vested | ||
Name | | (#) | | (#) | | | (#) | | Price | | Date | | (#) | | ($) (3) | ||
Lawrence D. Firestone | | — | | — | | | 261 | (1) | | 605 | | 3/8/2035 | | 87 | (1) | $ | 1,005 |
| | — | | — | | | 13,365 | (2) | | 19.05 | | 11/3/2035 | | 4,455 | (2) | $ | 51,455 |
Daniel A. Otto | | — | | — | | | 146 | (1) | | 605 | | 3/8/2035 | | 49 | (1) | $ | 566 |
| | — | | — | | | 7,430 | (2) | | 19.05 | | 11/3/2035 | | 2,477 | (2) | $ | 28,609 |
Jonathan Staffeldt | | — | | — | | | 146 | (1) | | 605 | | 3/8/2035 | | 49 | (1) | $ | 566 |
| | — | | — | | | 7,430 | (2) | | 19.05 | | 11/3/2035 | | 2,477 | (2) | $ | 28,609 |
Robert Manfredonia | | — | | — | | | 127 | (1) | | 605 | | 3/8/2035 | | 43 | (1) | $ | 497 |
| | — | | — | | | 6,486 | (2) | | 19.05 | | 11/3/2035 | | 2,162 | (2) | $ | 24,971 |
Scott Marion | | — | | — | | | 127 | (1) | | 605 | | 3/8/2035 | | 43 | (1) | $ | 497 |
| | — | | — | | | 6,486 | (2) | | 19.05 | | 11/3/2035 | | 2,162 | (2) | $ | 24,971 |
| (1) | Represents RSUs and Stock Options which vest in equal annual increments over three years on March 10, 2026, 2027 and 2028, subject to continued service. |
| (2) | Represents RSUs and Stock Options which vest in equal annual increments over three years on November 5, 2026, 2027 and 2028, subject to continued service. |
| (3) | The amounts in this column are based on the closing stock price of the Company’s common stock on December 31, 2025. These amounts do not reflect the actual amounts that may be realized. |
OPTION EXERCISES AND STOCK VESTED DURING 2025
None of our NEOs had any equity awards that vested during 2025.
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Employment Agreements with Named Executive Officers
On November 3, 2025, we entered into employment agreements with each of our NEOs with initial durations indicated in the table below, with automatic one-year renewal periods unless either party provides advance written notice of an intent not to renew. The Employment Agreements specify the titles and provide for base salaries at the current levels indicated in the table below. They also provide that the executive officers will be eligible to participate in annual cash incentive and long-term cash and equity incentive plans and programs, as well as other employee benefit plans, that are generally provided to the Company’s senior executives from time to time.
The Employment Agreements also provide that, upon an involuntary termination of the executive officer’s employment by the Company without Cause (as defined in the Employment Agreements), or upon a resignation for Good Reason (as defined in the Employment Agreements) upon or within 24 months following a Change of Control (as defined in the Company’s 2021 Omnibus Incentive Plan or any successor incentive plan) (the “Change of Control Employment Period”), the executive officer will receive the severance payment indicated in the table below, as well as subsidized COBRA benefits for the continuation period indicated in the table below.
| | | | | | |
| | | | Severance Payment on | Severance Payment on | |
| | | | Qualifying Termination | Qualifying Termination | |
| | | Current | Not During | During | COBRA |
| | Initial | Base | Change of Control | Change of Control | Continuation |
Executive Officer | Title | Term | Salary | Employment Period | Employment Period | Period |
Lawrence D. Firestone | Chief Executive Officer | 42 months | $ 425,000 | 1.5x sum of base salary plus target bonus | 2.5x sum of base salary plus greater of target bonus or prior year’s actual bonus | 18 months |
Daniel A. Otto | Chief Financial Officer | 39 months | $ 315,000 | 1.0x sum of base salary plus target bonus | 1.5x sum of base salary plus greater of target bonus or prior year’s actual bonus | 12 months |
Jonathan Staffeldt | General Counsel | 36 months | $ 315,000 | 1.0x sum of base salary plus target bonus | 1.5x sum of base salary plus greater of target bonus or prior year’s actual bonus | 12 months |
Robert Manfredonia | Executive Vice President Sales and Marketing | 36 months | $ 275,000 | 1.0x sum of base salary plus target bonus | 1.5x sum of base salary plus greater of target bonus or prior year’s actual bonus | 12 months |
Scott Marion | Vice President Manufacturing Operations | 39 months | $ 275,000 | 1.0x sum of base salary plus target bonus | 1.5x sum of base salary plus greater of target bonus or prior year’s actual bonus | 12 months |
“Cause” is defined generally in the Employment Agreements to include (a) a willful act or omission that is a material breach of any material obligation under the Employment Agreement or material written policy or procedure and failure to cure, (b) continued willful failure or refusal to substantially perform duties reasonably required, (c) an act of moral turpitude, dishonesty or fraud by, or criminal conviction (excluding non-felony convictions relating solely to vehicle and traffic offenses), (d) material misappropriation of Company property or (e) other willful misconduct that is materially injurious to the financial condition or business reputation of, or is otherwise materially injurious to, the Company. “Good Reason” is defined generally in the Employment Agreements to include (1) a breach by the Company or successor in the Change of Control of the Employment Agreement, (2) a reduction in base salary, percentage of base salary available as incentive compensation or bonus opportunity or benefits, in each case relative to those most favorable to the in effect at any time during the 180-day period prior to the Change of Control or, to the extent more favorable to the executive officer, those in effect at any time after the Change of Control, (3) the removal of the executive officer from, or failure to reelect or reappoint the executive to, any of the positions held with the Company on the date of the Change of Control or any other positions with the Company to which the executive officer has been elected, appointed or assigned, (4) a material adverse change, without the executive officer’s written consent, in the executive officer’s working conditions or status with the Company relative to the most favorable working conditions or status in effect during the 180-day period prior to the Change of Control or, to the extent more favorable to the executive officer, those in effect at any time after the Change of Control, (5) the relocation by more than 50 miles from the principal place of employment on the date 180 days prior to the Change of Control, (6) a requirement to travel 20% in excess of the average number of days per month the executive officer was required to travel during the 180-day period prior to the Change of Control, or (7) a failure to obtain an agreement from a successor in a Change of Control expressly to assume and agree to perform from and after the date of such assignment all of the terms, conditions and provisions imposed by the Employment Agreement.
Upon a qualifying termination, the executive officers will also receive accrued but unpaid benefits. Equity awards will be treated as provided in the applicable equity incentive plan and award agreements. The Employment Agreements also require the executive officers to comply with certain restrictive covenants.
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Compensation on Termination of Employment
The following table illustrates the additional compensation that we estimate would be payable to each of our NEOs on termination of employment under each of the circumstances described above, assuming the termination occurred on December 31, 2025. The amounts shown are estimates and do not necessarily reflect the actual amounts that these individuals would receive on termination of employment.
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | Early | | | | | | ||
| | | | | | | | | | Vesting | | | | | | ||
| | | | | | | | | | of | | Early | | | | ||
| | | | | | | Fringe | | Restricted | | Vesting | | | | |||
| | Salary | | | | | Fringe | | Stock | | of Stock | | | | |||
Name | | Multiple | | Salary | | Benefits (1) | | Units (2) | | Options (3) | | Total | |||||
Termination by the Company Without Cause or by the Executive for Good Reason | | | | | | | | | | | | | | | | | |
Lawrence D. Firestone | | 1.5x | | $ | 637,500 | | $ | 11,877 | | $ | 52,460 | | $ | - | | $ | 701,837 |
Daniel A. Otto | | 1.0x | | $ | 315,000 | | $ | 21,382 | | $ | 29,175 | | $ | - | | $ | 363,557 |
Jonathan Staffeldt | | 1.0x | | $ | 315,000 | | $ | 7,918 | | $ | 29,175 | | $ | - | | $ | 352,093 |
Robert Manfredonia | | 1.0x | | $ | 275,000 | | $ | 16,944 | | $ | 25,468 | | $ | - | | $ | 317,412 |
Scott Marion | | 1.0x | | $ | 275,000 | | $ | 24,545 | | $ | 25,468 | | $ | - | | $ | 325,013 |
Death or Disability | | | | | | | | | | | | | | | | | |
Lawrence D. Firestone | | 1.5x | | $ | 637,500 | | $ | 11,877 | | $ | 52,460 | | $ | - | | $ | 701,837 |
Daniel A. Otto | | 1.0x | | $ | 315,000 | | $ | 21,382 | | $ | 29,175 | | $ | - | | $ | 363,557 |
Jonathan Staffeldt | | 1.0x | | $ | 315,000 | | $ | 7,918 | | $ | 29,175 | | $ | - | | $ | 352,093 |
Robert Manfredonia | | 1.0x | | $ | 275,000 | | $ | 16,944 | | $ | 25,468 | | $ | - | | $ | 317,412 |
Scott Marion | | 1.0x | | $ | 275,000 | | $ | 24,545 | | $ | 25,468 | | $ | - | | $ | 325,013 |
Change of Control with Triggering Event | | | | | | | | | | | | | | | | | |
Lawrence D. Firestone | | 2.5x | | $ | 1,062,500 | | $ | 11,877 | | $ | 52,460 | | $ | - | | $ | 1,126,837 |
Daniel A. Otto | | 1.5x | | $ | 472,500 | | $ | 21,382 | | $ | 29,175 | | $ | - | | $ | 523,057 |
Jonathan Staffeldt | | 1.5x | | $ | 472,500 | | $ | 7,918 | | $ | 29,175 | | $ | - | | $ | 509,593 |
Robert Manfredonia | | 1.5x | | $ | 412,500 | | $ | 16,944 | | $ | 25,468 | | $ | - | | $ | 454,912 |
Scott Marion | | 1.5x | | $ | 412,500 | | $ | 24,545 | | $ | 25,468 | | $ | - | | $ | 462,513 |
| (1) | Health insurance payments have been estimated based on current rates. |
| (2) | The dollar amount is calculated based on the closing share price on December 31, 2025. |
| (3) | As of December 31, 2025, the intrinsic value of the stock options was zero. |
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Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth information regarding the beneficial ownership of our common stock as of March 20, 2026, by:
| i. | each person who, to our knowledge, owns more than 5% of our common stock; |
| ii. | each of our current directors and executive officers; and |
| iii. | all our current directors and executive officers as a group. |
Derivative securities exercisable or convertible into shares of our common stock within sixty (60) days of March 20, 2026, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the person holding securities but are not deemed outstanding for computing the percentage of any other person. Beneficial ownership representing less than 1% is denoted with an asterisk (*). The address of named beneficial owners that are officers and/or directors of the Company is: c/o 22nd Century Group, Inc., 321 Farmington Road, Mocksville, North Carolina. 27028. The following table is based upon information supplied by officers and directors, and with respect to 5% or greater stockholders who are not officers or directors, information filed with the SEC.
| | |
| Number of | |
| Shares | Percentage |
| Beneficially | Beneficially |
Name of Beneficial Owner | Owned | Owned (1) |
5% + Beneficial Stockholders: | | |
Anson Funds Management LP (2) | 50,881 | 7.7% |
| | |
Management and Directors: | | |
Lawrence D. Firestone (3) | 31 | * |
Daniel A. Otto (4) | 17 | * |
Jonathan Staffeldt (4) | 17 | * |
Robert Manfredonia (5) | 14 | * |
Scott Marion (5) | 15 | * |
Andrew Arno (6) | 14 | * |
Lucille S. Salhany (7) | 9 | * |
David Keys (8) | 142 | * |
All directors and executive officers as a group (8 persons) (3) - (8) | 259 | 0.00001% |
| (1) | Based on 662,023 shares of common stock issued and outstanding as of March 20, 2026. |
| (2) | Anson Funds Management LP (d/b/a Anson Funds), a Texas limited partnership, Anson Management GP LLC, a Texas limited liability company, Mr. Tony Moore, the principal of Anson Funds Management LP and Anson Management GP LLC, Anson Advisors Inc., an Ontario, Canada corporation, Mr. Amin Nathoo, a director of Anson Advisors Inc., and Mr. Moez Kassam, a director of Anson Advisors Inc.. Ownership relates to a private fund to which Anson Funds Management LP and Anson Advisors Inc. serve as co-investment advisors (the “Fund”). Anson Funds Management LP and Anson Advisors Inc. serve as co-investment advisors to the Fund and may direct the vote and disposition of the shares of Common Stock held by the Fund. As the general partner of Anson Funds Management LP, Anson Management GP LLC may direct the vote and disposition of the shares of Common Stock held by the Fund. As the principal of Anson Fund Management LP and Anson Management GP LLC, Mr. Moore may direct the vote and disposition of the shares of Common Stock held by the Fund. As directors of Anson Advisors Inc., Mr. Nathoo and Mr. Kassam may each direct the vote and disposition of the shares of Common Stock held by the Fund. Business address is 16000 Dallas Parkway, Suite 800, Dallas, Texas 75248 |
| (3) | Consists of (a) 87 shares of common stock issuable upon exercise of stock options and (b) 4,426 restricted stock units and 13,278 options to purchase common shares are not included in the number of beneficially owned shares because they do not vest within 60 days of March 20, 2026. |
| (4) | Consists of (a) 49 shares of common stock issuable upon exercise of stock options and (b) 2,461 restricted stock units and 7,381 options to purchase common shares are not included in the number of beneficially owned shares because they do not vest within 60 days of March 20, 2026. |
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| (5) | Consists of (a) 42 shares of common stock issuable upon exercise of stock options and (b) 2,148 restricted stock units and 6,444 options to purchase common shares are not included in the number of beneficially owned shares because they do not vest within 60 days of March 20, 2026. |
| (6) | Consists of (a) 37 shares of common stock issuable upon exercise of stock options and (b) 1,153 restricted stock units and 3,460 options to purchase common shares are not included in the number of beneficially owned shares because they do not vest within 60 days of March 20, 2026. |
| (7) | Consists of (a) 22 shares of common stock issuable upon exercise of stock options and (b) 734 restricted stock units and 2,202 options to purchase common shares are not included in the number of beneficially owned shares because they do not vest within 60 days of March 20, 2026. |
| (8) | Consists of (a) 424 shares of common stock issuable upon exercise of stock options and (b) 839 restricted stock units and 2,516 options to purchase common shares are not included in the number of beneficially owned shares because they do not vest within 60 days of March 20, 2026. |
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires our directors, executive officers and stockholders holding more than 10% of our outstanding common stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in beneficial ownership of our common stock. Section 16(a) filers are required by Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on a review of the ownership reports filed with Securities and Exchange Commission during 2024, we believe that all Section 16(a) filing requirements were met on a timely basis, except for a late Form 3 and 4 filed by David Keys due to delays in obtaining EDGAR filing codes and a late Form 4 filed by Andy Arno.
