22nd Century Group, Inc. (NASDAQ:XXII) Q1 2024 Earnings Conference Call May 15, 2024 8:00 AM ET Company Participants Matt Kreps - IR Larry Firestone - CEO Daniel Otto - CFO Conference Call Participants Operator Welcome to the 22nd Century Group’s First Quarter 2024 Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode. The floor will be open for questions following the management’s prepared remarks. [Operator Instructions] It is now my pleasure to turn the floor ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q For the Transition Period From ________ to ________ Commission File Number: 001-36338 22nd Century Group, Inc. (Exact name of registrant as specified in its charter) Nevada 98-0468420 (State or other jurisdiction (IRS Employer of incorporation) Identification No.) 321 Farmington Road Mocksville, North Carolina 27028 (Address of principal executive offices) (716) 270-1523 ☒ QUARTERLY REPORT PURSUANT TO SECTION ...

Exhibit 99.1 22nd Century Group Reports First Quarter 2024 Financial Results New Contracts to Boost Second Quarter Revenue Reduced Operating Costs, Improved Cash Position Reduced ~$8.0 Million of Outstanding Debt and Liabilities for Equity Exchanges in Q2 2024 MOCKSVILLE, N.C., May 15, 2024 — 22nd Century Group, Inc. (Nasdaq: XXII), a tobacco products company focused on nicotine harm reduction, today reported results for the first quarter ended March 31, 2024, and provided an update on recent business highl ...

22nd Century Group, Inc. (NASDAQ:XXII) Q4 2023 Earnings Conference Call March 28, 2024 8:00 AM ET Company Participants Matt Kreps - IR Hugh Kinsman - CFO Larry Firestone - CEO Conference Call Participants Remington Smith - Alliance Global Partners Jim McIlree - Dawson James Operator Welcome to the 22nd Century Group Fourth Quarter 2023 Conference Call and Webcast. [Operator Instructions] It is now my pleasure to turn the floor over to Matt Kreps, Investor Relations for 22nd Century Group. Please begin. Matt ...

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ Annual Report under Section 13 or 15(d) of the Securities Table of Contents UNITED STATES Exchange Act of 1934 For the fiscal year ended December 31, 2023 or ☐ Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File Number: 001-36338 22nd Century Group, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction (IRS Employer Nevada 98-0468420 of incorporation) Identi ...

[Fourth Quarter 2023 Earnings Release](index=1&type=section&id=Fourth%20Quarter%202023%20Earnings%20Release) [Executive Summary & Business Outlook](index=1&type=section&id=Executive%20Summary%20%26%20Business%20Outlook) CEO Larry Firestone outlines the company's rapid turnaround, targeting breakeven by Q1 2025 through reduced cash burn, contract manufacturing growth, and VLN® brand investment - Cash use significantly reduced from approximately **$15 million per quarter** in 2023 to less than **$4 million** projected for Q1 2024[2](index=2&type=chunk) - Primary short-term focuses include profitably growing contract manufacturing to cover operating expenses and investing in VLN® brand growth through increased sales and awareness[3](index=3&type=chunk) - The company aims to achieve breakeven by the **first quarter of 2025** through successful strategy execution[3](index=3&type=chunk) [Recent Business & Corporate Highlights](index=1&type=section&id=Recent%20Business%20%26%20Corporate%20Highlights) The company strategically exited hemp/cannabis to focus on tobacco harm reduction, expanded VLN® retail presence, reorganized contract manufacturing, appointed a new CEO, and announced a reverse stock split for Nasdaq compliance [Strategic & Operational Updates](index=1&type=section&id=Strategic%20%26%20Operational%20Updates) The company exited hemp/cannabis to focus on tobacco harm reduction and contract manufacturing, expanding VLN® retail presence to over 5,100 stores with renewed marketing efforts - Exited hemp/cannabis operations to fully focus on tobacco harm reduction and contract manufacturing[6](index=6&type=chunk) - VLN® retail presence expanded to over **5,100 stores** across **26 states**, up from approximately **1,100 stores** as of June 30, 2023[7](index=7&type=chunk) - Refocusing VLN® sales and marketing efforts to drive awareness and sales of its unique, FDA MRTP authorized harm reduction product[7](index=7&type=chunk) - Reorganized tobacco contract manufacturing to improve margins and operating performance, actively seeking additional opportunities[7](index=7&type=chunk) [Corporate Governance & Actions](index=1&type=section&id=Corporate%20Governance%20%26%20Actions) Larry Firestone was appointed Chairman and CEO in November 2023, a new board compensation program aims to save over **$1 million** annually, and a 1-for-16 reverse stock split was announced for Nasdaq compliance - Larry Firestone appointed Chairman and CEO on **November 29, 2023**[7](index=7&type=chunk) - Reduced board compensation program targets over **$1 million** in annual cost savings starting in 2024[7](index=7&type=chunk) - A **1-for-16 reverse stock split** effective **April 2, 2024**, aims to regain Nasdaq minimum bid price compliance[8](index=8&type=chunk) [Fourth Quarter & Full Year 2023 Financial Performance](index=1&type=section&id=Fourth%20Quarter%20%26%20Full%20Year%202023%20Financial%20Performance) Q4 2023 net revenues from continuing operations decreased to **$7.4 million**, with a **$(7.8) million** gross loss due to a **$(7.9) million** inventory write-down, while Adjusted EBITDA loss improved to **$(3.2) million** from **$(10.0) million** YoY [Statement of Operations Analysis](index=1&type=section&id=Statement%20of%20Operations%20Analysis) Q4 2023 revenue from continuing operations declined to **$7.4 million**, resulting in a **$(7.8) million** gross loss due to a **$(7.9) million** inventory write-down, with net loss at **$(22.1) million** Q4 2023 vs Q4 2022 Key Financials (Continuing Operations) | Metric | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | Net Revenues | $7.4M | $10.0M | | Gross Profit (Loss) | $(7.8)M | $(0.1)M | | Operating Expenses | $6.4M | $10.2M | | Operating Loss | $(14.2)M | $(10.2)M | | Net Loss | $(22.1)M | $(11.1)M | | Net Loss per Share | $(0.66) | $(0.77) | - Q4 2023 gross profit included a one-time **$(7.9) million** charge for inventory write-down adjustments[7](index=7&type=chunk) [Balance Sheet and Liquidity Analysis](index=3&type=section&id=Balance%20Sheet%20and%20Liquidity%20Analysis) As of December 31, 2023, cash and cash equivalents were **$2.1 million**, total assets decreased to **$27.5 million** from **$114.7 million** due to divestitures, resulting in a **$(8.4) million** shareholders' deficit, with an additional **$2.3 million** raised subsequently Balance Sheet Summary (as of Dec 31, in thousands) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $2,058 | $2,205 | | Total assets | $27,503 | $114,651 | | Total liabilities | $35,914 | $18,676 | | Total shareholders' equity (deficit) | $(8,410) | $95,975 | - Held **$2.1 million** in cash and cash equivalents as of **December 31, 2023**[9](index=9&type=chunk) - Subsequently secured an additional **$2.3 million** in gross proceeds via a warrant exchange program and excess inventory sales[9](index=9&type=chunk) [Non-GAAP Financial Measures (EBITDA & Adjusted EBITDA)](index=1&type=section&id=Non-GAAP%20Financial%20Measures%20(EBITDA%20%26%20Adjusted%20EBITDA)) Q4 2023 Adjusted EBITDA loss improved to **$(3.2) million** from **$(10.0) million** YoY, driven by cost reductions despite a **$(14.9) million** EBITDA, with full-year Adjusted EBITDA loss at **$(30.7) million** Q4 EBITDA & Adjusted EBITDA Reconciliation (in thousands) | Metric | Q4 2023 | Q4 2022 | | :--- | :--- | :--- | | Net loss from continuing operations | $(22,068) | $(11,114) | | EBITDA | $(14,928) | $(10,803) | | Inventory write-down | $7,927 | $0 | | Restructuring and impairment | $1,871 | $35 | | **Adjusted EBITDA** | **$(3,200)** | **$(9,900)** | - Adjusted EBITDA loss per share improved to **$(0.10)** in Q4 2023 from **$(0.69)** in Q4 2022[15](index=15&type=chunk)[21](index=21&type=chunk) [Financial Statements](index=5&type=section&id=Financial%20Statements) This section presents the detailed, unaudited Condensed Consolidated Balance Sheets, Statements of Operations, and Non-GAAP reconciliations for 22nd Century Group, Inc [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of December 31, 2023, the balance sheet shows total assets of **$27.5 million** and total liabilities of **$35.9 million**, resulting in a **$(8.4) million** shareholders' deficit, primarily due to discontinued operations divestiture Condensed Consolidated Balance Sheets (in thousands) | | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **ASSETS** | | | | Total current assets | $16,277 | $44,605 | | Total assets | $27,503 | $114,651 | | **LIABILITIES AND SHAREHOLDERS' EQUITY** | | | | Total current liabilities | $25,034 | $13,018 | | Total liabilities | $35,914 | $18,676 | | Total shareholders' equity (deficit) | $(8,410) | $95,975 | | Total liabilities and shareholders' equity (deficit) | $27,503 | $114,651 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For Q4 2023, net revenues were **$7.4 million** with a net loss from continuing operations of **$(22.1) million**, while full-year 2023 net revenues were **$32.2 million** with a total net loss of **$(140.8) million** Condensed Consolidated Statements of Operations (in thousands) | | Three Months Ended Dec 31, 2023 | Year Ended Dec 31, 2023 | | :--- | :--- | :--- | | Revenues, net | $7,357 | $32,204 | | Gross (loss) profit | $(7,829) | $(8,696) | | Operating loss from continuing operations | $(14,232) | $(44,931) | | Net loss from continuing operations | $(22,068) | $(54,686) | | Net loss | $(29,332) | $(140,775) | | Basic and diluted loss per common share | $(1.15) | $(7.28) | [Reconciliation of Non-GAAP Measures](index=7&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) This section details the reconciliation from GAAP Net Loss to Non-GAAP EBITDA and Adjusted EBITDA for Q4 and full year 2023 and 2022, showing Q4 2023 Adjusted EBITDA loss of **$(3.2) million** after adjustments Full Year EBITDA & Adjusted EBITDA Reconciliation (in thousands) | Metric | Year Ended 2023 | Year Ended 2022 | | :--- | :--- | :--- | | Net loss from continuing operations | $(54,686) | $(36,553) | | EBITDA | $(43,984) | $(35,498) | | Inventory write-down | $7,927 | $0 | | Restructuring and impairment | $2,415 | $35 | | **Adjusted EBITDA** | **$(30,657)** | **$(30,029)** | - EBITDA is defined as net income adjusted for interest, taxes, depreciation, and amortization, while Adjusted EBITDA further excludes non-cash and non-operating expenses such as stock compensation and restructuring charges[23](index=23&type=chunk) [Company Information](index=3&type=section&id=Company%20Information) 22nd Century Group is an agricultural biotechnology company focused on tobacco harm reduction with the first and only FDA MRTP authorization for a combustible cigarette - 22nd Century Group focuses on tobacco harm reduction using proprietary reduced nicotine content (RNC) tobacco plants and cigarettes[11](index=11&type=chunk) - Received the first and only FDA Modified Risk Tobacco Product (MRTP) authorization for a combustible cigarette in **December 2021**[11](index=11&type=chunk) - A conference call was hosted at **8:00 a.m. E.T.** on the release day to discuss financial results and business highlights[10](index=10&type=chunk)

[Filing Information](index=1&type=section&id=Filing%20Information) [Form 10-Q Details](index=1&type=section&id=Form%2010-Q%20Details) This Form 10-Q details 22nd Century Group, Inc.'s Q3 2023 quarterly report, filed as a non-accelerated and smaller reporting company on NASDAQ - Company name: 22nd Century Group, Inc., incorporated in Nevada[1](index=1&type=chunk) Filing Information | Indicator | Details | | :--- | :--- | | Stock Symbol | XXII | | Registered Exchange | NASDAQ Capital Market | | Filer Classification | Non-accelerated filer | | Filer Classification | Smaller reporting company | | Common Shares Outstanding (as of Nov 1, 2023) | 30,878,168 shares | [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Q3 2023, including balance sheets, income statements, equity changes, cash flows, and detailed notes on accounting policies and key events [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's financial position as of September 30, 2023, shows a significant decline in total assets and shareholders' equity, driven by increased liabilities and accumulated deficit Condensed Consolidated Balance Sheets | Indicator | September 30, 2023 ($ thousands) | December 31, 2022 ($ thousands) | Change ($ thousands) | | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------- | | Total Assets | $64,196 | $114,651 | $(50,455) | | Total Liabilities | $50,401 | $18,676 | $31,725 | | Total Shareholders' Equity | $13,795 | $95,975 | $(82,180) | | Cash and Cash Equivalents | $2,850 | $3,020 | $(170) | | Restricted Cash | $7,500 | $0 | $7,500 | | Goodwill | $0 | $33,160 | $(33,160) | | Inventories | $15,955 | $10,008 | $5,947 | | Current Portion of Long-Term Debt | $18,165 | $0 | $18,165 | | Accumulated Deficit | $(349,373) | $(237,814) | $(111,559) | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company's net loss significantly increased for the three and nine months ended September 30, 2023, driven by goodwill impairment and higher operating expenses, despite nine-month net revenue growth Condensed Consolidated Statements of Operations and Comprehensive Loss | Indicator ($ thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Year-over-Year Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Year-over-Year Change | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net Revenue | $17,811 | $19,383 | (8.1%) | $63,200 | $42,905 | 47.3% | | Gross (Loss) Profit | $(1,966) | $619 | (417.6%) | $(5,488) | $1,819 | (401.7%) | | Total Operating Expenses | $69,516 | $15,887 | 337.6% | $103,171 | $35,710 | 188.9% | | Operating Loss | $(71,482) | $(15,268) | 368.2% | $(108,659) | $(33,891) | 220.6% | | Net Loss | $(72,720) | $(13,102) | 455.0% | $(111,441) | $(33,518) | 232.5% | | Basic and Diluted Loss Per Share | $(3.68) | $(0.94) | 291.5% | $(6.85) | $(2.71) | 152.8% | [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity significantly decreased from **$95,975 thousand** on January 1, 2023, to **$13,795 thousand** by September 30, 2023, primarily due to substantial net losses and new accounting standard adoption, partially offset by capital raises and equity compensation Condensed Consolidated Statements of Changes in Shareholders' Equity | Indicator ($ thousands) | January 1, 2023 | September 30, 2023 | Change | | :-------------------- | :---------- | :----------- | :----- | | Total Shareholders' Equity | $95,975 | $13,795 | $(82,180) | | Accumulated Deficit | $(237,814) | $(349,373) | $(111,559) | | Capital in Excess of