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Item 1A. Risk Factors

2022-03-01 compared with 2021-03-11 · 199 added, 187 removed, 199 unchanged (66% of the section changed)

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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 the COVID-19 Pandemic or Another Pandemic

The coronavirus pandemic (COVID-19) or another pandemic may cause a variety of business disruptions and future business risks.

The COVID-19 pandemic has adversely impacted the U.S.

economy and supply chains and created volatility in U.S.

financial markets.

The COVID-19 pandemic has disrupted our business operations to a limited degree already, and there is a risk that state and federal authorities’ responses to the COVID-19 pandemic or another pandemic may disrupt our business in the future.

The COVID-19 pandemic also poses a risk to our business which includes delays by third party providers of goods or services to our business, inability to operate in-person at our offices, interruptions to our sales, research and development, and administrative activities, and disruptions to our manufacturing operations, including the ability to staff our manufacturing operations at full capacity or at all.

Similarly, state or federal authorities may also be affected in their capacity or capability to operate as normal and may impact the timeline of product authorizations which may disrupt our business plans.

Our corporate office, laboratory in Buffalo, and production facility remain open and are operating under strict safety protocols.

We continue to encourage remote work arrangements by our employees where job duties permit.

At times during 2020, we were unable to have our full staff (or any staff) in our laboratory in Buffalo and some of our external research and development partners operated (or are still operating) on a modified or limited schedule, which slowed our research activities.

These interruptions have had a minimal impact on our research operations.

The future extent of the impact of the COVID-19 pandemic or another pandemic, including our ability to execute our business strategies as planned, will depend on future developments, including the duration and severity of the pandemic, which are highly uncertain and cannot be predicted.

The COVID-19 pandemic may also impact our ability to access the U.S.

capital markets on a timetable and under terms that are advantageous to the Company.

Our executive leadership team and staff are monitoring this evolving situation and its impacts on our business.

We will continue to monitor the local, state and federal guidance regarding our business practices.

Risks Related to Our Business and Operations

We have had a history of losses, and we may be unable to achieve and sustain profitability.

We have experienced net losses of approximately $19.7 million, $26.6 million and $8.0 million during the years ended December 31, 2020, 2019, and 2018, respectively.

While our current balance of cash and cash equivalents and short-term investment securities is adequate to sustain our current planned operations, generating net income in the future will depend on our ability to successfully operate our cigarette manufacturing facility, create, sell and market our

proprietary tobacco and hemp products, and generate royalty revenue from the licensing of our intellectual property.

There is no guarantee that we will be able to achieve or sustain profitability in the future.

An inability to successfully achieve profitability will decrease our long-term viability.

We have had a history of negative cash flow, and our ability to sustain positive cash flow is uncertain.

As a result of our extensive research and development activities and regulatory expenses seeking FDA approvals, we have had a history of negative cash flow from operating activities, before cash used in investing activities and cash provided by financing activities, including approximately $15.6 million during the year ended December 31, 2020.

We believe our current position of cash and cash equivalents and short-term investment securities is adequate to sustain operations and to meet all current planned obligations as they come due for over one year.

Generation of positive cash flow from operations will depend on our ability to successfully implement income generating activities discussed in the previous risk factor discussion.

An inability to successfully implement positive cash flows from operating activities will decrease our long-term viability.

If we fail to obtain FDA and foreign regulatory approvals for authorization to market our VLNC tobacco as a Modified Risk Cigarette, we will be unable to commercialize this potential product in and outside the U.S.

Although our PMTA for our VLNC tobacco cigarettes has been authorized by the FDA for marketing and sale in the United States, there can be no assurance that our MRTPA for our VLNC tobacco cigarettes will be authorized by the FDA and/or that our VLNC tobacco cigarettes will be approved by foreign regulators.

In addition, there can be no assurance that all necessary approvals will be granted for our potential products or that review or actions will not involve delays caused by requests for additional information or testing that could adversely affect the time and cost to market and sell our potential products.

The development, testing, manufacturing, and marketing of our potential products are subject to extensive regulation by governmental authorities in the United States and throughout the world.

In particular, the process of obtaining approvals by the FDA and other international FDA equivalent agencies in targeted countries is costly and time consuming, and the time required for such approvals is uncertain, as are the ultimate decisions of these agencies.

Our MRTPA for our VLNC tobacco cigarettes must undergo an extensive regulatory approval process mandated by the FDA in the U.S.

and any other approval processes required by FDA-equivalent agencies in foreign countries where we want to introduce our potential products.

The scope of review, including product testing and exposure studies, to be required by the FDA under the Tobacco Control Act in order for cigarettes to be marketed as Modified Risk Cigarettes has not yet been fully established, even though the FDA issued Modified Risk Tobacco Product Applications Draft Guidance on March 30, 2012.