Item 13.Certain Relationships and Related Transactions, and Director Independence.
Our policy is to enter into transactions with related persons on terms that, on the whole, are no less favorable to us than those available from unaffiliated third parties. Our Board of Directors has adopted written policies and procedures regarding related person transactions. For purposes of these policies and procedures:
Each of our executive officers, directors or nominees for director is required to disclose to our Audit Committee certain information relating to related person transactions for review, approval or ratification by our Audit Committee. In making a determination about approval or ratification of a related person transaction, our Audit Committee will consider the information provided regarding the related person transaction and whether consummation of the transaction is believed by the Audit Committee to be in our best interests. Our Audit Committee may take into account the effect of a director’s related person transaction on the director’s status as in independent member of our Board of Directors and eligibility to serve on committees of our Board under SEC rules and the listing standards of the Nasdaq Stock Market. Any related person transaction must be disclosed to our full Board of Directors. Except as set forth below, there were no related party transactions during 2025 and 2024.
Beginning in the fourth quarter of 2024, the Company generated revenue from a related party contract manufacturing customer and during the years ended December 31, 2024 and December 31, 2025, private label cigarette revenue, net and corresponding contract asset from the related party were not material. The arrangement was terminated in April 2025.
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Item 14.Principal Accounting Fees and Services.
On August 22, 2025, the Audit Committee of the Board of Directors approved the replacement of Freed Maxick P.C. (“Freed”) as our independent registered public accounting firm, due to the acquisition of certain assets of Freed by Withum Smith+Brown, PC (“Withum”).
The following table shows the fees billed to us for the audits and other services provided by for the fiscal years ended December 31, 2025 and 2024, respectively, by Withum (and prior to the acquisition, Freed).
| | | | | | |
| | 2025 | | 2024 | ||
Audit fees | | $ | 290,883 | | $ | 299,055 |
Audit-related fees | | | — | | | — |
Tax fees | | | — | | | — |
All other fees | | | — | | | — |
| | $ | 290,883 | | $ | 299,055 |
Audit Fees consist of the aggregate fees billed for professional services rendered for the audit of our consolidated annual financial statements and the quarterly reviews of financial statements and for any other services that are normally provided by our independent registered public accountants in connection with our statutory and regulatory filings or engagements.
All of the services described above were pre-approved by our Audit Committee. The Committee concluded that the provision of these services by Withum would not affect their independence.
Pre-Approval Policies and Procedures
The Audit Committee, in accordance with its charter, must pre-approve all non-audit services provided by our independent registered public accountants. The Audit Committee generally pre-approves specified series in the defined categories of audit services, audit related services and tax services up to specified amounts. Pre-approval may also be given as part of our Audit Committee’s approval of the scope of the engagement of the independent registered public accountants or on an individual, explicit case-by-case basis before the independent auditor is engaged to provide each service.
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PART IV
Item 15.Exhibits and Financial Statement Schedules.
| (a) | (1) Financial Statements |
|
| Page |
Report of Independent Registered Public Accounting Firm (PCAOB ID 100) |
| F-1 |
|
|
|
Report of Independent Registered Public Accounting Firm (PCAOB ID 317) | | F-3 |
| | |
Consolidated Financial Statements: |
|
|
|
|
|
Consolidated Balance Sheets |
| F-5 |
|
|
|
Consolidated Statements of Operations and Comprehensive Loss |
| F-6 |
| | |
Consolidated Statements of Changes in Shareholders’ Equity (Deficit) and Mezzanine Equity |
| F-7 |
|
|
|
Consolidated Statements of Cash Flows |
| F-8 |
|
|
|
Notes to Consolidated Financial Statements |
| F-9–42 |
| (a) | (2) Financial Statement Schedules |
Financial statement schedules have been omitted because they are not required.
| (b) | Exhibits |
Exhibits required by Item 601 of Regulation S-K are listed in the Exhibit Index below following the Financial Statements, which are incorporated herein by this reference.
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of 22nd Century Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of 22nd Century Group, Inc. and subsidiaries (the “Company”) as of December 31, 2025, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity (deficit) and mezzanine equity and cash flows for year ended December 31, 2025, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025, and the results of its operations and its cash flows for the year ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
Other Matter
The financial statements of the Company as of and for the year ended December 31, 2024 were audited by Freed Maxick P.C., who joined WithumSmith+Brown, PC on August 1, 2025, and rendered their opinion on such statements on March 20, 2025.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue and profit in its tobacco business. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
F-1
Accounting and Valuation for the Modifications of the August 2025 Series A Convertible Preferred Stock Offering
Critical Audit Matter Description
As discussed in Note 9 of the financial statements, during the year ended December 31, 2025, the Company entered a securities purchase agreement with investors to sell Series A Convertible Preferred Stock and warrants. Subsequent to the initial sale, the terms of both the Series A Convertible Preferred Stock and warrants were amended. As a result of the amendments, the Company determined that the fair value of the Series A Convertible Preferred Stock and warrants had increased and recorded a deemed dividend of approximately $4.7 million. We identified the evaluation of the Company’s accounting and valuation for modifications of the Series A Convertible Preferred Stock and warrants as a critical audit matter due to the complexity of the calculations required in determining the proper accounting treatment and fair value of the Series A Convertible Preferred Stock and warrants. This led to a high degree of auditor judgement, subjectivity, and effort in performing procedures to evaluate the reasonableness of management’s assumptions and calculations. Additionally, auditing these elements required the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter Was Addressed in the Audit
Addressing the critical audit matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed included: (i) obtaining and reading relevant amendment agreements for the Series A Convertible Preferred Stock and warrants, (ii) obtaining an understanding and evaluating of the design of controls over the financial reporting and equity transaction cycle, (iii) assessing management’s conclusions of the modifications under the relevant guidance, (iii) testing the accuracy and completeness of the inputs to the external valuation analysis to evaluate whether the conclusions reached were reasonable and consistent with our understanding, (iv) utilizing the knowledge, experience, and expertise of our internal valuation specialists to assess the reasonableness of the methodologies employed to value the fair value of the Series A Preferred Stock and warrants at the amendment date, and (v) assessing the completeness and accuracy of the financial statement disclosures.
/s/
We have served as the Company’s auditor since 2011.
March 26, 2026
PCAOB ID Number
F-2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of 22nd Century Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of 22nd Century Group, Inc. and subsidiaries (the Company) as of December 31, 2024, the related consolidated statements of operations, statements of comprehensive loss, changes in shareholders' equity and cash flows for the year ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue and profit in its tobacco business. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters also are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Debt related accounting and classification
Critical Audit Matter description
As discussed in Note 12 of the financial statements, during the year ended December 31, 2024, the Company amended their debt via a series of letter agreements/amendments. For each agreement/amendment, the Company was required to evaluate troubled debt restructuring applicability and debt modification versus extinguishment analysis. None of these agreements/agreements met the criteria to qualify as an extinguishment. We identified the accounting for the various agreements/amendments as a critical audit matter. Auditing the accounting for these items was especially challenging due to the inherent complexity of the agreements/amendments. Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
F-3
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedure we performed include: Inspecting the underlying agreements/amendments and ensuring appropriate application of the relevant accounting literature to the terms of the amended Debentures.
Subordinated note settlement accounting, classification, and valuation
Critical Audit Matter description
As discussed in Note 12 of the financial statements, during the year ended December 31, 2024, the Company entered into a General Release and Settlement Agreement with Omnia Capital LP (Omnia). This agreement settled and extinguished all outstanding debt and interest owed to Omnia, via their subordinated note, as well as the put provision on the 2023 Omnia warrants. In return, Omnia received a combination of shares, pre-funded warrants, warrants, and cash. The warrants were recorded at fair value on the date of the settlement and are subsequently adjusted to fair value at the end of each reporting period.
We identified the accounting for the settlement as well as the valuations related to the warrants as a critical audit matter. Auditing the accounting for these items was especially challenging due to the inherent complexity of the agreements and the related valuation models. Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: Inspecting the underlying agreements and ensuring appropriate application of the relevant accounting literature to the terms of the settlement; evaluating the appropriateness of the fair value of the warrants; and utilizing personnel with specialized skill and knowledge in valuation to assist in assessing the fair value determined.
Warrants issued with equity raises and related deemed dividend valuation
Critical Audit Matter description
As discussed in Note 9 of the financial statements, during the year ended December 31, 2024, the Company entered into several warrant and common stock agreements with investors. Due to anti-dilution and down round provisions with their existing warrants, the agreements triggered these provisions multiple times. We identified the valuation for these deemed dividends to be a critical audit matter. Auditing these elements required an increased level of audit effort, including the involvement of professionals with specialized skill and knowledge.
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: Inspecting the underlying agreements; evaluating the appropriateness of the fair value calculations of the warrants; and utilizing personnel with specialized skill and knowledge in valuation to assist in assessing the fair value determined.
| |
/s/ Freed Maxick P.C. (F/K/A Freed Maxick CPAs, P.C.) | |
We have served as the Company’s auditor since 2011. | |
Buffalo, New York | |
March 20, 2025 |
F-4
| |
22ND CENTURY GROUP, INC. AND SUBSIDIARIES | |
CONSOLIDATED BALANCE SHEETS | |
(amounts in thousands, except share and per-share data) | |
| | | | | | |
| | December 31, | | December 31, | ||
| | 2025 | | 2024 | ||
ASSETS |
| | |
| | |
Current assets: |
| | |
| | |
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net | |
| | |
| |
Inventories | |
| | |
| |
Insurance recoveries | |
| — | |
| |
GVB promissory note, net | |
| — | |
| |
Prepaid expenses and other current assets | |
| | |
| |
Current assets of discontinued operations held for sale | |
| — | |
| |
Total current assets | |
| | |
| |
Property, plant and equipment, net | |
| | |
| |
Operating lease right-of-use assets, net | |
| | |
| |
Intangible assets, net | |
| | |
| |
Other assets | | | — | | | |
Total assets | | $ | | | $ | |
| |
| | |
| |
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS' EQUITY | |
| | |
| |
Current liabilities: | |
| | |
| |
Notes and loans payable-current | | $ | | | $ | |
Current portion of long-term debt | | | — | | | |
Operating lease obligations | |
| | |
| |
Accounts payable | |
| | |
| |
Accrued expenses and other current liabilities | |
| | |
| |
Accrued litigation | |
| — | |
| |
Accrued excise taxes and fees | |
| | |
| |
Contract liabilities | | | | | | |
Current liabilities of discontinued operations held for sale | |
| — | |
| |
Total current liabilities | |
| | |
| |
Long-term liabilities: | |
| | |
| |
Notes and loans payable | |
| | |
| — |
Operating lease obligations | |
| | |
| |
Long-term debt | | | — | | | |
Other long-term liabilities | | | | | | |
Total liabilities | | | | | | |
Commitments and contingencies (Note 11) | |
| | |
| |
| | | | | | |
Mezzanine equity: | | | | | | |
Series A convertible preferred shares, $ | |
| | |
| — |
Total mezzanine equity | |
| | |
| — |
| | | | | | |
Shareholders' equity: | |
| | |
| |
Common stock, $ | |
| | |
| |
Common stock, par value | | | — | | | — |
Capital in excess of par value | |
| | |
| |
Accumulated deficit | |
| ( | |
| ( |
Total shareholders' equity | |
| | |
| |
Total liabilities, mezzanine equity and shareholders’ equity | | $ | | | $ | |
See accompanying notes to consolidated financial statements.
F-5
| |
22ND CENTURY GROUP, INC. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (amounts in thousands, except share and per-share data) | |
| |
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Revenues, net | $ | | | $ | |
Cost of goods sold | | | | | |
Excise taxes and fees on products |
| | |
| |
Gross loss |
| ( | |
| ( |
Operating expenses: |
| | |
| |
Sales, general and administrative |
| | |
| |
Research and development |
| | |
| |
Other operating expense, net |
| | |
| |
Total operating expenses |
| | |
| |
Operating loss from continuing operations |
| ( | |
| ( |
Other income (expense): |
| | |
| |
Other income (expense), net |
| ( | |
| |
Interest income |
| | |
| |
Interest expense |
| ( | |
| ( |
Total other income (expense), net |
| ( | |
| ( |
Loss from continuing operations before income taxes |
| ( | | | ( |
(Benefit) provision for income taxes |
| ( | |
| |
Net loss from continuing operations | $ | ( | | $ | ( |
| | | | | |
Discontinued operations: | | | | | |
Income from discontinued operations before income taxes | $ | | | $ | |
Provision for income taxes | | — | | | — |
Income from discontinued operations | $ | | | $ | |
| | | | | |
Net loss | $ | ( | | $ | ( |
Comprehensive loss | $ | ( | | $ | ( |
| | | | | |
Net loss | $ | ( | | $ | ( |
Deemed dividends | | ( | | | ( |
Net loss available to common shareholders | $ | ( | | $ | ( |
| | | | | |
Basic and diluted income (loss) per share: | | | | | |
Basic and diluted loss per common share from continuing operations | $ | ( | | $ | ( |
Basic and diluted income per common share from discontinued operations | $ | | | $ | |
Basic and diluted loss per common share from deemed dividends | $ | ( | | $ | ( |
Basic and diluted loss per common share | $ | ( | | $ | ( |
| | | | | |
Weighted average shares outstanding - basic and diluted | | | | | |
| | | | | |
See accompanying notes to consolidated financial statements.