Par Value | $333,900 | $363,198 | $29,298 | - During the nine months ended September 30, 2023, the company issued **5,151,853 common shares** for **$13,416 thousand** from capital raises, **747,974 shares** for **$4,851 thousand** from other capital raises, and **333,334 shares** for **$3,570 thousand** through a licensing agreement[11](index=11&type=chunk) - The company effected a 1-for-15 reverse stock split on July 5, 2023, with all share and per-share amounts retroactively adjusted[11](index=11&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended September 30, 2023, the company experienced increased cash usage in operating activities, a significant increase in cash inflows from investing activities due to short-term investment sales and insurance proceeds, and higher cash inflows from financing activities through debt and equity issuances Condensed Consolidated Statements of Cash Flows | Indicator ($ thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Year-over-Year Change | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | | Net Cash Used in Operating Activities | $(50,184) | $(32,648) | $(17,536) | | Net Cash Provided by Investing Activities | $17,352 | $380 | $16,972 | | Net Cash Provided by Financing Activities | $40,162 | $33,296 | $6,866 | | Net Increase in Cash, Cash Equivalents, and Restricted Cash | $7,330 | $1,028 | $6,302 | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $10,350 | $2,364 | $7,986 | - Significant increase in cash inflows from investing activities in 2023 was primarily due to **$21,714 thousand** from sales and maturities of short-term investment securities and **$3,500 thousand** in insurance proceeds for property, plant, and equipment[14](index=14&type=chunk) - Cash inflows from financing activities in 2023 included **$16,849 thousand** from long-term debt issuance, **$6,016 thousand** from detachable warrant issuance, and **$19,908 thousand** from common stock issuance[14](index=14&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the company's financial statements, covering key areas such as accounting policies, business acquisitions, inventories, goodwill and intangible asset impairment, investments, fair value measurements, debt, equity financing, commitments and contingencies, equity compensation, earnings per share, comprehensive income, and segment information [NOTE 1. - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=8&type=section&id=NOTE%201.%20-%20NATURE%20OF%20BUSINESS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company, an agricultural biotechnology and intellectual property firm, faces significant going concern doubts due to continuous losses, negative operating cash flow, and debt covenant non-compliance, prompting evaluation of cost-cutting and financing strategies - The company is a leading agricultural biotechnology and intellectual property company focused on improving health through advanced plant technologies in low nicotine tobacco, cannabis/hemp, and hops[15](index=15&type=chunk) - Due to continuous losses (net loss of **$111,441 thousand** for the nine months ended September 30, 2023), negative operating cash flow (operating cash outflow of **$50,184 thousand** for the nine months ended September 30, 2023), and an accumulated deficit of **$349,373 thousand**, there are substantial doubts about the company's ability to continue as a going concern[19](index=19&type=chunk)[21](index=21&type=chunk) - The company did not comply with the consolidated net revenue financial covenant in its Senior Secured Credit Facility for Q3 2023 but obtained a waiver from the lender[20](index=20&type=chunk) - Management is evaluating financing strategies including expense reductions, securities issuance, asset sales, and strategic collaborations, but these plans do not eliminate the substantial doubt about the company's ability to continue as a going concern[22](index=22&type=chunk) [NOTE 2. – BUSINESS ACQUISITIONS](index=15&type=section&id=NOTE%202.%20%E2%80%93%20BUSINESS%20ACQUISITIONS) In 2023, the company acquired RX Pharmatech Ltd. for **$2,127 thousand**, primarily for its intangible assets (1,276 novel food applications), and completed measurement period adjustments for the 2022 GVB Biopharma acquisition, which significantly increased cannabis/hemp revenue but also contributed to net losses - On January 19, 2023, the company acquired RX Pharmatech Ltd. (RXP) for **$2,127 thousand**, including cash, common stock, and contingent consideration, primarily for its intangible assets related to 1,276 novel food applications with the UK Food Standards Agency[52](index=52&type=chunk)[53](index=53&type=chunk)[54](index=54&type=chunk) - The 2022 acquisition of GVB Biopharma, focused on cannabis-based cannabinoid extraction, refining, contract manufacturing, and product development, contributed **$9,736 thousand** and **$37,815 thousand** in net revenue for the three and nine months ended September 30, 2023, respectively, but also resulted in net losses of **$56,318 thousand** and **$66,212 thousand** during the same periods[76](index=76&type=chunk) - Final measurement period adjustments for the GVB acquisition resulted in a **$10,840 thousand** reduction in goodwill and fair value allocations to property, plant, and equipment (**$11,189 thousand**) and intangible assets (trade names **$4,600 thousand**, customer relationships **$5,800 thousand**)[63](index=63&type=chunk)[64](index=64&type=chunk) [NOTE 3. – INVENTORIES](index=23&type=section&id=NOTE%203.%20%E2%80%93%20INVENTORIES) As of September 30, 2023, the company's total inventories increased to **$15,955 thousand** from **$10,008 thousand** on December 31, 2022, driven by growth in raw materials, work-in-process, and finished goods Inventories | Inventory Type ($ thousands) | September 30, 2023 | December 31, 2022 | Change | | :---------------------------- | :----------- | :----------- | :----- | | Raw Materials | $9,849 | $8,743 | $1,106 | | Work-in-Process | $1,750 | $441 | $1,309 | | Finished Goods | $4,356 | $824 | $3,532 | | Total Inventories | $15,955 | $10,008 | $5,947 | - In Q3 2023, the company increased its cannabis/hemp inventory excess, obsolete, or expired reserve by **$1,687 thousand** due to evaluating strategic alternatives and cost reduction measures[39](index=39&type=chunk) [NOTE 4. – GOODWILL AND OTHER INTANGIBLE ASSETS, NET](index=23&type=section&id=NOTE%204.%20%E2%80%93%20GOODWILL%20AND%20OTHER%20INTANGIBLE%20ASSETS,%20NET) The company fully impaired goodwill by **$33,360 thousand** for its cannabis/hemp reporting unit in Q3 2023, reducing it to zero, and recognized additional impairment charges of **$9,980 thousand** on other cannabis/hemp intangible assets and **$9,910 thousand** on long-lived assets due to strategic review and cost reductions - In Q3 2023, the company fully impaired goodwill by **$33,360 thousand** for its cannabis/hemp reporting unit, reducing the balance to zero, primarily due to decreased expected future cash flows and increased discount rates for that unit[80](index=80&type=chunk)[82](index=82&type=chunk) - The company recorded **$9,980 thousand** in impairment charges for specific trade names, patents, and license intangible assets related to its cannabis/hemp business[88](index=88&type=chunk) - Additionally, the company recorded **$5,876 thousand** in impairment charges for cannabis/hemp manufacturing equipment (property, plant, and equipment) and **$4,034 thousand** for operating lease right-of-use assets associated with manufacturing facilities[88](index=88&type=chunk) Intangible Assets, Net | Intangible Asset Type ($ thousands) | Net Carrying Value Sep 30, 2023 | Net Carrying Value Dec 31, 2022 | Impairment (9 Months 2023) | | :----------------------------------- | :------------------------------- | :------------------------------- | :-------------------- | | Total Amortizable Intangible Assets | $4,155 | $11,012 | $(8,100) | | Total Indefinite-Lived Intangible Assets | $2,745 | $5,841 | $(4,917) | | Total Intangible Assets, Net | $6,900 | $16,853 | $(13,017) | [NOTE 5. – INVESTMENTS & OTHER ASSETS](index=27&type=section&id=NOTE%205.