Additionally, as a combustible product, albeit one pursuing a modified exposure order, our product may be subject to different considerations or requirements by regulators than products undergoing similar regulatory reviews.

Delays or the denial of our MRTPA for our VLNC tobacco cigarettes or another future application by the FDA or another regulatory authority would negatively impact our business and planned operations and could result in a loss of time and expense pursuing such approvals and the inability to commercialize such potential products at all.

Our competitors may develop products that are less expensive, safer or otherwise more appealing, which may diminish or eliminate the commercial success of any potential product that we may commercialize.

If our competitors market products that are less expensive, safer or otherwise more appealing than our potential products, or that reach the market before our potential products, we may not achieve commercial success.

The market may choose to continue utilizing existing products for any number of reasons, including familiarity with or pricing of these existing products.

The failure of our PMTA product or our MRTPA product to compete with products marketed by our competitors would impair our ability to generate revenue, which would have a material adverse effect on our future business, financial condition, results of operations, and cash flows.

Our competitors may:

● develop and market products that are less expensive, safer, or otherwise more appealing than our products;

● commercialize competing products before we or our partners can launch our products;

● initiate or withstand substantial price competition more successfully than we can.

If we fail to stay at the forefront of technological change, we may be unable to compete effectively.

We have had a history of losses and we may be unable to achieve and sustain profitability and positive cash flows from operations.

As a result of our extensive research and development activities and regulatory expenses seeking FDA approvals, we have experienced net losses of approximately $32.6 million, $19.7 million and $26.6 million during the years ended December 31, 2021, 2020, and 2019, respectively, and negative cash flow from operations of approximately $22.8 million during the year ended December 31, 2021.

While our current balance of cash and cash equivalents and short-term investment securities is adequate to sustain our current planned operations, generating positive cash flows in the future will depend on our ability to successfully operate our manufacturing facility, our ability to generate market acceptance for our VLN ® cigarettes and our ability to create, sell and market other proprietary tobacco and hemp products, and/or generate royalty revenue from the licensing of our intellectual property.

There is no guarantee that we will be able to achieve or sustain positive cash flows and profitability in the future.

Our inability to successfully achieve positive cash flows and profitability will decrease our long-term viability and prospects.

Our competitors generally have, and any future competitors may have, greater financial resources and name recognition than we do, and they may therefore develop products or other technologies similar or superior to ours, or otherwise compete more successfully than we do.

In the tobacco industry, we are competing with large tobacco companies and large pharmaceutical companies that have greater resources that us.

The tobacco industry consists of major domestic and international companies, most of which have existing relationships in the markets in which we plan to sell, as well as financial, technical, research and development, marketing, sales, manufacturing, scaling capacity, distribution, lobbying and other resources and name recognition substantially greater than ours.

In addition, we expect new competitors will enter the markets for similar tobacco products in the future and the nature and extent of this market entrance cannot be quantified at this time.

In the cannabis industry, many large companies are entering into the cannabis space, along with smaller regional companies and competition from the black market.

Potential customers may choose to do business with more established competitors because of their perception that our competitors are more stable, can scale operations more quickly, have greater manufacturing capacity, have robust marketing and sale programs and lend greater credibility to governmental regulators and others.

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 VLNC 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 Modified Risk Tobacco products, working to develop low nicotine tobacco and other tobacco alternative products in an effort 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 VLNC tobacco and cigarettes obsolete, which would have a material adverse impact on our business and operations and our ability to achieve profitability.

In the cannabis industry, there are numerous companies conducting research and development on the cannabis plant in order to develop new and differentiated products.

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;

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● more effectively negotiate third-party licenses and strategic relationships;

● commercialize competing products before we or our partners can launch our products;

● initiate or withstand substantial price competition more successfully than we can;

● take advantage of acquisition or other opportunities more readily than we can.

Negative press from being in the hemp/cannabis space could have a material adverse effect on our business, financial condition, and results of operations.

The hemp plant and the marijuana plant are both part of the same cannabis genus of plant, except that hemp, by definition, has not more than 0.3% THC content and is legal under the federal 2018 Farm Bill and certain state laws, but the same plant with a higher THC content is defined as marijuana, which is legal under certain state laws, is not legal under federal law.

The similarities between these plants can cause confusion, and our activities with legal hemp may be incorrectly perceived as us being involved in federally illegal marijuana.

Also, despite growing support for the marijuana industry and legalization of marijuana in certain U.S.

states, many individuals and businesses remain opposed to the marijuana industry.

Any negative press resulting from the incorrect perception that we have entered into the marijuana space could result in a loss of current or future business.

It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock.

We cannot assure you that additional business partners, including but not limited to financial institutions, banking institutions and customers, will not attempt to end or curtail their relationships with us.

Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations.

Any business-related cannabinoid production is dependent on laws pertaining to the hemp/cannabis industry .