F-6
| |
22ND CENTURY GROUP, INC. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT) AND MEZZANINE EQUITY | |
(amounts in thousands, except share amounts) | |
| | | | | | | | | | | | | | | | | | | | |
|
| | |
| | |
| | |
| | |
| | | | | | | |
|
| Years Ended December 31, 2025 and 2024 | ||||||||||||||||||
| | Shareholders' Equity | | | Mezzanine Equity | |||||||||||||||
| | Common | | Par Value | | Capital in | | | | | Shareholders' | | | Preferred | | |
| |||
| | Shares | | of Common | | Excess of | | Accumulated | | Equity | | | Shares | | |
| ||||
| | Outstanding* | | Shares* | | Par Value* | | Deficit | | (Deficit) | | | Outstanding | | Amount | |||||
Balance at January 1, 2024 |
| | | $ | — | | $ | | | $ | ( | | $ | ( | | | — | | $ | — |
Stock issued in connection with RSU vesting, net of |
| | |
| — | |
| ( | |
| — | |
| ( | | | — | | | — |
Stock issued in connection with licensing arrangement | | | |
| — | |
| | |
| — | |
| | | | — | | | — |
Stock issued in connection with warrant exercises, net of fees of $ | | | |
| — | |
| | |
| — | |
| | | | — | | | — |
Stock issued in connection with Reg A Private Placement, net of issuance costs of $ | | | | | — | |
| | |
| — | |
| | | | — | | | — |
Stock issued in connection with capital raises, net of issuance costs of $ | | | | | — | |
| | |
| — | |
| | | | — | | | — |
Stock issued upon conversion of Senior Secured Credit Facility | | | | | — | |
| | |
| — | |
| | | | — | | | — |
Stock issued in connection with settled indebtedness | | | | | — | | | | | | — | | | | | | — | | | — |
Stock issued for extinguishment of Subordinated Note | | | | | — | | | | | | — | | | | | | — | | | — |
Reclass of conversion option | | — | | | — | | | | | | — | | | | | | — | | | — |
Fractional shares issued for reverse stock split | | | |
| — | |
| — | |
| — | |
| — | | | — | | | — |
Equity-based compensation |
| — | |
| — | |
| | |
| — | |
| | | | — | | | — |
Net loss |
| — | |
| — | |
| — | |
| ( | |
| ( | | | — | | | — |
Balance at December 31, 2024 |
| | | $ | — | | $ | | | $ | ( | | $ | | | | — | | $ | — |
Stock issued in connection with warrant exercises, net of fees of $ | | | |
| — | |
| | |
| — | |
| | | | — | | | — |
Stock issued from alternative cashless warrant exercises | | | | | — | |
| — | |
| — | |
| — | | | — | | | — |
Stock issued in connection with the issuance of Series A Convertible Preferred Stock, net of fees of $ | | — | | | — | |
| | |
| — | |
| | | | | | | |
Stock issued upon conversion of preferred stock | | | | | — | |
| | |
| — | |
| | | | ( | | | ( |
Stock issued upon conversion of Senior Secured Credit Facility | | | | | — | | | | |
| — | |
| | | | — | | | — |
Conversion option remeasurement | | — | | | — | |
| | |
| — | |
| | | | — | | | — |
Stock issued in connection with licensing arrangement | | | | | — | | | | |
| — | |
| | | | — | | | — |
Stock issued in connection with settled indebtedness | | | | | — | | | | |
| — | |
| | | | — | | | — |
Fractional shares issued for reverse stock split | | | | | — | | | — | |
| — | |
| — | | | — | | | — |
Equity-based compensation | | — | |
| — | |
| | |
| — | |
| | | | — | | | — |
Net loss |
| — | |
| — | |
| — | |
| ( | |
| ( | | | — | | | — |
Balance at December 31, 2025 |
| | | $ | — | | $ | | | $ | ( | | $ | | | | | | $ | |
| | | | | | | | | | | | | | | | | | | | |
*Giving retroactive effect to the 1-for-16 reverse stock split on April 2, 2024, 1-for-135 reverse stock split on December 17, 2024, 1-for-23 reverse stock split on June 20, 2025 and 1-for-15 on January 26, 2026. | ||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-7
| |
22ND CENTURY GROUP, INC. AND SUBSIDIARIES | |
CONSOLIDATED STATEMENTS OF CASH FLOWS | |
(amounts in thousands) | |
| | | | | | |
| | Year Ended | ||||
| | December 31, | ||||
| | 2025 | | 2024 | ||
Cash flows from operating activities: |
| | |
| | |
Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to cash used in operating activities: | |
| | |
| |
Impairment of long-lived assets - held for sale | | | | | | — |
Impairment of long-lived assets | | | | | | |
Amortization and depreciation | |
| | |
| |
Amortization of right-of-use assets | |
| | |
| |
Other non-cash gains | | | ( | | | ( |
Provision for credit losses | | | | | | |
(Gain) loss on sale or disposal of property, plant, and equipment | |
| ( | |
| |
Debt related charges included in interest expense | | | | | | |
Equity-based compensation | |
| | |
| |
Change in fair value of warrant liabilities | | | | | | ( |
Change in fair value of derivative liability | | | — | | | ( |
Deferred income taxes | | | | | | |
Change in inventory reserves | | | ( | | | ( |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivable | |
| ( | |
| ( |
Inventories | |
| ( | |
| |
Prepaid expenses and other assets | |
| ( | |
| |
Accounts payable | |
| ( | |
| ( |
Accrued expenses and other current liabilities | |
| ( | |
| ( |
Accrued excise taxes and fees | |
| | |
| ( |
Contract liabilities | |
| | |
| ( |
Other liabilities | | | ( | |
| |
Net cash used in operating activities | |
| ( | |
| ( |
Cash flows from investing activities: | |
| | |
| |
Acquisition of patents, trademarks, and licenses | |
| ( | |
| ( |
Acquisition of property, plant and equipment | |
| ( | |
| ( |
Proceeds from the sale of property, plant and equipment | |
| | |
| |
Issuance of 2025 GVB promissory note | |
| ( | |
| — |
Payments received from 2025 GVB promissory note | |
| | |
| — |
Net cash used in investing activities | |
| ( | |
| ( |
Cash flows from financing activities: | |
| | |
| |
Payments on notes payable | | | ( | | | ( |
Proceeds from issuance of notes payable | | | | | | |
Payments of penalties from long-term debt | | | ( | | | — |
Payments of long-term debt | | | ( | | | ( |
Net proceeds from warrant exercise | | | | | | |
Net proceeds from Series A convertible preferred stock | | | | | | — |
Payments of deferred offering costs | | | ( | | | — |
Proceeds from issuance of common stock | | | — | | | |
Payment of common stock issuance costs | | | — | | | ( |
Taxes paid related to net share settlement of RSUs | | | — | | | ( |
Net cash provided by financing activities | |
| | |
| |
Net increase in cash and cash equivalents | |
| | |
| |
Cash and cash equivalents - beginning of year | |
| | |
| |
Cash and cash equivalents - end of year | | $ | | | $ | |
| | | | | | |
Supplemental disclosures of cash flow information: | |
| | |
| |
Net cash paid for: | |
| | |
| |
Cash paid during the period for interest | | $ | | | $ | |
Cash (received) paid during the period for income taxes | | $ | ( | | $ | |
Non-cash transactions: | |
| | |
| |
Capital expenditures incurred but not yet paid | | $ | | | $ | |
Deemed dividends | | $ | | | $ | |
Stock issued in connection with settled indebtedness | | $ | | | $ | |
Non-cash licensing arrangement | | $ | | | $ | |
Right-of-use assets and corresponding operating lease obligations | | $ | ( | | $ | — |
Stock issued for extinguishment of Subordinated Note | | $ | — | | $ | |
Payment of 2023 GVB promissory note | | $ | | | $ | |
Payment of debt issuance costs | | $ | — | | $ | |
Equity conversion of Senior Secured Credit Facility | | $ | | | $ | |
Conversion option remeasurement | | $ | | | $ | — |
See accompanying notes to consolidated financial statements.
F-8
22ND CENTURY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2025
Amounts in thousands, except for share and per share data
NOTE 1. – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
22nd Century Group, Inc. (together with its consolidated subsidiaries, “22nd Century Group” or the “Company”) is a Nevada corporation and its common stock is listed on the NASDAQ Capital Market under the symbol “XXII.” 22nd Century Group is a tobacco products company with sales and distribution of the Company’s own proprietary new reduced nicotine tobacco products authorized as Modified Risk Tobacco Products by the FDA. Additionally, the Company provides contract manufacturing services for conventional combustible tobacco products for third-party brands.
Basis of Presentation and Principles of Consolidation – The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of 22nd Century Group and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
As described in Note 2, on December 22, 2023, the Company divested substantially all of the assets of GVB Biopharma’s (“GVB”) business within its former hemp/cannabis segment.
As a result of the divestiture of GVB, during the fourth quarter of 2023, the Company reorganized its business to become a single reportable segment: tobacco.
The results of operations of the former hemp/cannabis segment are reported as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented and the related assets and liabilities associated with the discontinued operations are classified as held for sale in the Consolidated Balance Sheets as of December 31, 2024. The Consolidated Statements of Cash Flows includes cash flows related to the discontinued operations due to 22nd Century’s (parent) centralized treasury and cash management processes, and, accordingly, cash flow amounts for discontinued operations are disclosed in Note 2 “Discontinued Operations and Divestitures.” All results and information in the Consolidated Financial Statements are presented as continuing operations and exclude the former hemp/cannabis segment unless otherwise noted specifically as discontinued operations.
Use of Estimates – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
Liquidity and Capital Resources – These Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred significant losses and negative cash flows from operations since inception and expects to incur additional losses until such time that it can generate significant revenue and profit in its tobacco business. The Company had negative cash flow from operations of $
Given the Company’s projected operating requirements and its existing cash and cash equivalents,
F-9
In response to these conditions, management is currently evaluating different strategies for reducing expenses, as well as pursuing financing strategies which include raising additional funds through the issuance of securities, asset sales, and through arrangements with strategic partners. If capital is not available to the Company when, and in the amounts needed, it could be required to liquidate inventory or assets, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings. There can be no assurance that the Company will be able to raise the capital it needs to continue operations. Management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern through one year following the date that the Consolidated Financial Statements are issued.
The Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.
Other Significant Risks and Uncertainties - The Company is subject to a number of risks, including, but not limited to, the lack of available capital; unsuccessful commercialization strategy and launch plans for the Company’s products or market acceptance of the Company’s products; and protection of proprietary technology.
Reclassifications – The Company has revised the presentation and classification of the following in the Consolidated Balance Sheets to conform to current period presentation as follows:
| | | | | | | | |
| Year Ended | |||||||
| December 31, 2024 | |||||||
| As originally | | | | | | | |
| reported | | Reclass | | Revised | |||
Accrued expenses and other current liabilities | $ | | | $ | | | $ | |
Accrued payroll | $ | | | $ | ( | | $ | — |
Contract liabilities | $ | — | | $ | | | $ | |
Deferred income | $ | | $ | ( | | $ | — | |
Other current liabilities | $ | | $ | ( | | $ | — | |
The Company has revised the presentation and classification of the following in the Consolidated Statements of Cash Flows as follows:
| | | | | | | | |
| Year Ended | |||||||
| December 31, 2024 | |||||||
| As originally | | | | | | | |
| reported | | Reclass | | Revised | |||
Accrued expenses and other current liabilities | $ | ( | | $ | ( | | $ | ( |
Accrued payroll | $ | ( | | $ | | | $ | — |
Contract liabilities | $ | — | | $ | ( | | $ | ( |
Other liabilities | $ | ( | | $ | | | $ | |
Reverse Stock Split – In order to regain compliance with Nasdaq's continued listing requirements, the Company effected the following reverse stock splits:
| | | | |
| | | | Round up of |
Date | | Split | | fractional shares |
April 2, 2024 | | 1-for-16 | | |
December 17, 2024 | | 1-for-135 | | |
June 20, 2025 | | 1-for-23 | | |
January 26, 2026 | | 1-for-15 | | |
All share and per share amounts, and exercise prices of stock options, and warrants in the Consolidated Financial Statements and notes thereto have been retroactively adjusted for all periods presented to give effect to the reverse stock splits.
F-10
Preferred Stock Authorized – The Company is authorized to issue “blank check” preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock. See Note 9 “Capital Raises and Warrants for Common Stock” for additional information on the Series A Convertible Preferred Stock issued during the year-ended December 31, 2025.
Concentration of Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in financial institutions. Although the cash accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions. Management reviews the financial viability of these institutions on a periodic basis.
Cash and Cash Equivalents – The Company considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. There are no restrictions on the Company’s cash and cash equivalents.
Trade Accounts Receivable and Provision for Current Expected Credit Losses – The Company provides credit, in the normal course of business, to its tobacco customers in the form of trade receivables. Credit is extended based on evaluation of a customer’s financial condition and collateral is not required. The Company maintains a provision for those trade receivables that it does not expect to collect. In accordance with Accounting Standards Codification (“ASC”) Topic 326, the Company accrues its estimated losses from uncollectable accounts receivable to the provision based upon recent historical experience, the length of time the receivable has been outstanding, other specific information as it becomes available, and reasonable and supportable forecasts not already reflected in the historical loss information. Provisions for current expected credit losses are charged to current operating expenses. Actual losses are charged against the provision when incurred. As of December 31, 2025 and 2024, the Company recorded a provision for credit losses against trade accounts receivable of $
Inventories – Inventories are valued at the lower of historical cost or net realizable value. Cost is determined using an average cost method for tobacco leaf inventory by crop year and raw materials inventory. Standard cost is primarily used for finished goods inventory. Inventories are evaluated to determine whether any amounts are not recoverable based on slow moving or obsolete condition and are written off or reserved as appropriate.
Property, Plant and Equipment – Plant and equipment are recorded at their acquisition cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are depreciated on a straight-line basis over the term of the lease or the estimate useful life of the asset, whichever is shorter. Depreciation commences when the asset is placed in service. The following table shows estimated useful lives of property, plant and equipment:
| |
Classification | Estimated Useful Lives |
Leasehold improvements | Shorter of |
Manufacturing equipment | 5 to |
Laboratory equipment |
Discontinued Operations - In determining whether a group of assets which has been disposed of (or is to be disposed of) should be presented as a discontinued operation, the Company analyzes whether the group of assets being disposed of represented a component of the entity; that is, whether it had historic operations and cash flows that were clearly distinguished (both operationally and for financial reporting purposes). In addition, the Company considers whether the disposal represents a strategic shift that has or will have a major effect on the Company’s operations and financial results.
The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell. The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal transaction.