%20%E2%80%93%20INVESTMENTS%20%26%20OTHER%20ASSETS) The company's total investments remained at **$682 thousand**, primarily comprising an equity investment in Change Agronomy Ltd., while the Panacea promissory note receivable was fully assigned in October 2023 Investments | Investment Type ($ thousands) | September 30, 2023 | December 31, 2022 | | :----------------------------- | :----------- | :----------- | | Change Agronomy Ltd. Common Stock | $682 | $682 | | Total Investments | $682 | $682 | - The Panacea promissory note receivable, valued at **$3,490 thousand** as of September 30, 2023, was fully assigned in October 2023[96](index=96&type=chunk) [NOTE 6. – FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS](index=29&type=section&id=NOTE%206.%20%E2%80%93%20FAIR%20VALUE%20MEASUREMENTS%20AND%20SHORT-TERM%20INVESTMENTS) As of September 30, 2023, the company's fair value measurements for liabilities included detachable warrants (**$3,675 thousand**) and contingent consideration (**$952 thousand**), both classified as Level 3 inputs due to significant unobservable inputs Fair Value Measurements | Fair Value Item ($ thousands) | September 30, 2023 | December 31, 2022 | | :----------------------------- | :----------- | :----------- | | Restricted Cash (Level 1) | $7,500 | $0 | | Change Agronomy Ltd. Common Stock (Level 3) | $682 | $682 | | Detachable Warrants (Level 3) | $3,675 | $0 | | Contingent Consideration (Level 3) | $952 | $0 | - Detachable warrants are measured using a Monte Carlo valuation model, assuming a risk-free rate of **4.6%**, expected volatility of **90.9%-97.9%**, and contractual maturities of **4.9-6.9 years**[107](index=107&type=chunk) - Contingent consideration for the RXP acquisition (maximum payment of **$1,550 thousand**) was valued at **$952 thousand** as of September 30, 2023, using a **15%** discount rate and expected payment period of 2024-2026[105](index=105&type=chunk) [NOTE 7. DEBT](index=32&type=section&id=NOTE%207.%20DEBT) The company's debt primarily consists of a Senior Secured Credit Facility (**$22,105 thousand**) and Subordinated Notes (**$3,315 thousand**), both classified as current liabilities due to covenant uncertainties; the company received a waiver for a Q3 2023 revenue covenant default and reduced the Senior Secured Credit Facility principal by **$8,100 thousand** in October 2023 Debt | Debt Type ($ thousands) | September 30, 2023 | December 31, 2022 | | :----------------------- | :----------- | :----------- | | Senior Secured Credit Facility | $22,105 | $0 | | Subordinated Notes | $3,315 | $0 | | Unamortized Discount | $(7,255) | $0 | | Total Current Portion of Long-Term Debt | $18,165 | $0 | - The Senior Secured Credit Facility (Notes) has a total principal of **$21,053 thousand**, bears **7%** annual interest, matures on March 3, 2026, and includes a **5%** original issue discount and a **5%** exit payment[110](index=110&type=chunk) - The company did not comply with the revenue covenant of the Senior Secured Credit Facility for Q3 2023 but received a waiver from the lender on October 16, 2023[114](index=114&type=chunk) - In October 2023, the Senior Secured Credit Facility principal was reduced by **$8,100 thousand**, with **$7,500 thousand** from restricted cash and **$600 thousand** from the assignment of a promissory note[197](index=197&type=chunk)[198](index=198&type=chunk) - Subordinated Notes have a principal of **$2,865 thousand**, accrue payment-in-kind interest at **26.5%** annually, and mature on May 1, 2024[117](index=117&type=chunk) [NOTE 8. – NOTES & LOANS PAYABLE](index=36&type=section&id=NOTE%208.%20%E2%80%93%20NOTES%20%26%20LOANS%20PAYABLE) As of September 30, 2023, the company's total notes and loans payable amounted to **$1,597 thousand**, primarily comprising insurance and vehicle loans, with the GVB bridge loan balance significantly reduced due to refinancing Notes & Loans Payable | Loan Type ($ thousands) | September 30, 2023 | December 31, 2022 | | :----------------------- | :----------- | :----------- | | Insurance Loans | $1,314 | $780 | | Vehicle Loans | $283 | $315 | | Bridge Loan | $0 | $2,814 | | Total Notes and Loans Payable | $1,597 | $3,909 | - The GVB bridge loan, with an outstanding principal of **$2,500 thousand**, was refinanced on March 3, 2023, and matures on May 1, 2024[124](index=124&type=chunk) [NOTE 9. – OTHER OPERATING EXPENSES, NET](index=37&type=section&id=NOTE%209.%20%E2%80%93%20OTHER%20OPERATING%20EXPENSES,%20NET) Other operating expenses, net, significantly increased to **$23,344 thousand** and **$24,917 thousand** for the three and nine months ended September 30, 2023, respectively, primarily due to **$24,317 thousand** in restructuring costs, including substantial impairment charges on intangible assets, fixed assets, and right-of-use assets Other Operating Expenses, Net | Expense Type ($ thousands) | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :-------------------------- | :-------------------------- | :-------------------------- | | Total Restructuring Costs | $24,317 | $24,317 | | Intangible Asset Impairment | $13,986 | $13,986 | | Fixed Asset Impairment | $5,931 | $5,931 | | Right-of-Use Asset Impairment | $4,034 | $4,034 | | Change in Fair Value of Warrant Liability | $(1,262) | $(540) | | Total Other Operating Expenses, Net | $23,344 | $24,917 | - Restructuring costs were incurred to adjust internal organizational structure, reduce costs, and maintain liquidity, including evaluating strategic alternatives for assets[128](index=128&type=chunk) - The company incurred **$377 thousand** in professional service fees related to the November 2022 Grass Valley manufacturing facility fire[127](index=127&type=chunk) [NOTE 10. – CAPITAL RAISE AND WARRANT ACTIVITY](index=38&type=section&id=NOTE%2010.%20%E2%80%93%20CAPITAL%20RAISE%20AND%20WARRANT%20ACTIVITY) The company conducted multiple capital raises in 2023, including registered direct offerings in June and July and an ATM program, issuing a significant number of common shares and warrants, which triggered anti-dilution adjustments, warrant repricing, and non-cash deemed dividends Warrant Activity | Warrant Activity (thousands) | January 1, 2023 | September 30, 2023 | Change | | :------------------------------ | :---------- | :----------- | :----- | | Warrants Outstanding | 1,138 | 12,732 | 11,594 | - June 19, 2023, Registered Direct Offering: Issued **747,974 shares** and **747,974 warrants** at **$7.05 per unit**, generating net proceeds of **$4,800 thousand**; this offering also repriced **747,974 previously issued warrants** from **$30.75** to **$7.05** per share[135](index=135&type=chunk)[133](index=133&type=chunk) - July 6, 2023, Registered Direct Offering: Issued **778,634 shares** and **1,557,268 warrants** at **$3.80 per unit**, generating net proceeds of **$2,722 thousand**[137](index=137&type=chunk) - July 19, 2023, Registered Direct Offering: Issued **4,373,219 shares** and **8,746,438 warrants** at **$2.67 per unit**, generating net proceeds of **$10,742 thousand**[138](index=138&type=chunk) - Subsequent offerings triggered anti-dilution provisions, adjusting warrant exercise prices (e.g., some July 2022 warrants from **$30.75** to **$0.525**, June 2023 warrants from **$7.05** to **$0.525**) and resulting in non-cash deemed dividends[134](index=134&type=chunk)[137](index=137&type=chunk)[139](index=139&type=chunk) [NOTE 11. - COMMITMENTS AND CONTINGENCIES](index=42&type=section&id=NOTE%2011.