On December 20, 2018, the Agricultural Improvement Act of 2018, which is also known as the “2018 Farm Bill,” was enacted and legalized hemp and hemp products under U.S.

federal law, but with compliance still being required with all applicable state hemp laws and all regulations developed by the United States Department of Agriculture (“USDA”).

In addition, the FDA is regulating products derived from hemp, including cannabidiol (“CBD”), for compliance under the Federal Food, Drug and Cosmetic Act and has issued several warning letters to firms marketing CBD products to treat disease or for other therapeutic uses.

Under the Federal Food, Drug and Cosmetic Act, any product intended to affect the structure or function of the body of humans or animals is considered a drug that must receive premarket approval by the FDA through its new drug application process.

Thus, participants in the hemp industry will need to comply with all applicable federal and state laws, rules and regulations in the cultivation, transportation, and sale of hemp and hemp derived products, including the Federal Food, Drug and Cosmetic Act.

As of January 1, 2021, (i) federal law and the laws of 47 states in the United States and the District of Columbia have legalized hemp, (ii) 36 states in the United States, the District of Columbia, Guam, Puerto Rico, and the U.S.

Virgin Islands have enacted laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis/marijuana and consumer use of cannabis/marijuana in connection with medical treatment, and (iii) 15 states in the United States, the District of Columbia, Guam, and the Northern Mariana Islands have legalized cannabis/marijuana for adult recreational use.

Many other states are considering similar legislation.

Conversely, under the federal Controlled Substance Act (the “CSA”), the policies and regulations of the federal government and its agencies are that marijuana has no medical benefit and a range of activities are prohibited, including cultivation, possession, personal use, and interstate distribution of marijuana.

In the event the U.S.

Department of Justice begins strict enforcement of the CSA in states that have laws legalizing medical and/or adult recreational marijuana, there may be a direct and adverse impact to

any future business or prospects that we may have in the marijuana business.

Even in those jurisdictions in which the manufacture and use of medical marijuana has been legalized at the state level, the possession, use, and cultivation of marijuana all remain violations of federal law that are punishable by imprisonment and substantial fines.

Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance laws or conspire with another to violate them.

We currently conduct sponsored research on hemp in Maryland and the Netherlands with third parties that possess all necessary permits and licenses to engage legally in such activities.

We have conducted hemp research in Virginia, Oregon, and Canada with third-parties possessing all necessary permits and licenses to engage legally in such activities.

In order to carry out research in other countries, similar licenses are required to be issued by the relevant authority in each country.

We also conduct hemp research in our laboratories in New York under a license granted to us by the State of New York.

Local, state, federal, and international hemp and marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance requirements.

In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations.

In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business regarding cannabinoid production.

It is also possible that the federal government will begin strictly enforcing existing laws, which may limit the legal uses of the hemp plant and its derivatives and extracts, such as cannabinoids.

However, our work in hemp would continue since hemp research, development, and commercialization activities are permitted under applicable federal and state laws, rules, and regulations.

We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our activities in the legal hemp industry.

A key aspect of the revised strategy for cannabis is to reach an agreement with third parties to research characteristics of the cannabis plant and commercialize patented products through the value chain.

Any inability to produce hemp/cannabis products due to regulatory restrictions or otherwise would have a material adverse impact on our business and operations.

Our studies and testing of any of our potential products may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional studies and/or testing for these potential products or cease our studies and testing.

We do not know whether further studies and testing of our potential products will demonstrate safety and efficacy sufficient to result in marketable products.

We may not be able to obtain approval or marketing authorization for these potential products or our anticipated time of bringing these potential products to the market may be substantially delayed.

We may also experience significant additional development costs and be required to undertake additional studies and/or testing if we change our potential products.

Furthermore, 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 would have a material adverse effect on our business.

We have no experience marketing and selling Modified Risk Tobacco products and any potential hemp/cannabis products and our working capital and inventory estimates based on demand expectations may be incorrect, which could harm our operating results and financial condition.

While members of management are experienced in the selling of conventional cigarette products, we have no experience in selling Modified Risk Tobacco Products or any hemp/cannabis derived products on a commercial basis.

As work towards potentially commercializing one or more of our potential products for sale, including our VLN cigarettes, we intend to 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 and working capital expenses could rise, and our business and operating results could suffer.

Alternatively, if we experience sales in excess of our estimates, our working capital and inventory needs may be higher than those currently anticipated.

Since our Modified Risk 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.

Similarly, for any potential hemp/cannabis products to be marketed and sold, our management must make estimates for inventory, distribution, marketing and compliance with regulations, which could provide to be incorrect.

Our ability to meet any demand for our products may depend on our ability to arrange for additional financing for any ongoing working capital shortages, since it is likely that cash flow from sales will lag behind our investment requirements.

Any inability to incorrectly estimate demand for future products could negatively harm our operating results and financial condition.

Our research and development process may not develop marketable products, 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 approvals or 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.