F-11
Intangible Assets – Definite lived intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patent rights from third-parties, (2) license fees paid for third-party intellectual property. The amounts capitalized relate to intellectual property that the Company owns or to which it has rights to use. The Company’s capitalized intellectual property costs are amortized using the straight-line method over the remaining statutory life of the patent assets in each of the Company’s patent families, which have estimated expiration dates ranging from 2026 to 2043. Periodic maintenance or renewal fees are expensed as incurred. Annual minimum license royalty fees are charged to expense. License fees paid for third-party intellectual property are amortized on a straight-line basis over the last to expire patents, which have expected expiration dates from 2028 through 2043.
The Company believes that costs associated with becoming a signatory to the master settlement agreement (“MSA”), costs related to the acquisition of a predicate cigarette brand, and tobacco brand related trademarks have indefinite lives. At each reporting period, the Company evaluates whether the nature and use of the asset continue to support the indefinite-lived classification.
Impairment of Long-Lived Assets – The Company reviews the carrying value of its long-lived assets at each reporting period to determine if impairment indicators are present in accordance with ASC 360-Property, plant, and equipment or ASC 350- Intangibles, Goodwill, and Other.
Definite lived intangible assets subject to amortization are reviewed for strategic importance and commercialization opportunity prior to expiration. If it is determined that the asset no longer supports the Company’s strategic objectives and/or will not be commercially viable prior to expiration, the asset is impaired. In addition, the Company will assess the expected future undiscounted cash flows for its intellectual property based on consideration of future market and economic conditions, competition, federal and state regulations, and licensing opportunities. If the carrying value of such assets are not recoverable, the carrying value will be reduced to fair value and the difference is recorded as impairment.
Indefinite-lived intangible asset carrying values are reviewed at least annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an impairment exists. The Company first performs a qualitative assessment and considers its current strategic objectives, future market and economic conditions, competition, and federal and state regulations to determine if an impairment is more likely than not. If it is determined that an impairment is more likely than not, a quantitative assessment is performed to compare the asset carrying value to fair value.
Leases – The Company determines if an arrangement is, or contains, a lease at inception and classifies it as operating or finance. The Company has operating and finance leases for office and manufacturing facilities, machinery and vehicles. Finance lease assets and corresponding liabilities are not material to the Consolidated Financial Statements.
Any operating lease having a lease term greater than twelve months will be recognized on the Consolidated Balance Sheets as a right-of-use (“ROU”) asset with an associated lease obligation—all other leases are considered short-term in nature and will be expensed on a month-to-month basis. The ROU assets and lease obligations are recognized as of the commencement date at the net present value of the fixed minimum lease payments for the lease term. The lease term is determined based on the contractual conditions, including whether renewal options are reasonably certain to be exercised. The discount rate used is the interest rate implicit in the lease, if available, or the Company’s incremental borrowing rate which is determined using a base line rate plus an applicable spread.
Refer to Note 6 “Right-of-Use Assets, Lease Obligations, and Other Leases” for additional information.
Fair Value of Financial Instruments – FASB ASC 820 - Fair Value Measurements and Disclosures establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows:
| ● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; |
| ● | Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and |
| ● | Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. |
F-12
A financial asset’s or a financial liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The Company estimates that the carrying amounts reported on the Consolidated Balance Sheets for cash and cash equivalents, accounts receivable, contract assets, promissory note receivable, accounts payable and accrued expenses, and notes and loans payable approximate their fair value due to the short-term nature of these items. Note 8 “Fair Value Measurements” contains additional information on assets and liabilities recorded at fair value in the Consolidated Financial Statements.
Mezzanine Equity - Where ordinary or preferred shares are determined to be conditionally redeemable upon the occurrence of certain events that are not solely within the control of the Company, and upon such event, the shares would become redeemable at the option of the holder, such as when the Company has not obtained shareholder approval for certain provisions of the outstanding preferred shares, they are classified as "mezzanine equity" (temporary equity). The purpose of this classification is to convey that such a security may not be permanently part of equity and could result in a demand for cash, securities or other assets of the entity in the future. The Company evaluates whether the contingent redemption provisions are probable of becoming redeemable to determine whether the carrying value of the redeemable convertible preferred shares are required to be remeasured to their respective redemption values. All instruments that are classified as mezzanine equity are evaluated for embedded derivative features by evaluating each feature against the nature of the host instrument (e.g., more equity-like or debt-like). Features identified as freestanding instruments or bifurcated embedded derivatives that are material are recognized separately as a derivative asset or liability in the Consolidated Financial Statements.
Warrants - The Company accounts for common stock warrants as either equity instruments, derivative liabilities, or liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”) depending on the specific terms of the warrant agreement. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
Warrants that the Company may be required to redeem through payment of cash or other assets outside its control are classified as liabilities pursuant to ASC 480 and are initially and subsequently measured at their estimated fair values. Changes in subsequent measurement fair value are recorded in Other income (expense), net of the Company’s Consolidated Statements of Operations and Comprehensive Loss. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of Capital in excess of par value at the time of issuance. For additional discussion on warrants, see Note 8 “Fair Value Measurements” and Note 9 “Capital Raises and Warrants for Common Stock”.
Deemed dividends associated with down round provisions (commonly referred to as “ratchets”) represent the economic transfer of value to holders of equity-classified freestanding financial instruments when these provisions are triggered. These deemed dividends are presented as a reduction in net income or an increase in net loss available to common shareholders and a corresponding increase to Capital in excess of par value resulting in no change to shareholders’ equity/deficit. See Note 9 “Capital Raises and Warrants for Common Stock.”
Debt Issued with Detachable Warrants - The Company considers guidance within ASC 470-20, Debt (ASC 470), ASC 480, and ASC 815 when accounting for the issuance of debt with detachable warrants. As described above under the caption “Warrants”, the Company classifies stock warrants as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement. In circumstances in which debt is issued with detachable warrants, the proceeds from the issuance of the debt are first allocated to the warrants at their full estimated fair value with a corresponding debt discount. The remaining proceeds, as further reduced by discounts (including those created by the bifurcation of embedded derivatives), is allocated to the debt. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds, to interest expense using the effective interest method over the expected term of the debt instrument pursuant to ASC 835, Interest (ASC 835).
Embedded Derivatives - The Company considers whether there are any embedded features in debt instruments that require bifurcation and separate accounting as derivative financial instruments pursuant to ASC 815. Embedded derivatives are initially and subsequently measured at fair value.
F-13
The Company previously accounted for its convertible debt instrument, for which the conversion option is not bifurcated and accounted for separately as a derivative and is modified or exchanged in a transaction that is not accounted for as an extinguishment, the accounting was determined based on whether there is an increase or decrease in the fair value of the embedded conversion option. The fair value was calculated as the difference between the fair value of the embedded conversion option immediately before and after the modification or exchange. An increase in fair value was recorded as a decrease to the carrying amount of the debt instrument with a corresponding increase to Capital in Excess of Par Value.
Debt Issuance Costs and Discounts - Debt issuance costs and discounts associated with the issuance of debt by the Company are deferred and amortized over the term of the related debt. Debt issuance costs and discounts related to the Company’s Senior Secured Credit Facility and Subordinated Note are recorded as a reduction of the carrying value of the related debt and are amortized to Interest expense using the effective interest method over the period from the date of issuance to the maturity date, whichever is earlier. The amortization of debt issuance costs and discounts are included in Debt related charges included in interest expense in the Consolidated Statements of Cash Flows. Note 12 “Debt” contains additional information on the Company’s debt issuance costs and discounts.
Gain/Loss on Debt Extinguishment – Gain or loss on debt extinguishment is generally recorded upon an extinguishment of a debt instrument. Gain or loss on extinguishment of debt is calculated as the difference between the reacquisition price and net carrying amount of the debt, which includes unamortized debt issuance costs. Gains and losses on debt extinguishment are included as a component of Interest expense in the Consolidated Statements of Operations and Comprehensive Loss.
Related Party Transaction - A related party is generally defined as (i) any person that holds 10% or more of the Company’s securities and their immediate families, (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. The Company may conduct business with its related parties in the ordinary course of business.
Beginning in the fourth quarter of 2024, the Company generated revenue from a related party contract manufacturing customer and during the years ended December 31, 2025 and 2024, private label cigarette revenue, net and corresponding contract asset from the related party were not material. The arrangement was terminated in April 2025.
Revenue Recognition – The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. For additional discussion on revenue recognition, refer to Note 16 “Revenue Recognition”.
Research and Development – Research and development costs are expensed as incurred.
Stock Based Compensation – The Company’s Omnibus Incentive Plan allows for various types of equity-based incentive awards. Stock based compensation expense is based on awards that are expected to vest over the requisite service periods and are based on the fair value of the award measured on the grant date. Vesting requirements vary for directors, officers, and employees. In general, time-based awards fully vest after
Income Taxes – The Company recognizes deferred tax assets and liabilities for any basis differences in its assets and liabilities between tax and U.S. GAAP reporting, and for operating loss and credit carryforwards.
As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to fully offset its net deferred tax assets associated with definite lived assets as of December 31, 2025, and 2024.
The Company’s federal and state tax returns for the years ended December 31, 2022 through December 31, 2024 are currently open to audit under the statutes of limitations. There are no pending audits as of December 31, 2025.
Earnings (Loss) Per Common Share – Basic earnings (loss) per common share is computed using the weighted-average number of common shares outstanding. Diluted earnings (loss) per share is computed assuming conversion of all potentially dilutive securities, using the treasury-stock method or the if-converted method, as applicable. Potential common shares outstanding are excluded from the computation if their effect is anti-dilutive. Refer to Note 15 “Earnings (Loss) Per Common Share” for additional information.
F-14
Gain and Loss Contingencies – The Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When a loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of related expenses. The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability.
The Company maintains general liability insurance policies for its facilities. Under the terms of our insurance policies, in the case of loss to a property, the Company follows the guidance in ASC 610-30, Other Income —Gains and Losses on Involuntary Conversions, for the conversion of nonmonetary assets (the properties) to monetary assets (insurance recoveries). Under ASC 610-30, once the recovery is deemed probable the Company recognizes an asset for the insurance recovery receivable in the Consolidated Balance Sheets, with corresponding income that is offsetting to the casualty losses recorded in the Consolidated Statements of Operations and Comprehensive Loss. If the insurance recovery is less than the amount of the casualty charges recognized, the Company will recognize a loss whereas if the insurance recovery is greater than the amount of casualty loss recognized, the Company will only recognize a recovery up to the amount of the casualty loss and will account for the excess as a gain contingency in accordance with ASC 450-30, Gain Contingencies. Business interruption insurance is treated as a gain contingency. Gain contingencies are recognized when earned and realized, which typically will occur at the time of final settlement or when cash is received.
Refer to Note 11 “Commitments and Contingencies”.
Recent Accounting Pronouncement(s) –
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280)-Improvements to Reportable Segment Disclosures. The ASU enhances disclosure of significant segment expenses by requiring disclosure of significant segment expenses regularly provided to the chief operating decision maker, extend certain annual disclosures to interim periods, and permits more than one measure of segment profit or loss to be reported under certain conditions. The amendments in ASU 2023-07 were adopted by the Company effective January 1, 2024 for the fiscal year-ended December 31, 2024 and interim reports beginning in fiscal year 2025. See Note 17 “Segment and Geographic Information.”
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)-Improvements to Income Tax Disclosures. The ASU requires additional quantitative and qualitative income tax disclosures to allow readers of the consolidated financial statements to assess how the Company’s operations, related tax risks and tax planning affect its tax rate and prospects for future cash flows. The amendments in ASU 2023-09 were retrospectively adopted by the Company for the fiscal year-ended December 31, 2025. See Note 13 “Income Taxes.”
Accounting Guidance Not Yet Elected or Adopted
In November 2024, the FASB issued an accounting standards update, ASU 2024-03, which requires new tabular disclosures in the notes to consolidated financial statements, disaggregating certain cost and expense categories within relevant captions on the Consolidated Statements of Operations and Comprehensive Loss. The prescribed cost and expense categories requiring disaggregated disclosures include purchases of inventory, employee compensation, depreciation and intangible asset amortization, along with certain other expense disclosures already required by U.S. GAAP that would need to be integrated within the new tabular disaggregated expense disclosures. Additionally, the amendments also require the disclosure of total selling expenses and an entity's definition of those expenses. The amendments in ASU 2024-03 are effective for annual periods beginning after December 15, 2026, which for the Company would be the fiscal year ending December 31, 2027, and for subsequent interim periods. Early adoption is permitted and the amendments should be applied on a prospective basis. Retrospective application is permitted. The Company is currently evaluating the impact the new accounting standard will have on its expense disclosures in the notes to the consolidated financial statements.
F-15
In July 2025, the FASB issued an accounting standards update, ASU 2025-05, which creates a new optional practical expedient related to the estimation of future expected credit losses on accounts receivable. If elected, this expedient removes the requirement, when estimating expected credit losses, to consider changes in forecasted macroeconomic conditions, such as changes in unemployment rates or gross domestic product growth. Instead, companies electing the expedient may assume that current conditions as of the balance sheet date will not change for the remaining life of the asset. The amendments in ASU 2025-05 are effective for annual periods beginning after December 15, 2025, and interim periods within those annual periods, which for the Company would be the fiscal first quarter ending March 31, 2026. Early adoption is permitted and the amendments should be applied on a prospective basis. The Company is currently evaluating the impact the new accounting standard could have on its estimates for future expected credit losses if the Company chooses to elect the optional practical expedient.
We consider the applicability and impact of all ASUs. If the ASU is not listed above, it was determined that the ASU was either not applicable or would have an immaterial impact on our financial statements and related disclosures.
NOTE 2. – DISCONTINUED OPERATIONS AND DIVESTITURES
Discontinued Operations and Divestiture of GVB Hemp/Cannabis Business
On November 20, 2023, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”) with Specialty Acquisition Corporation, a Nevada corporation (the “Buyer”) pursuant to which the Company agreed to sell substantially all of its equity interests in its GVB hemp/cannabis business (the “Purchased Interests”) for a purchase price of $
On December 22, 2023, the Company and the Buyer entered into an Amendment to Equity Purchase Agreement (the “GVB Amendment”) pursuant to which the Company and the Buyer increased the Purchase Price to $
The parties previously agreed that the Company would retain any insurance proceeds received in connection with the fire at the Grass Valley manufacturing facility, if any (the “Insurance Proceeds”) and up to the first $
For disposal transactions, a component of an entity that is anticipated to be sold in the future is reported in discontinued operations after it meets the criteria for held-for-sale classification, and if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The Company evaluated the quantitative and qualitative factors related to the expected sale of the GVB hemp/cannabis business and exit from the hemp/cannabis space, and concluded that it met the held-for-sale criteria and that all other conditions for discontinued operations presentation were met on November 30, 2023. Property, plant and equipment are not depreciated, and intangibles assets are not amortized once classified as held-for-sale.