%20-%20COMMITMENTS%20AND%20CONTINGENCIES) The company has total future commitments of **$8,879 thousand** related to licensing, sponsored research, and cultivation agreements, is involved in ongoing litigation including a preliminarily settled class action (**$3,000 thousand** covered by insurance) and a shareholder derivative suit, and has filed an insurance claim for the Grass Valley fire Future Commitments | Commitment Type | Remaining 2023 ($ thousands) | 2024 ($ thousands) | 2025 ($ thousands) | 2026 ($ thousands) | 2027 & Beyond ($ thousands) | Total ($ thousands) | | :-------------- | :--------------- | :--- | :--- | :--- | :----------- | :---- | | Research Agreements (KeyGene) | $1,824 | $2,081 | $1,589 | $1,302 | $328 | $7,124 | | License Agreements (NCSU) | $0 | $100 | $100 | $100 | $1,000 | $1,300 | | Research Agreements (NCSU) | $95 | $114 | $0 | $0 | $0 | $209 | | Cultivation Agreements (Various) | $119 | $127 | $0 | $0 | $0 | $246 | | Total Future Commitments | $2,038 | $2,422 | $1,689 | $1,402 | $1,328 | $8,879 | - A class action lawsuit was preliminarily settled for **$3,000 thousand**, fully covered by the company's insurance, with final judgment entered in October 2023[157](index=157&type=chunk) - The company filed a lawsuit against Dorchester Insurance Company, Ltd. in July 2023, alleging breach of contract and bad faith regarding its business interruption claim following the November 2022 Grass Valley fire[167](index=167&type=chunk) - The company reached a settlement agreement for a water rights dispute with Needle Rock Farms, incurring total expenses of **$747 thousand**[168](index=168&type=chunk) [NOTE 12 – EQUITY- BASED COMPENSATION](index=48&type=section&id=NOTE%2012%20%E2%80%93%20EQUITY-%20BASED%20COMPENSATION) The company recognized **$576 thousand** and **$3,237 thousand** in equity-based compensation expense for the three and nine months ended September 30, 2023, respectively, with unrecognized compensation costs of **$3,280 thousand** for restricted stock units (RSUs) and **$190 thousand** for stock options, both contingent on specific milestones Equity-Based Compensation Expense | Compensation Type ($ thousands) | 3 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2023 | | :------------------------------- | :-------------------------- | :-------------------------- | | Selling, General and Administrative | $555 | $3,099 | | Research and Development | $21 | $138 | | Total RSU and Stock Option Compensation | $576 | $3,237 | - As of September 30, 2023, there were **316 thousand** unvested restricted stock units with **$3,280 thousand** in unrecognized compensation cost, expected to be recognized over a weighted-average period of approximately **1.7 years**[171](index=171&type=chunk) - As of September 30, 2023, there were **228 thousand** unexercised stock options with a weighted-average exercise price of **$26.12** and **$190 thousand** in unrecognized compensation cost[172](index=172&type=chunk)[173](index=173&type=chunk) [NOTE 13. – EARNINGS PER SHARE](index=49&type=section&id=NOTE%2013.%20%E2%80%93%20EARNINGS%20PER%20SHARE) Basic and diluted loss per share significantly increased to **$(3.68)** for Q3 and **$(6.85)** for the nine months ended September 30, 2023, primarily due to higher net losses and deemed dividends from anti-dilution and down-round provisions Earnings Per Share | Indicator ($ thousands, except per share data) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Loss Attributable to Common Stockholders | $(73,284) | $(13,102) | $(112,372) | $(33,518) | | Basic and Diluted Loss Per Share | $(3.68) | $(0.94) | $(6.85) | $(2.71) | | Weighted-Average Common Shares Outstanding | 19,887 | 14,009 | 16,411 | 12,351 | - Deemed dividends from anti-dilution and down-round provisions increased net loss attributable to common stockholders by **$(564) thousand** for both the three and nine months ended September 30, 2023[175](index=175&type=chunk) - As of September 30, 2023, **13,276 thousand** anti-dilutive shares (warrants, options, restricted stock units) were excluded from diluted EPS calculations[175](index=175&type=chunk) [NOTE 14. – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)](index=50&type=section&id=NOTE%2014.%20%E2%80%93%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20INCOME%20(LOSS)) Accumulated other comprehensive income (loss) shifted from a **$(111) thousand** loss on January 1, 2023, to a **$(30) thousand** loss on September 30, 2023, primarily influenced by unrealized gains on short-term investment securities and foreign currency translation adjustments Accumulated Other Comprehensive Income (Loss) | Indicator ($ thousands) | January 1, 2023 | September 30, 2023 | | :-------------------- | :---------- | :----------- | | Balance of Accumulated Other Comprehensive Income (Loss) | $(111) | $(30) | - For the nine months ended September 30, 2023, accumulated other comprehensive income (loss) included **$61 thousand** in unrealized gains on short-term investment securities and **$(31) thousand** in foreign currency translation adjustments[177](index=177&type=chunk) [NOTE 15. – REVENUE RECOGNITION](index=50&type=section&id=NOTE%2015.%20%E2%80%93%20REVENUE%20RECOGNITION) For the nine months ended September 30, 2023, total net revenue grew **47.3%** to **$63,200 thousand**, driven by a **210.4%** increase in cannabis/hemp revenue, partially offset by an **18.7%** decline in tobacco revenue due to product portfolio strategic adjustments Revenue Recognition | Revenue Type ($ thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Year-over-Year Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Year-over-Year Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Tobacco | $7,871 | $11,535 | (31.8%) | $24,848 | $30,551 | (18.7%) | | Cannabis/Hemp | $9,940 | $7,848 | 26.7% | $38,352 | $12,354 | 210.4% | | Total Net Revenue | $17,811 | $19,383 | (8.1%) | $63,200 | $42,905 | 47.3% | - The decline in tobacco revenue is due to the company's plan to reallocate production resources from lower-margin filtered cigars to higher-margin VLN® and conventional cigarette products[223](index=223&type=chunk) - Cannabis/hemp revenue growth benefited from a full sales period following the GVB acquisition and continued strong growth in bulk ingredient sales (**195,876 kilograms** year-to-date 2023 vs. **70,977 kilograms** year-to-date 2022)[223](index=223&type=chunk) - Unbilled receivables (contract assets) increased to **$1,745 thousand** as of September 30, 2023, from **$354 thousand** as of December 31, 2022[192](index=192&type=chunk) [NOTE 16. SEGMENT AND GEOGRAPHIC INFORMATION](index=53&type=section&id=NOTE%2016.