We may acquire or invest in other companies, which may divert our management’s attention, result in additional dilution to our stockholders, and consume resources that are necessary to sustain our business or result in losses..

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Negotiating these transactions can be time-consuming, difficult and expensive, and our ability to complete these transactions may often be subject to conditions or approvals that are beyond our control.

Consequently, these transactions, even if undertaken and announced, may not close.

Consequently, these transactions, even if undertaken and announced, may not close or may not yield the benefits that we expect.

Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for the development of our business.

Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown liabilities, including litigation against the companies that we may acquire.

We may be unable to restructure our investment in Panacea which could result in further impairment or losses.

As a result of increased competition and other macroeconomic factors, our investment in Panacea has been impaired since the date of our initial investment—see Note 6 to our consolidated financial statements for further information.

Although we recently entered into a non-binding agreement with Panacea to potentially restructure our investment and business relationship, the agreement is preliminary, non-binding, subject to change, and may not occur.

The failure to restructure our investment with Panacea could result in further impairment of our investment, additional capital investments to fund operations, losses as a result of a default on their $7 million principal convertible note receivable with us, litigation, or further losses.

We may require additional capital before we can complete the FDA authorization process for our Modified Risk Tobacco Product Application (“MRTPA”).

We may require additional capital in the future before we can complete the FDA authorization process for our MRTPA and to commercialize and market VLN ® successfully.

The cost of completing the FDA authorization process for our MRTPA is difficult to estimate since it is currently unknown exactly what the FDA will require;

there is no precedent for the authorization of a combusted product under the MRTP requirements.

If we raise additional funds through the issuance of equity securities to complete the FDA authorization process for our MRTPA, our stockholders may experience substantial dilution, or the equity securities may have rights, preferences or privileges senior to those of existing stockholders.

If we raise additional funds through debt financings, these financings may involve significant cash payment obligations and covenants that restrict our ability to operate our business and make distributions to our stockholders.

We could also wait for our own revenues and profits to be sufficient for us to provide such funding, which could delay our completion of the FDA authorization process for our MRTPA.

We also could elect to seek funds through arrangements with collaborators or licensees.

To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our potential products or grant licenses on terms that are not favorable to us.

If we cannot raise additional capital on acceptable terms, we may not be able to, among other things:

● undertake the steps necessary to seek FDA authorization of our MRTPA;

● develop or enhance our potential products or introduce new products;

● expand our development, sales and marketing, and general and administrative activities;

● attract tobacco growers, customers, or manufacturing and distribution partners;

● acquire complementary technologies, products, or businesses;

● expand our operations in the United States or internationally;

● hire, train, and retain employees;

● respond to competitive pressures or unanticipated working capital requirements.

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 our three largest customers, and we do not have an agreement 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.

Our principal competitors in the conventional or modified risk tobacco products market have, and any future competitors may have, greater financial and marketing resources 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.

While there is significant management experience in selling conventional products, we have no experience in selling modified risk tobacco products.

As of December 31, 2020, the only companies that have received authorization from the FDA to market modified risk tobacco products in the United States are Swedish Match and Phillip Morris SA, which both have significantly greater resources than us.

The industry consists of major domestic and international companies, most of which have existing relationships in the markets in which we plan to sell, as well as financial, technical, research and development, marketing, sales, manufacturing, scaling capacity, distribution and other resources and name recognition substantially greater than ours.

In addition, we expect new competitors will enter the markets for our products in the future and the nature and extent of this market entrance cannot be quantified at this time.

Potential customers may choose to do business with our more established competitors because of their perception that our competitors are more stable, are more likely to complete various projects, can scale operations more quickly, have greater manufacturing capacity, are more likely to continue as a going concern, and lend greater credibility to any joint venture.

If we are unable to compete successfully against manufacturers of other modified risk tobacco products for the custom of adult who smoke, our business could suffer, and we could lose or be unable to obtain market share.

Product liability claims, product recalls, or other claims could cause us to incur losses or damage our reputation.

The risk of product liability claims or product recalls, and associated adverse publicity, is inherent in the development, manufacturing, marketing, and sale of modified risk 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.

The coronavirus pandemic (COVID-19) or another pandemic may cause a variety of business disruptions and future business risks.

The COVID-19 pandemic continues to adversely impact the U.S.

economy and supply chains.

The COVID-19 pandemic has disrupted our business operations in the past and there is a risk that state and federal authorities’ responses to the COVID-19 pandemic or another pandemic may disrupt our business in the future.

The COVID-19 pandemic poses a risk to our business which includes delays by third party providers of goods or services to our business, inability to operate in-person at our offices, interruptions to our sales, research and development, and administrative activities, and disruptions to our manufacturing operations, including the ability to staff our manufacturing operations at full capacity or at all.

Our corporate office, laboratory in Rockville and production facility remain open and are operating under strict safety protocols.

We continue to encourage remote work arrangements by our employees where job duties permit.