As a result, the operating results of the hemp/cannabis disposal group have been classified as discontinued operations in the Consolidated Statements of Operations and Comprehensive Loss for all periods presented and the assets and liabilities of the hemp/cannabis disposal group have been classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets at December 31, 2025 and 2024, respectively.
The assets and liabilities of a discontinued operation held for sale, other than goodwill, are measured at the lower of carrying amount or fair value less cost to sell. Following the provision for impairment charges recorded during the third quarter of 2023, the Company concluded the carrying value of assets and liabilities of the GVB hemp/cannabis business approximated fair value when deemed held for sale based on the purchase price consideration of $
F-16
As of December 31, 2024, all assets and liabilities of the hemp/cannabis disposal group were presented as current in the Consolidated Balance Sheets as management believed the remaining disposal and exit from hemp/cannabis was deemed probable and will occur within one year. On May 6, 2025, the Company closed the sale of the Needle Rock Farms land property and received cash proceeds of $
| | | | | |
| December 31, | | December 31, | ||
| 2025 | | 2024 | ||
Property, plant and equipment, net | $ | — | | $ | |
Current assets of discontinued operations held for sale | $ | — | | $ | |
| | | | | |
Accounts payable | $ | — | | $ | |
Accrued expenses |
| — | |
| |
Current liabilities of discontinued operations held for sale | $ | — | | $ | |
| | | | | |
Net liabilities | $ | — | | $ | ( |
Net income from discontinued operations for the years ended December 31, 2025 and 2024 was as follows:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Revenues, net | $ | — | | $ | — |
Cost of goods sold | | — | | | — |
Gross loss | | — | | | — |
Operating expenses: | | | | | |
Sales, general and administrative | | | | | ( |
Research and development | | ( | | | |
Other operating (income), net | | ( | | | ( |
Total operating (income) | | ( | | | ( |
Operating income from discontinued operations | | | | | |
Other income (expense): | | | | | |
Interest expense | | ( | | | ( |
Total other expense | | ( | | | ( |
Income from discontinued operations before income taxes | | | | | |
Provision (benefit) for income taxes | | — | | | — |
Income from discontinued operations | $ | | | $ | |
During the years ended December 31, 2025 and 2024, the Company settled outstanding obligations which resulted in reversals of previously accrued liabilities of $
F-17
The Company allocates interest to discontinued operations if the interest is directly attributable to the discontinued operations or is interest on debt that is required to be repaid as a result of the disposal transaction. Interest expense included in discontinued operations reflects an estimate of interest expense related to the principal balance of debt that is required to be repaid with the proceeds from the sale of the GVB hemp/cannabis business.
The components of discontinued operations “Other operating expenses, net” were as follows:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Professional services | $ | | | $ | |
(Gain) loss on sale or disposal of property, plant and equipment | | ( | | | |
Gain on release of lease obligations | | — | | | ( |
Impairment charges related to Needle Rock Farms | | | | | — |
Provision of credit loss for 2025 GVB promissory note | | | | | — |
Dorchester proceeds | | ( | | | — |
Other operating expense, net | $ | ( | | $ | ( |
During the year ended December 31, 2025, Other operating expense, net was comprised of $
Cash flow information from discontinued operations for the years ended December 31, 2025 and 2024 was as follows:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Cash provided by (used in) operating activities | $ | | | $ | ( |
Cash provided by investing activities | $ | | | $ | |
| | | | | |
Depreciation and amortization | $ | - | | $ | - |
Capital expenditures | $ | - | | $ | - |
NOTE 3. – INVENTORIES
Inventories at December 31, 2025 and 2024 consisted of the following:
| | | | | | |
| | December 31, | | December 31, | ||
| | 2025 | | 2024 | ||
Raw materials | | $ | | | $ | |
Work in process | | | — | | | — |
Finished goods | |
| | | | |
| | $ | | | $ | |
As of December 31, 2025 and 2024, the Company’s proprietary reduced nicotine content tobacco leaf inventory was valued within raw materials at $
F-18
NOTE 4. – INTANGIBLE ASSETS, NET
Our intangible assets at December 31, 2025 and 2024 consisted of the following:
| | | | | | | | | | | | |
| | Gross | | Accumulated | | | | |
| Net Carrying | ||
December 31, 2025 | | Carrying Amount | | Amortization | | Impairment | |
| Amount | |||
Definite-lived: | | | | | | | | | | | | |
Patent | | $ | | | $ | ( | | $ | ( | | $ | |
License fees | |
| | | | ( | | | — | | | |
Total amortizing intangible assets | | $ | | | $ | ( | | $ | ( | | $ | |
Indefinite-lived: | |
| | | | | | | | | | |
Trademarks | | | | | | | | | | | $ | |
MSA signatory costs | | | | | | | | | | | | |
License fee for predicate cigarette brand | | | | | | | | | | | | |
Total indefinite-lived intangible assets | | | | | | | | | | | $ | |
Total intangible assets, net | | | | | | | | | | | $ | |
| | | | | | | | | | | | |
| | Gross | | Accumulated |
| | | | Net Carrying | |||
December 31, 2024 | | Carrying Amount | | Amortization |
| Impairment | | Amount | ||||
Definite-lived: | | | | | | | | | | | | |
Patent | | $ | | | $ | ( | | $ | ( | | $ | |
License fees | |
| | | | ( | | | — | | | |
Total amortizing intangible assets | | $ | | | $ | ( | | $ | ( | | $ | |
Indefinite-lived: | |
| | | | | | | | | | |
Trademarks | | | | | | | | | | | $ | |
MSA signatory costs | | | | | | | | | | | | |
License fee for predicate cigarette brand | | | | | | | | | | | | |
Total indefinite-lived intangible assets | | | | | | | | | | | $ | |
Total intangible assets, net | | | | | | | | | | | $ | |
Aggregate intangible asset amortization expense comprises of the following:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Cost of goods sold | $ | | | $ | |
Research and development |
| | |
| |
Total amortization expense | $ | | | $ | |
During the years ended December 31, 2025 and 2024, the Company incurred impairment charges of $
The impairment charges are included in Other operating expenses, net on the Company’s Consolidated Statements of Operations and Comprehensive Loss.
Estimated future intangible asset amortization expense based on the carrying value as of December 31, 2025 is as follows:
| | | | | | | | | | | | | | | | | | |
|
| 2026 |
| 2027 | | 2028 | | 2029 | | 2030 | | Thereafter | ||||||
Amortization expense | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | |
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NOTE 5. – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net at December 31, 2025 and 2024 consisted of the following:
| | | | | | |
| | December 31, | | December 31, | ||
| | 2025 | | 2024 | ||
Leasehold improvements | | $ | | | $ | |
Manufacturing equipment | | | | | | |
Laboratory equipment | | | | | | |
| |
| | |
| |
Less: accumulated depreciation | |
| ( | |
| ( |
Property, plant and equipment, net | | $ | | | $ | |
Depreciation expense was $
NOTE 6. – RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES
The Company leases a manufacturing facility in Mocksville, North Carolina.
On January 1, 2023, the Company signed a lease agreement for an inventory storage facility. The lease had an initial monthly base rent of $
On March 31, 2023, the Company extended the lease terms for its manufacturing facility and corporate headquarters in Mocksville, North Carolina. As a result of this lease modification, the Company re-measured the lease liability and adjusted the ROU asset on the modification dates, including reassessment of renewal options.
The following table summarizes the Company’s discount rate and remaining lease terms as of December 31, 2025:
| | | | |
Weighted average remaining lease term in years | | | | |
Weighted average discount rate | |
| | % |
Future minimum lease payments as of December 31, 2025 are as follows:
| | | |
2026 | | $ | |
2027 | | | |
2028 | | | |
2029 | | | |
Total lease payments | |
| |
Less: imputed interest | |
| ( |
Present value of lease liabilities | | | |
Less: current portion of lease liabilities | | | ( |
Total long-term lease liabilities | | $ | |
Operating lease costs for the years ended December 31, 2025 and 2024, were $
Supplemental cash flow information for leases for fiscal years 2025 and 2024 is comprised of the following:
| | | | | | |
| | December 31, | | December 31, | ||
| | 2025 | | 2024 | ||
Cash paid for operating leases | | $ | | | $ | |
ROU assets released under operating leases | | $ | ( | | $ | — |
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NOTE 7. – NOTES AND LOANS PAYABLE
The table below outlines our notes payable balances as of December 31, 2025 and 2024:
| | | | | | |
| | December 31, | | December 31, | ||
| | 2025 | | 2024 | ||
Insurance loans payable | | $ | | | $ | |
NCSU promissory note | | | | | | — |
Total notes and loans payable | | | | | | |
Total current notes and loans payable | | | ( | | | ( |
Total long-term notes and loans payable | | $ | | | $ | — |
Insurance loans payable
During the second quarter of 2025, the Company renewed its Director and Officer (“D&O”), property and general liability insurances for a
During the second quarter of 2024, the Company renewed its D&O insurance for a
NCSU promissory note
On October 31, 2025, the Company entered into a note payable with NCSU in the amount of $
Estimated future principal payments to be made under the above notes and loans payable as of December 31, 2025 are as follows:
| | | |
2026 | | $ | |
2027 | | | |
2028 | | | |
2029 | | | |
2030 | | | |
Total | | $ | |
NOTE 8. – FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Fair value measurement standards apply to certain financial assets and liabilities that are measured at fair value on a recurring basis (each reporting period). The Company does not have any nonfinancial assets or liabilities that are measured at fair value on a recurring basis.
The following table presents information about our liabilities measured at fair value at December 31, 2024, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
F-21
| | | | | | | | | | | | |
| | Fair Value | ||||||||||
| | December 31, 2024 | ||||||||||
| | Level 1 | | Level 2 | | Level 3 | | Total | ||||
Liabilities |
| | |
| | |
| | |
| | |
Omnia 2024 Warrants | | $ | — | | $ | — | | $ | | | $ | |
Total liabilities | | $ | — | | $ | — | | $ | | | $ | |
Warrants
The following table sets forth a summary of the changes in fair value of the Company’s common stock warrants accounted for as liabilities (Level 3):
| | | |
Fair value measurement at January 1, 2024 | | $ | |
Settlement and General Release | | | ( |
Initial measurement (Omnia 2024 warrants) | | | |
Fair value measurement adjustment | | | ( |
Fair value measurement at December 31, 2024 | | $ | |
Fair value measurement adjustment | | | |
Omnia 2024 warrants put option exercise | | | ( |
Fair value measurement at December 31, 2025 | | $ | — |
The Omnia warrants were measured at December 31, 2024 using a Monte Carlo valuation model with the following assumptions:
| | | |
| December 31, | ||
| 2024 | ||
Risk-free interest rate per year |
| | % |
Expected volatility per year |
| | % |
Expected dividend yield |
| — | % |
Contractual expiration |
| | years |
Exercise price | $ | | |
Stock price | $ | | |
The warrants are measured at fair value using certain estimated factors which are classified within Level 3 of the valuation hierarchy. Significant unobservable inputs that are used in the fair value measurement of the Company’s warrants include the volatility factor, anti-dilution provisions, and contingent put option. Significant increases or decreases in the volatility factor would have resulted in a significantly higher or lower fair value measurement. Additionally, a change in probability regarding the anti-dilution provision or put option would have resulted in a significantly higher or lower fair value measurement. The Omnia 2023 warrants were extinguished and the Omnia 2024 warrants were issued in April 2024. The put option of the 2024 Omnia Warrants was fully exercised on September 29, 2025, in the amount of $
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Derivative Liability
The following table sets forth a summary of the changes in fair value of the Company’s derivative related to the bifurcated conversion option on the Senior Secured Credit Facility debentures accounted for as liabilities (Level 3):
| | | |
Fair value measurement at January 1, 2024 | | $ | |
Fair value measurement adjustment | | | ( |
Fair value measurement at December 31, 2024 | | $ | - |
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Fair value standards also apply to certain assets and liabilities that are measured at fair value on a nonrecurring basis. During the years ended December 31, 2025 and 2024, the Company did not have any financial assets or liabilities measured at fair value on a nonrecurring basis.
NOTE 9. – CAPITAL RAISES AND WARRANTS FOR COMMON STOCK
The following table summarizes the Company’s warrant activity:
| | |
Warrants outstanding at January 1, 2024 | | |
Issued | | |
Exercised | | ( |
Abandoned | | ( |
Warrants outstanding at December 31, 2024 | | |
Issued | | |
Exercised | | ( |
Anti-dilution adjustment | | |
Warrants outstanding at December 31, 2025 | | |
The following table summarizes the Company’s outstanding warrants as of December 31, 2025:
| | | | | | | |
| | # of warrants outstanding | | Weighted average exercise price | | Weighted average expiration date | |
Amended October 2024 PIPE warrants (1) | | | | $ | N/A | | July 15, 2030 |
August 2025 warrants (2) | | | | $ | | | August 27, 2030 |
August 2025 Placement Agent warrants (2) | | | | $ | | | August 27, 2030 |
| | | | | | | |
(1) The warrants contain anti-dilution protection provisions relating to subsequent equity sales of shares of the Company’s common stock or common stock equivalents at an effective price per share lower than the then effective exercise price of such warrants. Additionally, the warrants allow the holder of such warrants to also effect an alternative form of cashless exercise on or after the initial exercise date whereby the aggregate number of shares of common stock issuable in such alternative form of cashless exercise pursuant to any given notice of exercise shall equal the product of (x) the aggregate number of shares of common stock that would be issuable upon exercise of the warrant in accordance with the terms of the warrant if such exercise were by means of a cash exercise rather than a cashless exercise and (y) | |||||||
(2) The warrants contain anti-dilution 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. | |||||||
F-23
The incremental value of modifications to financial instruments, such as warrants or convertible preferred stock, is determined based on Monte-Carlo, Binomial Lattice, or Black-Scholes valuation models. Amounts recorded as Deemed dividends in determining Net loss available to common shareholders in the Statements of Operations and Comprehensive Loss are as follows:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Total deemed dividends | $ | | | $ | |
August 2025 Series A Convertible Preferred Stock Offering
On August 22, 2025, the Company and certain investors entered into a securities purchase agreement with respect to the offer and sale of $
The shares of Series A Preferred Stock have no voting rights, except to the extent required by the applicable law and certain protective provisions. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the then holders of the Series A Preferred Stock are entitled to receive out of the assets available for distribution to stockholders of the Company an amount equal to either (i)
On December 17, 2025, the Company entered into an Omnibus Amendment and Waiver (the “Amendment Agreement”) with the holders of the outstanding Series A Preferred Stock to amend Series A Preferred Stock, the warrants and certain placement agent warrants issued in connection with the August 2025 offering described above.