%20SEGMENT%20AND%20GEOGRAPHIC%20INFORMATION) The company operates in two reportable segments: Tobacco and Cannabis/Hemp; for the nine months ended September 30, 2023, the Cannabis/Hemp segment saw significant revenue growth but also incurred substantial operating losses and impairment charges, leading to a large increase in overall segment operating loss Segment Performance | Segment ($ thousands) | 9 Months Ended Sep 30, 2023 Revenue | 9 Months Ended Sep 30, 2022 Revenue | Year-over-Year Change | 9 Months Ended Sep 30, 2023 Operating Loss | 9 Months Ended Sep 30, 2022 Operating Loss | Year-over-Year Change | | :--------------------- | :---------------------------------- | :---------------------------------- | :----------- | :----------------------------------- | :----------------------------------- | :----------- | | Tobacco | $24,848 | $30,551 | (18.7%) | $10,072 | $3,337 | 201.8% | | Cannabis/Hemp | $38,352 | $12,354 | 210.4% | $74,604 | $7,316 | 920.9% | | Total Segment Operating Loss | $84,676 | $10,653 | 694.9% | | | | - The Cannabis/Hemp segment incurred **$58,808 thousand** in impairment charges and write-offs during Q3 2023[196](index=196&type=chunk) Segment Assets | Segment Assets ($ thousands) | September 30, 2023 | December 31, 2022 | Change | | :---------------------------- | :----------- | :----------- | :----- | | Tobacco | $21,271 | $15,748 | $5,523 | | Cannabis/Hemp | $18,747 | $65,965 | $(47,218) | | Total Reportable Segments | $40,018 | $81,713 | $(41,695) | [NOTE 17. – SUBSEQUENT EVENTS](index=55&type=section&id=NOTE%2017.%20%E2%80%93%20SUBSEQUENT%20EVENTS) Subsequent to September 30, 2023, the company amended its Senior Secured Credit Facility, reducing principal by **$8,100 thousand**, increased authorized common stock, completed a public equity offering raising **$5,250 thousand** in gross proceeds, and secured an additional low nicotine content tobacco technology license from NCSU - On October 16, 2023, the company received a waiver for its Q3 2023 revenue covenant default and reduced the Senior Secured Credit Facility principal by **$8,100 thousand** using **$7,500 thousand** of restricted cash and assigning a **$600 thousand** promissory note[197](index=197&type=chunk)[198](index=198&type=chunk) - Shareholders approved an increase in authorized common stock from **33,333,334 shares** to **66,666,667 shares** on October 16, 2023[201](index=201&type=chunk) - On October 19, 2023, a public equity offering was completed, generating approximately **$5,250 thousand** in gross proceeds for the company and automatically adjusting the exercise price of **11,799,654 outstanding warrants** to **$0.525 per share**[204](index=204&type=chunk) - On November 1, 2023, the company entered into an additional low nicotine content technology license agreement with North Carolina State University (NCSU), including a **$250 thousand** non-refundable license fee and a **$100 thousand** common stock award[206](index=206&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section discusses the company's financial condition and operating results for the period ended September 30, 2023, focusing on its business strategy, recent financial performance, liquidity, and capital resources, highlighting significant going concern doubts and mitigation efforts [Our Business](index=58&type=section&id=Our%20Business) 22nd Century Group is a biotechnology company focused on low nicotine tobacco, cannabis/hemp, and hops, actively exploring strategic alternatives for assets and implementing cost-cutting measures to maximize shareholder value and improve liquidity, despite significant going concern doubts - The company is a leading biotechnology company focused on improving health and wellness through advanced plant technologies involving low nicotine tobacco, cannabis/hemp, and hops[211](index=211&type=chunk) - On September 5, 2023, the company announced it would explore strategic alternatives to maximize shareholder value, including business combinations, asset sales, and financing strategies, and has engaged a financial advisor to assist[212](index=212&type=chunk) - Significant doubt exists about the company's ability to continue as a going concern, and failure to obtain necessary capital could force liquidation of inventory, cessation or reduction of operations, or bankruptcy protection[212](index=212&type=chunk) [Recent Highlights and Other Events](index=58&type=section&id=Recent%20Highlights%20and%20Other%20Events) Recent highlights include successful capital raises in July and October 2023, a significant reduction in the Senior Secured Credit Facility principal, and the implementation of a cost reduction plan expected to save **$15,000 thousand** annually - The company completed registered direct offerings in July 2023, generating approximately **$14,635 thousand** in gross proceeds, and a public offering in October 2023, generating approximately **$5,250 thousand** in gross proceeds[215](index=215&type=chunk) - In October 2023, the company reduced the outstanding principal of its Senior Secured Credit Facility by **$8,100 thousand**[215](index=215&type=chunk) - In July 2023, the company implemented a cost reduction plan expected to save **$15,000 thousand** annually once fully implemented[215](index=215&type=chunk) [Financial Overview](index=58&type=section&id=Financial%20Overview) In Q3 2023, the company's net revenue decreased **8.1%** year-over-year to **$17,811 thousand**, primarily due to lower tobacco sales, partially offset by strong cannabis/hemp business growth; the company reported a gross loss of **$1,966 thousand** and a net loss of **$72,720 thousand**, significantly impacted by **$33,360 thousand** in goodwill impairment and **$24,317 thousand** in restructuring costs Financial Overview | Indicator ($ thousands) | Q3 2023 | Q3 2022 | Year-over-Year Change | | :-------------------- | :------ | :------ | :----------- | | Net Revenue | $17,811 | $19,383 | (8.1%) | | Tobacco Revenue | $7,871 | $11,535 | (31.8%) | | Cannabis/Hemp Revenue | $9,940 | $7,848 | 26.7% | | Gross (Loss) Profit | $(1,966) | $619 | (417.6%) | | Total Operating Expenses | $69,516 | $15,887 | 337.6% | | Goodwill Impairment | $33,360 | $0 | Not Applicable | | Net Loss | $(72,720) | $(13,102) | 455.0% | | Basic and Diluted Loss Per Share | $(3.68) | $(0.94) | 291.5% | - The cannabis/hemp business reported a gross loss of **$2,043 thousand**, including an additional **$1,687 thousand** reserve for excess, obsolete, or expired inventory[215](index=215&type=chunk) - Other operating expenses, net, amounted to **$23,344 thousand**, primarily due to **$24,317 thousand** in restructuring costs[217](index=217&type=chunk) [Our Financial Results](index=61&type=section&id=Our%20Financial%20Results) For the nine months ended September 30, 2023, the company's total net revenue increased **47.3%** to **$63,200 thousand**, driven by a **210.4%** surge in cannabis/hemp revenue; however, gross profit turned into a loss, and operating and net losses significantly expanded due to increased cost of sales, rising operating expenses, and substantial goodwill impairment Financial Results | Indicator ($ thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Year-over-Year Change | | :-------------------- | :-------------------------- | :-------------------------- | :----------- | | Total Net Revenue | $63,200 | $42,905 | 47.3% | | Tobacco Net Revenue | $24,848 | $30,551 | (18.7%) | | Cannabis/Hemp Net Revenue | $38,352 | $12,354 | 210.4% | | Gross (Loss) Profit | $(5,488) | $1,819 | (401.7%) | | Total Operating Expenses | $103,171 | $35,710 | 188.9% | | Goodwill Impairment | $33,360 | $0 | Not Applicable | | Operating Loss | $(108,659) | $(33,891) | 