At times during 2020 and 2021, we were unable to have our full staff (or any staff) in our laboratory in Buffalo (and subsequently in Rockville) and some of our external research and development partners operated (or are still operating) on a modified or limited schedule, which slowed our research activities.

To date, these interruptions have had a minimal impact on our research operations.

Our executive leadership team and staff are monitoring this evolving situation and its impacts on our business.

We will continue to monitor the local, state and federal guidance regarding our business practices.

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.

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.

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If we fail to manage our growth effectively, we may be unable to execute our business plan or to address competitive challenges adequately.

From 2013 to December 31, 2020, we grew from nine (9) employees to sixty-seven (67) employees.

From 2013 to December 31, 2021, we grew from nine (9) employees to seventy-six (76) employees.

Any future growth in our business will place a significant strain on our managerial, administrative, operational, financial, information technology and other resources.

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Risks Related to the Tobacco Industry

We may be unsuccessful at commercializing our VLNC tobacco as a Modified Exposure Cigarette.

While we have recently received authorization for our MRTP application by the FDA, there are no guarantees regarding the commercial viability of our VLNC tobacco cigarettes.

To date, there has never been a comparable product sold in the marketplace and we have not yet generated any significant sales.

These products may not achieve consumer acceptance and may have low or unfavorable sales.

Further, on July 28, 2017, the FDA publicly announced that it intends to implement new regulations that will mandate minimally or non-addictive levels of nicotine in all cigarettes sold in the U.S.

There can be no assurance that the FDA will implement such new regulations or, if implemented, when

such regulations would take effect or whether such regulations would increase or create demand for our VLNC cigarettes.

The commercial success of our VLNC tobacco cigarettes will depend on a number of factors, including, but not limited to our ability to:

● achieve, maintain and grow market acceptance of, and demand for, such products;

● our ability to market the product with the phrase “ Helps You Smoke Less ”;

● 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 VLNC tobacco;

● maintain and extend intellectual property protection for such products;

● comply with applicable legal and regulatory requirements, including FDA and MSA regulations on advertising;

● competitively price our products;

● compete with other similar products or new technologies (if any);

● effectively sell our products into established markets where there is substantial market dominance by large tobacco enterprises.

If we are unsuccessful in commercializing our VLNC tobacco cigarettes, or such commercialization takes longer or costs more than we currently expect, our financial results, business and future prospects would be materially adversely effected.

We have no 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.

While members of management and our board of directors are experienced in the selling of conventional cigarette products, we have no experience in selling Modified Exposure Cigarettes or any hemp/cannabis plant-derived products on a commercial basis.

As we work towards commercializing one or more of our potential products for sale, including our VLN cigarettes, we intend to base our working capital and inventory decisions on management’s estimates of future demand.

Alternatively, if we experience sales in excess of our estimates, our working capital and inventory needs may be higher than those currently anticipated.

Since our VLNC 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 incorrectly estimate demand for future products could negatively harm our operating results and financial condition.

The manufacturing of tobacco products subjects us to significant governmental regulation and the failure to comply with such regulations could have a material adverse effect on our business and subject us to substantial fines or other regulatory actions.

As of December 31, 2020, most of the revenues of our manufacturing business are from the production of tobacco cigarettes and filtered cigars made for third-party brand owners of such products and we anticipate generating future revenue from the sales of our VLNC cigarettes and other modified risk tobacco products, assuming we obtain regulatory approvals.

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.

Currently, most of the revenues of our manufacturing business are from the production of tobacco cigarettes and filtered cigars, including flavored cigars, made for third-party brand owners of such products and we anticipate generating future revenue from the sales of our VLNC cigarettes and other Modified Risk Tobacco products.

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.

Manufacturers of tobacco products must comply with FDA regulations which require, among other things, compliance with the FDA’s evolving regulations on Current Good Manufacturing Practices (“cGMP(s)”), which are enforced by the FDA through its facilities inspection program.

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 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.

We cannot guarantee that our current manufacturing facility will pass FDA inspections and/or similar inspections in foreign countries to produce our tobacco products, or that future changes to cGMP manufacturing standards will not also negatively affect the cost or sustainability of our manufacturing facility.

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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.

Significant regulatory developments will take place over the next few years in many markets, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”).

We expect significant regulatory developments to take place over the next few years in many 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.

Partly because of some or a combination of these efforts, unit sales of conventional tobacco products in certain markets, principally Western Europe and Japan, have been in general decline and we expect this trend to continue.

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.

If the FDA’s proposed rule regarding graphic health warnings on cigarette packaging and in cigarette advertising is finalized, the final rule is likely to have a negative impact on sales of our third-party customers’ products and potential Company products.

On August 16, 2019, as required by the Federal Cigarette Labeling and Advertising Act, as amended by the Family Smoking Prevention and Tobacco Control Act, the FDA issued a proposed rule to modify the required warnings that appear on cigarette packages and in cigarette advertisements.