Pursuant to the Amendment Agreement, the Company and the holders agreed to provide an alternative conversion feature to the Certificate of Designation whereby the Series A Preferred Stock can be converted at a conversion price equal to
Following execution of the Amendment Agreement, the Company re-evaluated conclusions on classification and embedded features, resulting in no changes from the date of issuance of the Series A Preferred Stock, as further described below. The impacts of the Amendment Agreement are accounted for as an extinguishment, as the fair value of the instruments before and after modification increased by greater than
Subsequent to December 31, 2025, on March 24, 2026, in connection with an offering of newly issued Series B Convertible Preferred Stock, the Company redeemed all 9,650 shares of Series A Preferred Stock at par. See Note 18 “Subsequent Events.”
F-24
Mezzanine Classification
ASC 480-10-S99-3A(2) of the SEC's Accounting Series Release No. 268 ("ASR 268") requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (i) at a fixed or determinable price on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event that is not solely within the control of the issuer. Preferred securities that are mandatorily redeemable are required to be classified by the issuer as liabilities whereas under ASR 268, a company should classify a preferred security whose redemption is contingent on an event not entirely in control of the issuer as mezzanine equity. The Series A convertible preferred stock is redeemable at the option of the holder if "shareholder approval" (as defined in the agreements) is not obtained, which is not solely within control of the Company, and accordingly, the Company determined that mezzanine treatment is appropriate for the Series A convertible preferred stock. The Series A convertible preferred stock was initially measured at the amount of total proceeds less any offering costs and proceeds allocated to the accompanying warrants based on relative fair value, and is presented as such in our Consolidated Balance Sheet as of December 31, 2025. Further, the Company evaluated all embedded features against an equity-like host and concluded none of the embedded features identified within the Series A convertible preferred stock require bifurcation as they are either deemed clearly and closely related or not net settleable as a result of a lack of an active market.
Series A convertible preferred stock transaction activity is summarized in the table below:
| | | | |
| | Series A Convertible Preferred Stock Shares | Weighted Average Conversion Price | Common Shares Issued from Conversions |
January 1, 2025 | | — | | — |
2025 Issuance | | | | — |
2025 Conversions | | ( | $ | |
December 31, 2025 | | | | |
April 2025 Warrant Inducement and Amendment
On April 29, 2025, the Company commenced a warrant inducement offering with the holders of outstanding warrants to purchase
The net proceeds to the Company from the Initial Exercise, after deducting placement agent fees and the Company’s offering expenses were $
Additionally, on April 29, 2025, the Company entered into amendments with the holders of the outstanding warrants issued on October 24, 2024, which adjusted the provisions of the warrants regarding recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting the Company’s common stock. The anti-dilution adjustment resulted in the issuance of an additional
F-25
October 2024 PIPE Offering
On October 23, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of prefunded warrants to purchase shares of common stock of the Company and warrants to purchase shares of Common Stock pursuant to a private placement. The investors purchased approximately $
The net proceeds to the Company from the offering, after deducting placement agent fees and the Company’s offering expenses, are approximately $
October 2024 Registered Direct Offering
On October 11, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of common stock of the Company pursuant to a registered direct offering and a private placement of warrants to purchase shares of common stock. The investors purchased approximately $
The net proceeds to the Company from the Offering, after deducting the placement agent fees and the Company’s offering expenses were $
2024 Warrant Inducement
On September 29, 2024, the Company commenced a warrant inducement offering with the holders of outstanding warrants to purchase
September 2024 Registered Direct Offering
On September 27, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of common stock of the Company pursuant to a registered direct offering and a private placement of warrants to purchase shares of common stock. The investors purchased approximately $
The net proceeds to the Company from the Offering, after deducting placement agent fees and the Company’s offering expenses were $
April 2024 Registered Direct Offering
On April 8, 2024, the Company and certain investors entered into a securities purchase agreement relating to the issuance and sale of shares of common stock (or pre-funded warrants in lieu of common stock) pursuant to a registered direct offering and a private placement of warrants to purchase shares of common stock. The investors purchased approximately $
The net proceeds to the Company from the Offering, after deducting placement agent fees and the Company’s estimated offering expenses, were approximately $
F-26
Other Equity Financings
Pursuant to a Regulation A offering of Form 1-A, the Company entered into subscription agreements with certain accredited investors and high net worth individuals, pursuant to which the Company issued and sold to the investors
The shares that were offered and sold above or at-the-market under Nasdaq rules and pursuant to the Company’s Form 1-A, initially filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended, on August 2, 2024 and qualified on August 13, 2024.
Private Placement of Warrants
During the third quarter of 2024, the Company and certain investors entered into warrant purchase agreements related to the private placement of
Other Agreements
During the second quarter of 2024, the Company settled an aggregate of $
During the third quarter of 2024, the Company settled an aggregate of $
ATM Offering
On November 4, 2025, the Company established an at-the-market common equity offering program (“ATM Program”), through which it had the ability to offer and sell shares of common stock having an aggregate gross sales price of up to $
NOTE 10. – RETIREMENT PLAN
The Company sponsors a defined contribution plan under Internal Revenue Code Section 401(k). The plan covers all employees who meet the minimum eligibility requirements. Under the 401(k) plan eligible employees are allowed to make voluntary deferred salary contribution to the plan, subject to statutory limits. The Company has elected to make Safe Harbor Non-Elective Contributions to the plan for eligible employees in the amount of three percent (
F-27
NOTE 11. – COMMITMENTS AND CONTINGENCIES
License and growing agreements – The Company has entered into various license and tobacco growing agreements (the “Agreements”) with various counter parties in connection with the Company’s plant biotechnology business relating to tobacco. The schedule below summarizes the Company’s commitments, both financial and other, associated with each Agreement. Costs incurred under the Agreements are generally recorded as research and development expenses on the Company’s Consolidated Statements of Operations and Comprehensive Loss.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Future Commitments | | ||||||||||||||||
Commitment |
| Counter Party |
| Commitment Type |
| 2026 |
| 2027 |
| 2028 |
| 2029 | | 2030 & After | | Total | | ||||||
License Agreement | | NCSU | | Minimum annual royalty | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | (1) |
Consulting Agreements | | Various | | Contract fee | | | | | | | | | — | | | — | | | — | | | | (2) |
| | | | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| (1) | The minimum annual royalty fee is credited against running royalties on sales of licensed products. The Company is also responsible for reimbursing NCSU for actual third-party patent costs incurred, including capitalized patent costs and patent maintenance costs. These costs vary from year to year and the Company has certain rights to direct the activities that result in these costs. |
| (2) | As a requirement for a modified risk tobacco product and a condition of the marketing authorization by the FDA, the Company engaged various consultants to conduct post-market studies and research. |
Litigation - The Company is subject to litigation arising from time to time in the ordinary course of its business. The Company does not expect that the ultimate resolution of any pending legal actions will have a material effect on its consolidated results of operations, financial position, or cash flows. However, litigation is subject to inherent uncertainties. As such, there can be no assurance that any pending legal action, which the Company currently believes to be immaterial, will not become material in the future. In accordance with applicable accounting guidance, the Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When a loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of related expenses. The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability.
Shareholder Derivative Cases
On February 6, 2019, a shareholder derivative claim was filed against the Company and certain current and former directors and officer in the United States District Court for the Eastern District of New York (Case No. 1:19 cv 00748) alleging breaches of fiduciary duty and other similar claims . On March 4, 2025, the parties entered into a Stipulation and Agreement of Settlement to fully resolve all claims that was finally approved on July 16, 2025. As part of the settlement, the Company agreed to certain corporate governance reforms as part of the settlement. The settlement also includes an amount of $
Insurance Litigation
In November 2022, there was a fire at the Company’s Grass Valley manufacturing facility in Oregon, which resulted in a total loss of the facility. The Company submitted an insurance claim with Dorchester Insurance Company, Ltd. (“Dorchester”) for casualty loss and business interruption coverage which was acknowledged on November 23, 2022. Dorchester funded $
F-28
On July 19, 2023, the Company filed a Complaint against Dorchester in the United States District Court for the District of Oregon, Pendleton Division, Case No. 2:23-cv-01057-HL. The parties fully resolved the matter for $
KeyGene Dispute
On April 11, 2024 the Company received a Request for Arbitration from Keygene N.V. in connection with the Company’s termination of various framework collaborative research agreements. The parties fully resolved the matter pursuant to a Settlement Agreement and Mutual Release executed on April 25, 2025.
Cookies Retail Products Dispute
On October 23, 2024, Cookies Retail Products, LLC (“CRP”) filed a complaint against the Company, a subsidiary of the Company (“PTB”), Cookies Creative Consulting & Promotions, Inc. (“CCC”), Cookies SF, LLC (“CSF”), GMLC WLNS, LLC (“GMLC”) and other defendants, Case No. 24STCV27828, Superior Court of California, County of Los Angeles.
The complaint alleges three counts against all defendants: Count I for Breach of Contract related to a Settlement Agreement entered into between CRP, Paul Rock, CSF, GMLC, CCC and PTB (the “Settlement Agreement”), and a Purchase Agreement entered into between PTB and CRP (the “Purchase Agreement”); Count II for Fraud – False Promise related to the Settlement Agreement and Purchase Agreement; and Count III for Violation of Penal Code Section 496 related to the Purchase Agreement and a Licensing and Distribution Agreement between GMLC, CCC and PTB. CRP is seeking monetary damages.
CRP filed a first amended complaint on March 12, 2025, restating the same three counts. The Company filed a Special Motion to Strike the first amended complaint on March 27, 2025. At an April 28, 2025 hearing, the Court granted the Company’s Special Motion to Strike as to Count II and Count III in CRP’s first amended complaint, leaving only Count I. CRP will not have an opportunity to amend its complaint to replead Count II or Count III. On May 15, 2025, the Court also denied an application that had been filed by CRP for a right to attach order and writ of attachment against PTB. Discovery is ongoing. Trial date is set for October 27, 2026.
Employee Dispute
On November 19, 2024, a former employee of the Company filed a complaint against the Company, two subsidiaries of the Company, and numerous other former subsidiaries of the Company that were part of the hemp/cannabis division that was divested in December 2023. The complaint was filed in the Circuit Court of the State of Oregon, County of Multnomah, Case No. 24CV55110.
The complaint alleges three counts against all defendants: Count I for Premises Liability; Count II for Personal Injury – Employer Liability Law, and Count III for Negligence/Negligence Per Se, all related to the November 2022 fire at the Company’s Grass Valley manufacturing facility in Oregon. The former employee is seeking monetary damages.
The Company has moved to dismiss all counts of the complaint directed to the Company and its subsidiaries. In the event the counts are not dismissed, the Company believes it has substantial defenses to the claims and intends to defend itself vigorously.
NOTE 12. – DEBT
The Company had a senior secured credit facility (the “Senior Secured Credit Facility”), which consisted of debentures (the “Debenture”) and a subordinated promissory note (the “Subordinated Note”). The Subordinated Note was extinguished in April 2024 and the Senior Secure Credit Facility was repaid in full and terminated in September 2025, each described below.
F-29
Debt related to the Senior Secured Credit Facility as of December 31, 2025 and 2024 consisted of the following:
| | | | | | |
| | December 31, | | December 31, | ||
| | 2025 | | 2024 | ||
Senior Secured Credit Facility |
| $ | — |
| $ | |
Unamortized discount on loan and deferred debt issuance costs | | | — | | | ( |
Total debt | | $ | — | | $ | |
Current portion of long-term debt | | | — | | | ( |
Total long-term debt | | $ | — | | $ | |
Debentures
On March 3, 2023, the Company entered into a Securities Purchase Agreement with each of the purchasers party thereto (collectively, the “Purchasers”) and JGB Collateral, LLC, as collateral agent for the Purchasers (the “Agent”) which pursuant to the agreement, the Company sold
In connection with the sale of the Debentures, the Company issued warrants to purchase up to
On October 16, 2023, the Company entered into a Waiver and Amendment Agreement (the “October Amendment”) with each of the subsidiaries of the Company executing the Debentures, the Holders and the Agent, pursuant to which, among other things, (a) the Holders waived an event of default under Section 7(d) of the Debentures which required the Company to achieve revenue of at least $
As additional consideration for the waiver, the Company agreed to assign, transfer and convey to the Agent, the Company’s entire right, title and interest in and to (i) the Promissory Note made by J&N Real Estate Company, L.L.C. (“J&N”) payable to the Company in the principal amount of $
In connection with the waiver, the Company and Holders agreed to exercise the outstanding put provision to redeem
F-30
Subsequently, on December 22, 2023, the Company, the Holders and the Agent entered into an Amendment Agreement (the “December 2023 Amendment”) pursuant to which the Holders and the Agent consented to the Purchase Agreement, as amended by the GVB Amendment. In consideration of the Holders and the Agents’ consent, the Company agreed to (i) pay to the Agent, a cash payment of $
Effective June 24, 2024, GVB Biopharma (“GVB”), the Company’s former subsidiary, made a scheduled principal and interest payment against the Company’s outstanding indebtedness to JGB, reducing the Company’s total outstanding principal indebtedness with JGB by $
In connection with the September 18, 2025 full repayment of the debentures (as described below), the Company entered into a new 2025 GVB Promissory Note with GVB in the amount of $
As part of the December 2023 Amendment, the Company, the Holders and the Agent also agreed to amend the Debentures to (i) allow the Holders to voluntarily convert the Debentures, in whole or in part, into shares of the Company’s common stock (“Voluntary Conversion Option”) on the earlier of (i) June 30, 2024 and (ii) the public announcement of a Fundamental Transaction at a conversion price equal to the lower of (x) $
Additional terms of the December 2023 Amendment include a financial covenant holiday through the third quarter of 2024 and revised certain covenants thereafter to reflect the sale of the Purchased Interests, including lowering the Company’s quarterly revenue targets.