220.6% | | Net Loss | $(111,441) | $(33,518) | 232.5% | | Basic and Diluted Loss Per Share | $(6.85) | $(2.71) | 152.8% | - The decline in tobacco revenue is due to the company's plan to reallocate production resources from lower-margin filtered cigars to higher-margin VLN® and conventional cigarette products[223](index=223&type=chunk) - Cannabis/hemp revenue surged due to a full sales period following the GVB acquisition and continued growth in bulk ingredient sales[223](index=223&type=chunk) - Selling, General and Administrative (SG&A) expenses increased by **$9,496 thousand** (**31.2%**) for the nine-month period, driven by inflation, headcount, sales and marketing, and IT/facilities costs, partially offset by reduced strategic consulting fees[224](index=224&type=chunk)[225](index=225&type=chunk)[226](index=226&type=chunk) - Research and Development (R&D) expenses increased by **$568 thousand** (**13.0%**) for the nine-month period, primarily due to increased R&D personnel and higher Keygene research contract costs[228](index=228&type=chunk) - Other operating expenses, net, significantly increased to **$24,917 thousand** for the nine-month period, primarily due to **$24,317 thousand** in restructuring costs (including impairment of intangible assets, fixed assets, right-of-use assets, professional services, and severance)[229](index=229&type=chunk)[231](index=231&type=chunk) - Interest expense increased by **$2,689 thousand** (**1,169.1%**) for the nine months of 2023, primarily due to interest on the Senior Secured Credit Facility and Subordinated Notes[232](index=232&type=chunk) [Liquidity and Capital Resources](index=67&type=section&id=Liquidity%20and%20Capital%20Resources) The company faces significant going concern doubts due to continuous losses, negative operating cash flow (**$50,184 thousand** for nine months), and working capital of only **$856 thousand** as of September 30, 2023; despite recent capital raises and debt reduction, existing resources are insufficient for the remainder of fiscal year 2023, necessitating ongoing strategic evaluation and financing efforts - As of September 30, 2023, the company had **$50,184 thousand** in cash outflow from operating activities and an accumulated deficit of **$349,373 thousand**[233](index=233&type=chunk) Liquidity and Capital Resources | Indicator ($ thousands) | September 30, 2023 | December 31, 2022 | Change | | :-------------------- | :----------- | :----------- | :----- | | Cash and Cash Equivalents | $2,850 | $3,020 | $(170) | | Restricted Cash | $7,500 | $0 | $7,500 | | Working Capital | $856 | $31,587 | $(30,731) | - The company did not comply with its Q3 2023 revenue covenant but received a waiver; future non-compliance could lead to accelerated debt repayment, which the company may be unable to meet immediately[234](index=234&type=chunk) - Management is evaluating plans for expense reductions, asset sales, and strategic collaborations, but these plans do not eliminate the substantial doubt about the company's ability to continue as a going concern[235](index=235&type=chunk) - In 2023, the company received **$37,173 thousand** in net proceeds from debt and equity financing activities and **$5,000 thousand** in casualty insurance proceeds from the Grass Valley fire[242](index=242&type=chunk) - In October 2023, the company reduced its primary debt balance by **$8,100 thousand**, saving approximately **$500 thousand** in annual cash interest[243](index=243&type=chunk) - Current cash resources are not expected to be sufficient to support liquidity needs for the remainder of fiscal year 2023[243](index=243&type=chunk) [Critical Accounting Policies and Estimates](index=75&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's financial statements rely on significant estimates and judgments, particularly for contingent consideration and detachable warrants, which are fair valued using unobservable inputs and can be materially impacted by future events and changes in assumptions - Contingent consideration is a financial liability recorded at fair value, with its amount based on judgments regarding the probability and timing of future events (e.g., achievement of revenue milestones) and the discount rate used, where changes in these estimates could materially impact operating results[268](index=268&type=chunk) - Warrants issued in conjunction with debt or equity offerings are classified as liabilities and measured at fair value if the company may be required to redeem them for cash or other assets; the company uses a Monte Carlo valuation model, with key assumptions including the expected future volatility of the company's stock price and the expected life of the warrants[269](index=269&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=77&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) There have been no material changes to market risk disclosures since the Form 10-K annual report filed on December 31, 2022 - Market risk information has not materially changed since the annual report on Form 10-K filed on December 31, 2022[273](index=273&type=chunk) [Item 4. Controls and Procedures](index=77&type=section&id=Item%204.%20Controls%20and%20Procedures) As of September 30, 2023, the company's disclosure controls and procedures were deemed effective, ensuring timely and accurate reporting, with no significant changes in internal control over financial reporting during the quarter - As of September 30, 2023, the company's disclosure controls and procedures were deemed effective[275](index=275&type=chunk) - There were no material changes in internal control over financial reporting during the quarter ended September 30, 2023[276](index=276&type=chunk) [PART II. OTHER INFORMATION](index=78&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=78&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ongoing legal proceedings, including a preliminarily settled class action and a shareholder derivative suit, as detailed in Note 11; no other material legal proceedings are currently pending that could significantly harm the company's business and financial condition - Information regarding ongoing legal proceedings is detailed in Note 11 – Commitments and Contingencies to the financial statements[279](index=279&type=chunk) - No other material legal proceedings are currently pending that could significantly harm the company's business and financial condition, other than those described in Note 11[279](index=279&type=chunk) [Item 1A. Risk Factors](index=78&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including going concern doubts from historical losses and negative cash flow, the need for additional funding, potential debt covenant non-compliance, further restructuring and impairment charges, and regulatory/litigation risks from the evolving CBD market - Due to historical losses and negative operating cash flow, there is substantial doubt about the company's ability to continue as a going concern, which could negatively impact business relationships and employee morale[280](index=280&type=chunk)[281](index=281&type=chunk) - The company requires additional capital to execute its business plan and sustain operations, with no assurance that it can raise the necessary funds[282](index=282&type=chunk) - Failure to comply with covenants in the Senior Secured Notes could lead to accelerated debt repayment, which the company may be unable to meet, potentially forcing liquidation or bankruptcy[283](index=283&type=chunk)[284](index=284&type=chunk)[286](index=286&type=chunk) - The company may continue to incur significant restructuring and impairment charges as it pursues cost reduction initiatives and explores strategic alternatives[287](index=287&type=chunk) - The continued success of cannabinoid-containing products is subject to evolving state and federal laws, regulations, and uncertain regulatory enforcement policies, particularly the FDA's stance on CBD in food/dietary supplements[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk) - Non-compliance with FDA requirements or misleading advertising of CBD products could result in penalties, product recalls, fines, and costly class action lawsuits[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=84&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities or use of proceeds were reported during this period - None[301](index=301&type=chunk) [Item 3. Default Upon Senior Securities](index=84&type=section&id=Item%203.