The FDA proposes to require tobacco product manufacturers to display one of thirteen pairs of text warnings and photorealistic images depicting negative health consequences of smoking.

If finalized, the rule would require, within 15 months of finalization, the graphic health warnings to appear directly on the cigarette package and be directly visible beneath the cellophane wrapping and comprise the top 50 percent of the front and rear panels of cigarette packages.

FDA first promulgated a final rule in September 2012, which would have imposed graphic health warning requirements to those proposed in the FDA’s August 2019 proposed rule.

However, a federal appellate court vacated the September 2012 rules after holding that the rule was unconstitutional.

If the FDA successfully implements these revised regulations announced in its August 2019 proposed rule, and any reviewing federal court does not strike them down on constitutional or other grounds, then all cigarettes manufactured for sale or distribution in the United States will need to include these new graphic health warnings on their packages consistent with the effective date(s) included in such regulations.

Any resulting reduction in the number of smokers will probably reduce the demand for the products manufactured by our factory for our potential Company products and for third-party brand owners of such products.

If regulations by the FDA requiring the reduction of nicotine to minimally or non-addictive levels in all cigarettes sold in the U.S.

are delayed or not implemented, then the anticipated resulting demand for our proprietary Very Low Nicotine Content tobacco may not occur.

On July 28, 2017, the FDA publicly announced that it intends to implement new regulations that will mandate minimally or non-addictive levels of nicotine in all cigarettes sold in the U.S.

There can be no assurance that the FDA will implement such new regulations or, if implemented, when such regulations would take effect.

In the event the FDA does not implement such new regulations or implementation is delayed, then the anticipated resulting demand for our proprietary VLNC tobacco may not occur and such action would have a material adverse effect on our future business and operations.

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 Risk Cigarettes or other tobacco products we sell or manufacture.

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.

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We anticipate that new cases will continue to be filed.

The FCTC encourages litigation against tobacco product manufacturers.

The FCTC encourages litigation against tobacco

product manufacturers.

It is possible that our results of operations, cash flows, or financial position could be materially affected by an unfavorable outcome or settlement of litigation.

Our production facility is integral to our business and adverse changes or developments affecting our facility may have an adverse impact on our business.

Our NASCO facility is integral to our 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 power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations.

A significant failure of our site security measures and other facility requirements, including failure to comply with applicable regulatory requirements, could have an impact on our ability to continue operating under our facility licenses and our prospects of renewing our licenses, and could also result in a suspension or revocation of these licenses.

The loss of a significant customer for whom we manufacture tobacco products could have an adverse impact on our results of operation.

Currently, a significant portion of our revenues (and corresponding accounts receivable) from manufacturing tobacco products are derived from a small number of large customers, and we do not have agreements with such customers requiring them to purchase a minimum amount of products from us or guaranteeing any minimum future purchase amounts from us.

Such customers may, at any time, delay or decrease their level of purchases from us or cease doing business with us altogether.

Product liability claims, product recalls, or other claims could cause us to incur losses or damage our reputation.

The risk of product liability claims or 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.

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 Company 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 Risk Cigarettes versus lower-priced cigarette brands manufactured by our competitors.

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 of the tobacco and other agricultural products used to manufacture our products.

We depend on independent tobacco farmers to grow our specialty proprietary tobaccos with specific nicotine contents for our potential products.

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 VLNC tobacco in the event that

one of our growers experienced a material adverse event with respect to a particular VLNC 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.

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Any significant change in tobacco leaf prices or taxes, quality and quantity could affect our profitability and our business.

We intend to distribute and sell our potential products outside of the U.S., which will subject us to other regulatory risks.

In addition to seeking authorization from the FDA to market our VLNC tobacco cigarettes as a Modified Risk Tobacco Product in the U.S., we intend to seek governmental approvals required to market our VLNC tobacco cigarettes

and our other products in other countries.

We intend to distribute and sell our products outside of the U.S., which will subject us to other regulatory risks.

In addition to the recent receipt of approval to market and sell our VLNC tobacco cigarettes as a Modified Exposure Cigarette in the U.S., we intend to seek governmental approvals required to market our VLNC tobacco cigarettes and our other products in other countries.

Marketing of our products is not permitted in certain countries until we have obtained required approvals or exemptions in these individual countries.

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Our ability to market our potential products could be substantially limited due to delays in receipt of, or failure to receive, the necessary approvals or clearances.

We anticipate commencing the applications required in some or all of these countries following authorization by the FDA;

however, we may decide to file applications in advance of the FDA authorization if we determine such filings to be both time and cost effective.

If we export any of our potential products, or products that have not yet been cleared for commercial distribution in the U.S., then such products may be subject to FDA export restrictions.

We anticipate commencing the applications required in some or all of these countries in the future.