On April 8, 2024, the Company, the Holders and the Agent entered into that certain Letter Agreement to modify the terms of the Amendment Agreement, the JGB SPA and the Debentures, as amended (“April 2024 Amendment”).
Under the terms of the Letter Agreement, the Holders are permitted to convert their debt to common stock at anytime and the Conversion Price (as defined in the Debentures) at which the Holders may convert the principal amount of their Debentures to the Company’s common stock is reduced to $
On May 10, 2024, the Company, the Holders and the Agent entered into that certain May 2024 Exchange Agreement and May 2024 Letter Agreement to modify the terms of the Amendment Agreement, the Securities Purchase Agreement and the Debentures, as amended (“May 2024 Amendment”).
F-31
Under the terms of the May 2024 Amendment, the Company and Holders have agreed the Company shall incur an aggregate amendment charge to the undersigned holders equal to $
On August 27, 2024, the Company, the Holders and the Agent entered into that certain August 2024 Letter Agreement to modify the terms of the Amendment Agreement, the JGB SPA, and the Debentures, as amended (“August 2024 Amendment”).
Under the terms of the August 2024 Agreement, each Holder agreed that it shall not exercise its Holder Redemption Right (as defined in the Debentures) for more than
On October 10, 2024, the Company, the Holders and the Agent entered into that certain October 2024 Letter Agreement to modify the terms of the Amendment Agreement, the JGB SPA, and the Debentures, as amended (“October 2024 Amendment”).
Under the terms of the October 2024 Amendment, the Company will be able to reset the Conversion Price (as defined in the Debentures) currently in effect, at the discretion of the Board of Directors and on a one time basis, to an amount equal to the average of the daily VWAPs for each of the
On January 13, 2025, the Board of Directors approved the reset of the Conversion Price to $
On May 22, 2025, the Company, the Holders and the Agent entered into that certain May 2025 Letter Agreement to modify the terms of the Amendment Agreement, the JGB SPA, and the Debentures, as amended (“May 2025 Amendment”).
Under the terms of the May 2025 Amendment, the Company will be able to reset the Conversion Price (as defined in the Debentures) currently in effect, at the discretion of the Board of Directors and on a one time basis, to an amount equal to the average of the daily VWAPs for each of the
On September 18, 2025, the Company repaid in full all outstanding obligations under, and terminated, the Senior Secured Credit Facility, the Debentures, and the related security and collateral documents. In connection with the payoff and termination, the Company paid the outstanding principal, accrued and unpaid interest, and all other amounts then due and payable, totaling $
In accordance with ASC 470-60, Troubled Debt Restructurings by Debtors, and ASC 470-50, Debt Modifications and Extinguishment, the Company performed an assessment of whether the related transaction was deemed to be a troubled debt restructuring, and if no, whether the transaction was deemed modification of existing debt, or an extinguishment of existing debt and new debt.
F-32
The October 2023 Amendment, April 2024 Amendment, May 2024 Amendment, August 2024 Amendment, January 2025 Amendment, and May 2025 Amendment were concluded to be a modification, and not an extinguishment, based on an analysis of the present value of future cash flows. A new effective interest rate was determined, and the debt continued to be amortized. The December 2023 Amendment was concluded to be an extinguishment, due to the addition of a substantive conversion option.
The Company analyzed the conversion feature of the December 2023 Amendment for derivative accounting consideration under ASC 815-15 and determined that the embedded conversion features should be classified as a bifurcated derivative because the exercise price of these convertible notes is subject to a variable conversion rate. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with ASC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability at fair value in the amount of $
Subordinated Note
On March 3, 2023, the Company executed a Subordinated Promissory Note (the “Subordinated Note”) with a principal amount of $
In connection with the Subordinated Note, the Company issued to Omnia, warrants to purchase up to
On April 29, 2024, the Company entered into a General Release and Settlement Agreement (the “Omnia Agreement”) with Omnia Capital LP (“Omnia”). The Omnia Agreement settled and extinguished all outstanding debt and interest owed to Omnia under the Subordinated Note and the put provision contained in the 2023 Omnia Warrants, amounting to a total of approximately $
Subject to limited exceptions, a holder of pre-funded warrants and 2024 Omnia Warrants will not have the right to exercise any portion of its warrants if the holder, together with its affiliates, would beneficially own in excess of
F-33
Debt Issuance Costs
The fair values of the warrants at issuance of $
| | | |
| | Total | |
January 1, 2024 | | $ | |
Amortization during the year | | | ( |
Extinguishment of debt | | | |
December 31, 2024 | | | |
Amortization during the period | | | ( |
Conversion option remeasurement | | | |
Amendment fees | | | |
Extinguishment of debt | | | ( |
December 31, 2025 | | $ | - |
NOTE 13. – INCOME TAXES
Pre-tax earnings from continuing operations consisted of the following for the years ended December 31:
| | | | | | |
| | 2025 | | 2024 | ||
Pre-tax income (loss) |
| | |
| | |
U.S. | | $ | ( | | $ | ( |
Outside the U.S. | |
| — | |
| — |
Total pre-tax (loss) earnings | | $ | ( | | $ | ( |
The following is a summary of the components giving rise to the (benefit) provision for income taxes from continuing operations for the years ended December 31:
| | | | | | |
| | 2025 | | 2024 | ||
Federal provision: |
| | |
| | |
Current provision | | $ | — | | $ | — |
Deferred provision | |
| ( | |
| ( |
Change in valuation allowance | |
| | |
| |
Total federal income tax provision | | | | | | |
| | | | | | |
State provision: | |
| | |
| |
Current provision | | | ( | |
| |
Deferred provision | |
| ( | |
| |
Change in valuation allowance | |
| | |
| ( |
Total state income tax (benefit) provision | | | ( | | | |
| | | | | | |
Foreign provision: | |
| | |
| |
Current provision | | | — | |
| — |
Deferred provision | |
| — | |
| — |
Change in valuation allowance | |
| — | |
| — |
Total foreign income tax (benefit) provision | | | — | | | — |
| | | | | | |
Total income tax (benefit) provision | | $ | ( | | $ | |
F-34
The provision for income tax from continuing operations varies from that which would be expected based on applying the statutory federal rate to pre-tax book loss, including the effect of the change in the U.S. corporate income tax rates, as follows:
| | | | | | | | | | | | |
| | 2025 | | 2024 | ||||||||
U.S. federal statutory tax rate |
| $ | ( | | | % | | $ | ( | | | % |
State and local income taxes, net of federal income tax effect (a) |
| | ( | | |
| | | | | ( |
|
Foreign Tax Effects | | | | | | | | | | | | |
Canada | | | — | | — | | | | — | | — | |
Effect of changes in tax laws or rates enacted in current period | | | — | | — | | | | — | | — | |
Effect of cross-border tax laws | | | — | | — | | | | — | | — | |
Tax credits | | | | | | | | | | | | |
Research and development credit carryforward |
| | — | | — |
| | | ( | | |
|
Changes in valuation allowances | | | | | ( | | | | | | ( | |
Nontaxable or nondeductible items | | | | | | | | | | | | |
Stock based compensation (b) |
| | | | ( |
| | | | | ( |
|
GVB sale adjustments | | | — | | — | | | | ( | | | |
Other | | | | | ( | | | | ( | | | |
Changes in unrecognized tax benefits | | | — | | — | | | | — | | — | |
Other adjustments | | | ( | | | | | | | | ( | |
Effective tax rate (benefit) provision |
| $ | ( | | | % | | $ | | | ( | % |
| | | | | | | | | | | | |
(a) State benefits in Texas made up the majority (greater than 50 percent) of the tax effect in this category. | ||||||||||||
(b) In 2025, incentive stock options not deductible. In 2024, forfeitures of $ | ||||||||||||
Individual components of deferred taxes consist of the following as of December 31:
| | | | | | |
| | 2025 | | 2024 | ||
Deferred tax assets: |
| | |
| | |
Net operating loss carryforward | | $ | | | $ | |
Inventory | |
| | |
| |
Stock-based compensation | |
| | |
| — |
Start-up expenditures | |
| | |
| |
Research and development credit carryforward | |
| | |
| |
Severance liability | |
| — | |
| |
Allowance for credit losses | | | | | | |
Research and development costs | | | | | | |
Operating lease obligations | |
| | |
| |
Capital loss on investment | | | | | | |
Interest expense limitation | | | | | | |
Note payable and warrant liability | | | — | | | |
Other | |
| | |
| |
| | $ | | | $ | |
Deferred tax liabilities: | |
| | |
| |
Machinery and equipment | |
| ( | |
| ( |
Patents and trademarks | |
| ( | |
| ( |
Operating lease right-of-use assets | |
| ( | |
| ( |
Other intangible assets | |
| ( | |
| ( |
| |
| ( | |
| ( |
Valuation allowance | |
| ( | |
| ( |
| | | | | | |
Net deferred taxes | | $ | ( | | $ | ( |
F-35
The Company has US federal net operating loss (“NOL”) carryforwards of approximately $
ASC 740 provides guidance on the financial statement recognition and measurement for uncertain income tax positions that are taken or expected to be taken in a company’s income tax return. The Company has evaluated its tax positions and believes there are
The following tax payments and received refunds during the years ended December 31, 2025 and 2024, were as follows:
| | | | | | |
| | 2025 | | 2024 | ||
U.S. federal |
| $ | — |
| $ | — |
| | | | | | |
State | | | | | | |
Texas | | | ( | | | |
Georgia | |
| ( | |
| |
Oregon | |
| | |
| ( |
New York | | | — | | | |
California | | | — | | | |
North Carolina | | | — | | | ( |
Other | |
| | |
| |
State Subtotal | | $ | ( | | $ | |
| | | | | | |
Foreign | |
| | |
| |
Other | |
| — | |
| — |
| | | | | | |
Total cash paid or income taxes (net of refunds) | | $ | ( | | $ | |
The One Big Beautiful Bill Act ("OBBB") was signed into law on July 4, 2025. The OBBB makes changes to the U.S. corporate income tax, including immediate expensing of domestic research and development costs, with retroactive application beginning January 1, 2025; reinstating the option to claim 100% accelerated depreciation deductions on qualified property, with retroactive application beginning January 20, 2025; permanent reinstatement of the EBITDA-based limitation for the business interest deduction under IRC Section 163(j); and international tax provisions modifying global intangible low-taxed income ("GILTI"), foreign-derived intangible income ("FDII"), and base erosion and anti-abuse tax ("BEAT"). The impact of the OBBB on the Company is accelerating the expensing of the domestic research and development costs.
F-36
NOTE 14. – EQUITY-BASED COMPENSATION
Stock Compensation Plan
On May 20, 2021, the shareholders of 22nd Century Group, Inc. (the “Company”) approved the 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the granting of equity awards to eligible individuals over the life of the 2021 Plan, including any remaining shares under the Company’s 2014 Omnibus Incentive Plan pursuant to awards under the 2021 Plan. The 2021 Plan has a term of
Compensation Expense
The Company recognized the following compensation costs, net of actual forfeitures, related to RSUs and stock options:
| | | | | | | |
| | Year Ended | | ||||
| | December 31, | | ||||
| | 2025 | | 2024 | | ||
Sales, general, and administrative | | $ | | | $ | | |
Cost of goods sold | | | | | | — | |
Research and development | |
| | |
| | |
Total equity-based compensation | | $ | | | $ | | |
On December 31, 2024, the Company canceled all remaining unvested awards at that time which resulted in accelerated compensation expense of $
Restricted Stock Units (“RSUs”). We typically grant RSUs to employees and non-employee directors. The following table summarizes the changes in unvested RSUs from January 1, 2024 through December 31, 2025.
| | | | | |
| | Unvested RSUs | |||
| | | | Weighted | |
| | | | Average | |
| | Number of | | Grant-date | |
| | Shares | | Fair Value | |
| | | | $ per share | |
Unvested at December 31, 2024 | | — | | $ | — |
Granted | | | | | |
Forfeited | | ( | | | |
Unvested at December 31, 2025 | | | | $ | |
The fair value of RSUs related to employee grants that vested during the year ended December 31, 2024, was $
As of December 31, 2025, unrecognized compensation expense for new granted RSUs amounted to $
F-37
Stock Options. Our outstanding stock options were valued using the Black-Scholes option-pricing model on the date of the award. A summary of all stock option activity from January 1, 2024 to December 31, 2025 is as follows:
| | | | | | | | | | | |
| | | | | | | Weighted | | | | |
| | | | Weighted | | Average | | | | ||
| | | | Average | | Remaining | | Aggregate | |||
| | Number of | | Exercise | | Contractual | | Intrinsic | |||
| | Options | | Price | | Term | | Value | |||
| | | | $ per share | | | | | | | |
Outstanding at December 31, 2024 |
| — | | $ | — |
| |
|
| | |
Granted | | | | | | | | | | | |
Forfeited | | ( | | | | | | | | | |
Outstanding at December 31, 2025 | | | | $ | | | years | | $ | — | |
Exercisable at December 31, 2025 | | — | | $ | — | | — | years | | $ | — |
The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option.