%20Default%20Upon%20Senior%20Securities) No default upon senior securities was reported during this period - None[301](index=301&type=chunk) [Item 4. Mine Safety Disclosures](index=84&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) No mine safety disclosures were reported during this period - None[301](index=301&type=chunk) [Item 5. Other Information](index=84&type=section&id=Item%205.%20Other%20Information) During the three months ended September 30, 2023, no modifications, adoptions, or terminations of any contracts, instructions, or written plans for the purchase or sale of securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) were made by the company's directors or executive officers - No modifications, adoptions, or terminations of Rule 10b5-1(c) trading plans were made by directors or executive officers[301](index=301&type=chunk) [Item 6. Exhibits](index=85&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including amendments to articles of incorporation, waiver and amendment agreements, warrant forms, retention agreements, employment agreements, and certifications - Exhibits include Amended and Restated Articles of Incorporation (Exhibit 3.1), Waiver and Amendment Agreement (Exhibit 4.1), various Warrant Forms (Exhibits 4.2, 4.3, 4.4), Retention Agreements (Exhibits 10.1, 10.2), Amended and Restated Employment Agreement (Exhibit 10.3), and Section 302/906 Certifications (Exhibits 31.1, 31.2, 32.1)[304](index=304&type=chunk) [SIGNATURES](index=86&type=section&id=SIGNATURES) This report was duly signed by Interim Chief Executive Officer John J. Miller and Chief Financial Officer R. Hugh Kinsman on November 6, 2023 - The report was signed by Interim Chief Executive Officer John J. Miller and Chief Financial Officer R. Hugh Kinsman on November 6, 2023[307](index=307&type=chunk)

22nd Century Group, Inc. (NASDAQ:XXII) Q2 2023 Earnings Conference Call August 14, 2023 8:00 AM ET Company Participants Matt Kreps - IR Hugh Kinsman - CFO John Miller - Interim CEO Conference Call Participants Vivien Azer - TD Cowen Jim McIlree - Dawson James Operator Good morning, ladies and gentlemen, and welcome to the 22nd Century Group Second Quarter 2023 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Matt Kreps. Please go ahead, sir. Matt Kreps Tha ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From ________ to ________ Commission File Number: 001-36338 22nd Century Group, Inc. (Exact name of registrant as specified in its charter) (State or other juri ...

Financial Data and Key Metrics Changes - Net sales increased 144% quarter-over-quarter to $22 million, reflecting the addition of GVB revenue [48] - Gross profit is projected to improve significantly in Q2 2023 due to a higher margin product mix and the return of production capabilities [49] - Revenue guidance for fiscal year 2023 is set at $105 million to $110 million, representing a 69% to 77% increase from $62 million in 2022 [13][53] Business Line Data and Key Metrics Changes - Tobacco revenue for Q1 remained relatively unchanged at $8.9 million, with gross profit slightly decreasing to $18,000 due to a reallocation towards higher margin products [50] - Hemp/cannabis revenue grew 85% to $13 million from $7 million, driven by strong customer demand for bulk ingredient products [51] - The company reported record cannabinoid ingredient volumes, delivering over 68,000 kilograms in Q1, four times the amount delivered in the same quarter last year [39] Market Data and Key Metrics Changes - The VLN rollout is occurring at twice the speed of a typical tobacco product rollout, with plans to expand from 500 stores to 5,000 [16][20] - The company has secured major national-scale distribution agreements, enabling rapid placement of VLN into thousands of stores across multiple states [14][20] - The hemp/cannabis business is positioned as a market leader in North America, with a focus on expanding sales and distribution capabilities [37] Company Strategy and Development Direction - The company aims to achieve cash positive operations in 2024, focusing on growth in both tobacco and hemp/cannabis business units [7][15] - Strategic initiatives include cost-cutting measures and a focus on high-margin products, with a commitment to not solely rely on cost reductions for success [8][15] - The company is enhancing consumer marketing strategies to drive awareness and acceptance of VLN, positioning it as a solution for smokers [23][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue targets and highlighted the importance of business interruption insurance in improving financial results [9][52] - The company anticipates significant margin expansion in the second half of 2023 due to restored production capacity and new distribution agreements [13][49] - Management emphasized the importance of federal regulations and potential market opportunities arising from reduced nicotine content mandates [34] Other Important Information - The company received $5 million in insurance proceeds from the Grass Valley fire in Q1, with additional proceeds of approximately $8 million expected in Q2 [52] - The company is actively pursuing international market opportunities, with tests planned in Switzerland and Japan [30][31] Q&A Session Summary Question: Impact of shelf resets on VLN revenue generation - Management confirmed that VLN is included in retailer merchandising plans and is positioned to meet the needs of smokers [55] Question: Revenue growth expectations from tobacco - Approximately 60% to 70% of the expected revenue increase is driven by VLN, with the remainder from Pinnacle growth [57] Question: Timing and ramping of contracts with Old Pal and Cookies - Shipments from these contracts are expected to start in Q3, with significant ramp-up anticipated in Q4 and continuing into 2024 [60] Question: Price positioning of Pinnacle amidst down trading in U.S. cigarettes - Pinnacle is positioned competitively, similar to Lucky Strike, to attract consumers [63] Question: Update on VLN launch in priority states - The company is on track with plans for Arizona, New Mexico, and Utah, focusing on retailer demand and schematic changes [65] Question: Menthol market mix and marketing strategy - The company is monitoring menthol market dynamics and positioning VLN as a solution for menthol smokers [69] Question: Gross margin expectations for 2023 and 2024 - Expected gross margins for hemp could reach 20% to 30% by 2024, while tobacco margins are projected to expand significantly as VLN sales ramp up [82]