Failure to obtain necessary regulatory approvals could impair our ability to generate revenue from international sources.

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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.

The willingness of adult consumers to purchase premium consumer tobacco products, such as our VLNC cigarettes, depends in part on economic conditions.

In periods of economic uncertainty, adult consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-priced tobacco products, which could have a material adverse effect on the business and profitability.

We may be unsuccessful in developing and commercializing adjacent products or processes, including innovative tobacco products that may reduce the health risks associated with certain other tobacco products and that appeal to adult tobacco consumers.

Some innovative tobacco products may reduce the health risks associated with certain other tobacco products, while continuing to offer adult tobacco consumers products that meet their taste expectations and evolving preferences.

Examples include tobacco-containing and nicotine-containing products that reduce or eliminate exposure to cigarette

smoke and/or constituents identified by public health authorities as harmful, such as electronically heated tobacco products, oral nicotine pouches, and e-vapor products.

We may not succeed in our efforts to develop and commercialize any adjacent products.

Further, we cannot predict whether regulators, including the FDA, will permit the marketing or sale of any particular innovative products (including products with claims of reduced risk to adult consumers), the speed with which they may make such determinations or whether regulators will impose an unduly burdensome regulatory framework on such products.

In addition, the FDA could, for a variety of reasons, determine that innovative products currently on the market, or those that have previously received authorization, including with a claim of reduced exposure, are not appropriate for the public health and the FDA could require such products be taken off the market.

We also cannot predict whether any products will appeal to adult tobacco consumers or whether adult tobacco consumers’ purchasing decisions would be affected by reduced-risk claims on such products if permitted.

Adverse developments on any of these matters could negatively impact the commercial viability of such products.

If we do not succeed in their efforts to develop and commercialize innovative tobacco products or to obtain regulatory approval for the marketing or sale of products, including with claims of reduced risk, but one or more of our competitors does succeed, we may be at a competitive disadvantage, which could have an adverse effect on our ability to commercialize our products.

An extended disruption at a facility or in service by a supplier, distributor or distribution chain service provider could have a material adverse effect on our business.

We face risks inherent in reliance on one manufacturing facility and a small number of key suppliers, distributors and distribution chain service providers.

A pandemic (including COVID-19), natural or man-made disaster or other disruption that affects the manufacturing operations, the operations of any key supplier, distributor or distribution chain service provider or any other disruption in the supply or distribution of goods or services (including a key supplier’s inability to comply with government regulations or unwillingness to supply goods or services to a tobacco company) could adversely impact our operations.

Some state governors also have issued executive orders requiring that certain businesses temporarily suspend operations for varying periods of time while the COVID-19 pandemic persists.

Our operations could be suspended temporarily once or multiple times, or closed permanently, depending on various factors, including how long the COVID-19 pandemic persists and the extent to which state, local and federal governments, as well as foreign countries, impose restrictions on the operation of facilities or otherwise place limits on the supply and distribution chains.

An extended disruption in operations or in the supply or distribution of goods or services by one or more key suppliers, distributors or distribution chain service providers could have a material adverse effect on our business.

The FDA could force the removal of our products from the U.S.

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The FDA could, among other things, force us to remove from the U.S.

market our VLNC tobacco cigarettes even after the FDA authorization on December 17, 2019 of our PMTA or the potential future authorization of our MRTPA for us to market in the U.S.

market our VLNC tobacco cigarettes even after the FDA authorization on December 17, 2019 of our PMTA or the authorization of our MRTP application on December 23, 2021, for us to market in the U.S.

our VLNC tobacco cigarettes, as well as the FDA could levy fines or change their regulations on advertising.

Any adverse action by the FDA could have a material adverse impact on our business.

Risk Factors Related to the Cannabis Industry

Negative press from being in the hemp/cannabis space could have a material adverse effect on our business, financial condition, and results of operations.

The similarities between these plants can cause confusion, and our activities with legal hemp may be incorrectly perceived as us being involved in federally illegal marijuana.

Also, despite growing support for the marijuana industry and legalization of marijuana in certain U.S.

states, many individuals and businesses remain opposed to the

marijuana industry.

Any negative press resulting from the incorrect perception that we have entered into the marijuana space could result in a loss of current or future business.

It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock.

Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations.

Any business-related cannabinoid production is dependent on laws pertaining to the hemp/cannabis industry .

On December 20, 2018, the Agricultural Improvement Act of 2018, which is also known as the “2018 Farm Bill,” was enacted and legalized hemp and hemp products under U.S.

federal law, but with compliance still being required with all applicable state hemp laws and all regulations developed by the United States Department of Agriculture (“USDA”).

Numerous states and countries have enacted laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis/marijuana and consumer use of cannabis/marijuana in connection with medical treatment and a smaller subset have legalized cannabis/marijuana for adult recreational use.

Many other states are considering similar legislation.

In the event the U.S.