As of December 31, 2025, unrecognized compensation expense for new granted stock options amounted to $
The weighted average of fair value assumptions used in the Black-Scholes option-pricing model for such grants were as follows:
| | | |
| | 2025 | |
Grant date fair value | | $ | |
Risk-free interest rate (1) |
| | % |
Expected dividend yield (2) |
| — | % |
Expected volatility (3) |
| | % |
Expected term of stock options (4) |
| years | |
| | | |
(1) The risk-free interest rate is based on the period matching the expected term of the stock options based on the U.S. Treasury yield curve in effect on the grant date. | |||
(2) The expected dividend yield is assumed as zero. The Company has never paid cash dividends nor does it anticipate paying dividends in the foreseeable future. | |||
(3) The expected volatility is based on historical volatility of the Company’s stock. | |||
(4) The expected term represents the period of time that options granted are expected to be outstanding based on vesting date and contractual term. | |||
F-38
NOTE 15. – EARNINGS (LOSS) PER COMMON SHARE
The following table sets forth the computation of basic and diluted earnings (loss) per common share for the years ended December 31, 2025 and 2024, respectively:
| | | | | | |
| | Year Ended | ||||
| | December 31, | ||||
| | 2025 | | 2024 | ||
| | (in thousands, except for per-share data) | ||||
Net loss from continuing operations | | $ | ( | | $ | ( |
Net income from discontinued operations | | | | | | |
Net loss | | | ( | | | ( |
Deemed dividends | | | ( | | | ( |
Net loss available to common shareholders | | $ | ( | | $ | ( |
| | | | | | |
Weighted average common shares outstanding - basic and diluted | | | | | | |
| | | | | | |
Basic and diluted loss per common share from continuing operations | | $ | ( | | $ | ( |
Basic and diluted income per common share from discontinued operations | | | | | | |
Basic and diluted loss per common share from deemed dividends | | | ( | | | ( |
Basic and diluted loss per common share | | $ | ( | | $ | ( |
| | | | | | |
Anti-dilutive shares are as follows as of December 31: | | | | | | |
Warrants (excluding pre-funded) | | | | | | |
Options | | | | | | — |
Restricted stock units | | | | | | — |
| | | | | | |
NOTE 16. – REVENUE RECOGNITION
The Company’s revenues are derived primarily from contract manufacturing organization (“CMO”) customer contracts that consist of obligations to manufacture the customers’ branded filtered cigars and cigarettes. Additional revenues are generated from sale of the Company’s proprietary low nicotine content cigarettes, sold under the brand name VLN®, or research cigarettes sold under the brand name SPECTRUM®. The Company does not have significant intra-entity sales or transfers.
The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. For certain CMO contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product and it has an enforceable right to payment as the product is manufactured. The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units to customers and is recognized net of cash discounts, sales returns and allowances. There was
Disaggregation of Revenue
The Company’s net revenue is derived from customers located primarily in the United States and is disaggregated by the timing of revenue. Revenue recognized from Tobacco products transferred to customers over time represented
F-39
The following table presents net revenue by product line:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Contract manufacturing | | | | | |
Cigarettes | $ | | | $ | |
Filtered cigars | | | | | |
Other tobacco products | | | | | |
Total contract manufacturing | | | | | |
VLN® | | | | | ( |
Total product line revenues | $ | | | $ | |
The following table presents net revenues by significant customers, which are defined as any customer who individually represents 10% or more of disaggregated product line net revenues:
| | | | | | |
| | Year Ended | ||||
| | December 31, | ||||
| | 2025 | | 2024 | ||
Customer A | | | % | | | % |
Customer B | | | % | | | % |
Customer C | | | % | | - | |
All other customers | | | % | | | % |
Contract Assets and Liabilities
Unbilled receivables (contract assets) represent revenues recognized for performance obligations that have been satisfied but have not been billed. These receivables are included as Accounts receivable, net on the Consolidated Balance Sheets. Customer payment terms vary depending on the terms of each customer contract, but payment is generally due prior to product shipment or within extended credit terms up to twenty-one (
Total contract assets and liabilities are as follows:
| | | | | | |
| | December 31, | | December 31, | ||
| | 2025 | | 2024 | ||
Unbilled receivables |
| $ | |
| $ | |
Consideration payable to the customer |
| | ( |
| | — |
Deferred income | | | ( | | | ( |
Net contract assets | | $ | | | $ | |
During the year ended December 31, 2024, the Company recognized $
F-40
NOTE 17. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has organized its business as a single reportable segment (“Reporting Segment”), tobacco, as it operates and derives all revenues from its tobacco operations and products. This segment structure reflects the financial information and reports used by the Company’s management, specifically its Chief Operating Decision Maker (“CODM”), to make decisions regarding the Company’s business, including resource allocations and performance assessments. The Company’s Chief Executive Officer serves as the CODM. The accounting policies of the Reporting Segment are the same as those described in the summary of significant accounting policies. See Note 1 for additional information about the Company's business and significant accounting policies.
Consolidated net income (loss) from continuing operations, as presented on the Company's Consolidated Statements of Operations and Comprehensive Loss is a metric utilized by the CODM to assess the Reporting Segment's performance and allocate resources. Total consolidated assets, excluding assets held for sale, as presented on the Company's Consolidated Balance Sheets is used to measure the Reporting Segment's assets.
The CODM uses Consolidated net income (loss) from continuing operations to evaluate profitability generated from segment assets in determining the strategic decisions of the Company with respect to utilizing its assets. Consolidated net income (loss) from continuing operations is also used to monitor budget versus actual results.
The following table presents revenues and significant segment expenses from continuing operations for the years ended December 31, 2025 and 2024:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Consolidated net revenue | $ | | | $ | |
Less: | | | | | |
Cost of goods sold | | | | | |
Excise taxes | | | | | |
Selling, general and administration | | | | | |
Research and development | | | | | |
Depreciation and amortization | | | | | |
Other segment items (1) | | | | | ( |
Interest expense | | | | | |
Segment net loss from continuing operations | $ | ( | | $ | ( |
| | | | | |
(1) Other segment items include: other operating expenses, other (income) expense, interest income, and provision for income taxes. | |||||
The Company recognized the following depreciation and amortization costs from continuing operations:
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Cost of goods sold | $ | | | $ | |
Selling, general and administration | | — | | | |
Total depreciation from continuing operations | $ | | | $ | |
| | | | | |
| Year Ended | ||||
| December 31, | ||||
| 2025 | | 2024 | ||
Cost of goods sold | $ | | | $ | |
Research and development | | | | | |
Total amortization from continuing operations | $ | | | $ | |
F-41
Geographic Area Information
For the years ended December 31, 2025 and 2024, substantially all third-party sales of product are shipped to customers in the United States. Additionally, as of December 31, 2025 and 2024, all long-lived assets are physically located or domiciled in the United States.
NOTE 18. – SUBSEQUENT EVENTS
ATM Offering
Subsequent to December 31, 2025, the Company sold
March 2026 Series B Convertible Preferred Stock Offering
On March 20, 2026, the Company and certain investors entered into a securities purchase agreement with respect to the offer and sale of $
At the initial closing, the investors purchased $16,000 of shares of Series B convertible preferred stock and warrants. The remaining $4,000 of shares of Series B Preferred Stock and warrants are expected to be purchased at a second closing. The investors may request the second closing at any time until the one-year anniversary of the initial closing date and we may require the second closing at any time until the one-year anniversary of the initial closing date by individual investor once less than 50% of such Investor’s Series B Preferred Stock purchased at the initial closing remains outstanding and certain equity conditions have been satisfied for at least 7 of the prior 10 trading days, including: (1) the Common Stock closes above 2.5 times the floor price and (2) the daily dollar trading volume of the Common Stock exceeds $500. The warrants are immediately exercisable at an exercise price of $3.57 per share of common stock and expire on the date that is five years after issuance. In addition, the Company issued placement agent warrants to purchase an aggregate of 187,816 shares of common stock with substantially the same terms as the Warrants, except that the exercise price of the Placement Agent Warrants is $3.927.
The Company used the net proceeds from the offering to repurchase at par all of the shares of outstanding Series A Convertible Preferred Stock issued in August 2025 in the amount of $9.65 million. The balance of the net proceeds from the offering was approximately $5,680, after deducting placement agent case fees but before any other offering expenses.
Following the offering, 130 shares of Series B Preferred Stock were converted into 33,929 shares of common stock, with 15,870 Series B Preferred Stock shares remaining outstanding.
Item 15(a)2 Financial Statement Schedules
None
F-42
Item 15(b).Exhibits
In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
· | should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
· | have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
· | may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and |
· | were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company’s other public files, which are available without charge through the SEC’s website at http://www.sec.gov.
44
Exhibit No. |
| Description |
|
|
|
3.1 |
| Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed with the Commission on December 1, 2010). |
|
|
|
3.1.1 |
| Amendment to Certificate of Incorporation of the Company (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed with the Commission on March 4, 2014). |
|
|
|
3.1.2 | | Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Commission on December 17, 2024). |
| | |
3.1.3 | | Amendment to Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Commission on April 3, 2024). |
| | |
3.1.4 | | Amendment to Certificate of Incorporation of the Company (incorporated by reference to Appendix B to the Company’s Definitive Proxy Statement filed with the Commission on December 11, 2023). |
| | |
3.1.5 | | Form of Certificate of Amendment to Restated Articles of Incorporation (incorporated by reference from Appendix A to the Company’s definitive proxy statement filed June 10, 2025). |
| | |
3.1.6 | | Amendment to Certificate of Incorporation of the Company (incorporated by reference to 3.1 to Form 8-K filed with the Commission on January 22, 2026). |
| | |
3.1.7* | | Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock |
| | |
3.2 |
| Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Commission on January 30, 2014). |
|
|
|
3.2.1 |
| Amendment No. 1 to Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the Commission on April 28, 2015). |
|
|
|
4.1* |
| Description of Securities Registered Pursuant to Section 12 |
| | |
4.2 | | Form of Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on October 24, 2024). |
4.3 | | Form of Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on August 25, 2025). |
| | |
4.4 | | Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on August 25, 2025) |
| | |
4.5 | | Form of Warrant (Incorporated by reference from Exhibit 4.1 to the Company’s Form 8-K filed with the Commission on March 20, 2026) |
| | |
4.6 | | Form of Placement Agent Warrant (Incorporated by reference from Exhibit 4.2 to the Company’s Form 8-K filed with the Commission on March 20, 2026) |
| | |
10.1†† |
| License Agreement dated March 6, 2009 between North Carolina State University and 22nd Century Limited, LLC (incorporated by reference to Exhibit 10.21 to the Company’s Form S-1 registration statement filed with the Commission on August 26, 2011). |
45
|
|
|
10.1.1 |
| Amendment dated August 9, 2012 to License Agreement dated March 6, 2009 between North Carolina State University and 22nd Century Limited, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 20, 2012). |
|
|
|
10.2 |
| Letter Agreement between the Company and North Carolina State University dated November 22, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 23, 2011). |
|
|
|
10.3† |
| Amended and Restated 2021 Omnibus Incentive Plan (incorporated by reference from Appendix B to the Company’s definitive proxy statement filed June 10, 2025) |
|
|
|
10.4† |
| Form of Option Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021). |
|
|
|
10.5† |
| Form of Executive RSU Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021). |
| | |
10.6† | | Form of Director RSU Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021). |
| | |
10.7† | | 22nd Century Group, Inc. 2014 Omnibus Incentive Plan, as amended and restated (incorporated by reference from Appendix A to the Company’s definitive proxy statement filed on March 22, 2019). |
| | |
10.8 | | License Agreement with NCSU dated November 2, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 8, 2023). |
| | |
10.9* | | Master Services Agreement, Addendum #1, #2 and #3 with Smoker Friendly International, LLC dated January 1, 2025. |
10.10 | | Master Services Agreement with Murphy Oil USA, Inc. dated June 23, 2025 (incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2025 filed with the Commission on August 14, 2025). |
| | |
10.11 | | Form of Omnibus Amendment and Waiver (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on December 17, 2025). |
| | |
10.12 | | Sales Agreement, dated November 4, 2025, by and between 22nd Century Group, Inc. and Needham & Company, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 4, 2025). |
| | |
10.13† | | Form of Executive Employment Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on November 4, 2025). |
| | |
19.1 | | Insider Trading Policy (incorporated by reference to Exhibit 19.1 to the Company’s Form 10-K filed with the Commission on March 28, 2024) |
| | |
21.1* | | Subsidiaries |
| | |
23.1* |
| Consent of WithumSmith+Brown, PC |
| | |
46
23.2* | | Consent of Freed Maxick P.C. |
|
|
|
31.1* |
| Section 302 Certification. |
|
|
|
31.2* |
| Section 302 Certification. |
|
|
|
32.1* |
| Written Statement of Principal Executive Officer and Chief Financial Officer pursuant to 18.U.S.C §1350. |
| | |
97.1 | | Compensation Recovery Policy (incorporated by reference to Exhibit 97.1 to the Company’s Form 10-K filed with the Commission on March 28, 2024) |
|
|
|
101* |
| Interactive data files formatted in Inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements. |
|
|
|
101.INS XBRL |
| Instance Document* |
|
|
|
101.SCH XBRL |
| Taxonomy Extension Schema Document* |
|
|
|
101.CAL XBRL |
| Taxonomy Extension Calculation Linkbase Document* |
|
|
|
101.DEF XBRL |
| Taxonomy Extension Definition Linkbase Document* |
|
|
|
101.LAB XBRL |
| Taxonomy Extension Label Linkbase Document* |
|
|
|
101.PRE XBRL |
| Taxonomy Extension Presentation Linkbase Document* |
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Exhibit 104 | | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document* |
* Filed herewith.
† Management contract or compensatory plan, contract or arrangement.
†† Certain portions of the exhibit have been omitted pursuant to a confidential treatment order. An unredacted copy of the exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to the request for confidential treatment.
Item 16. Form 10-K Summary.
None.
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| 22nd CENTURY GROUP, INC. |
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Date: | March 26, 2026 | By: | /s/ Lawrence D. Firestone |
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| Lawrence D. Firestone |
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| Chief Executive Officer and Director |
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| (Principal Executive Officer) |
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Date: | March 26, 2026 | By: | /s/ Daniel Otto |
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| Daniel Otto |
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| Chief Financial Officer |
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| (Principal Accounting and Financial Officer) |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Date: | March 26, 2026 | By: | /s/ Andrew Arno |
| Andrew Arno | ||
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nthony | |||
Date: | March 26, 2026 | By: | /s/ David Keys |
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| David Keys Director | |
Date: | March 26, 2026 | By: | /s/ Lucille S. Salhany |
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| Lucille S. Salhany Director | |
48
FAQ
What is 22nd Century Group (XXII)’s core business focus?
What are the main financial risks highlighted in 22nd Century Group’s 10-K?
How dependent is 22nd Century Group (XXII) on FDA approvals and MRTP status?
What is 22nd Century Group’s scale in terms of market value, shares and employees?
What dilution and capital structure risks does 22nd Century Group (XXII) disclose?
What are the key competitive and regulatory challenges for 22nd Century Group?
Has 22nd Century Group (XXII) faced issues with its Nasdaq listing?