Department of Justice begins strict enforcement of the CSA in states that have laws legalizing medical and/or adult recreational marijuana, there may be a direct and adverse impact to any future business or prospects that we may have in the marijuana business.

Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance laws or conspire with another to violate them.

We currently conduct sponsored research on hemp in Maryland and the Netherlands with third parties that possess all necessary permits and licenses to engage legally in such activities.

We have conducted hemp research in Virginia, Maryland, Oregon, Colorado, New York and Canada with third-parties possessing all necessary permits and licenses to engage legally in such activities.

In order to carry out research in other countries, similar licenses are required to be issued by the relevant authority in each country.

In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations.

In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business regarding cannabinoid production.

It is also possible that the federal government will begin strictly enforcing existing laws, which may limit the legal uses of the hemp plant and its derivatives and extracts, such as cannabinoids.

However, our work in hemp would continue since hemp research, development, and commercialization activities are permitted under applicable federal and state laws, rules, and regulations.

Any inability to produce hemp/cannabis products due to regulatory restrictions or otherwise would have a material adverse impact on our business and operations.

The cannabis industry and market are relatively new and evolving, which could impact our ability to succeed in this industry and market.

We are operating our business in a relatively new industry and market that is expanding globally.

To be competitive, we will need to innovate new products, build brand awareness and make significant investments in our business strategy and production capacity.

These investments include introducing new products into the markets in which we operate, adopting quality assurance protocols and procedures, building our international presence and undertaking research and development.

These activities may not promote our products as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with us for market share.

Competitive conditions, consumer preferences, regulatory conditions, patient requirements, prescribing practices, and spending patterns in this industry and market are relatively unknown and may have unique characteristics that differ from other existing industries and markets and that cause our efforts to further our business to be unsuccessful or to have undesired consequences.

As a result, we may not be successful in our efforts to develop new cannabis products and produce and distribute these products in time to be effectively commercialized, or these activities may require significantly more resources than we currently anticipate in order to be successful.

Research regarding the health effects of cannabis is in relatively early stages and subject to further study which could impact demand for cannabis products.

Research and clinical trials on the potential benefits and the short-term and long-term effects of cannabis use on human health remains in relatively early stages and there is limited standardization.

As such, there are inherent risks associated with using cannabis and cannabis derivative products.

Moreover, future research and clinical trials may draw opposing conclusions to statements contained in articles, reports and studies we relied on or could reach different or negative conclusions regarding the benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabis, which could adversely affect social acceptance of cannabis and the demand for any products.

United States regulations relating to hemp-derived CBD products are unclear and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives.

Any participation in the market for hemp-derived CBD products in the United States and elsewhere may require us to employ novel approaches to existing regulatory pathways.

Although the passage of the 2018 Farm Bill legalized the cultivation of hemp in the United States to produce products containing CBD and other non-THC cannabinoids, it remains unclear how the FDA will regulate these products, and whether and when the FDA will propose or implement new or additional regulations.

While, to date, there are no laws or regulations enforced by the FDA which specifically address the manufacturing, packaging, labeling, distribution, or sale of hemp or hemp-derived CBD products and the FDA has issued no formal regulations addressing such matters, the FDA has issued various guidance documents and other statements reflecting its non-binding opinion on the regulation of such products.

The FDA has stated in guidance and other public statements that it is prohibited to sell a food, beverage or dietary supplement to which THC or CBD has been added.

While the FDA does not have a formal policy of enforcement discretion with respect to any products with added CBD, the agency has stated that its primary focus for enforcement centers on products that put the health and safety of consumers at risk, such as those claiming to prevent, diagnose, mitigate, treat, or cure diseases in the absence of requisite approvals.

The FDA could also issue new regulations that prohibit or limit the sale of hemp-derived CBD products.

Such regulatory actions and associated compliance costs may hinder our ability to successfully compete in the market for any products.

In addition, any products may be subject to regulation at the state or local levels.

State and local authorities have issued their own restrictions on the cultivation or sale of hemp or hemp-derived CBD.

This includes laws that ban the cultivation or possession of hemp or any other plant of the cannabis genus and derivatives thereof, such as CBD.

State regulators may take enforcement action against food and dietary supplement products that contain CBD, or enact new laws or regulations that prohibit or limit the sale of such products.

The regulation of hemp and CBD in the United States has been constantly evolving, with changes in federal and state laws and regulation occurring on a frequent basis.

Violations of applicable FDA and other laws could result in warning letters, significant fines, penalties, administrative sanctions, injunctions, convictions or settlements arising from civil proceedings.

Unforeseen regulatory obstacles or compliance costs may hinder our ability to successfully compete in the market for such products.

Risks Related to Intellectual Property

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We may not be able to develop additional potential products or proprietary technologies that produce commercially viable products or that are themselves patentable.

Although there are currently no challenges to any portion of our intellectual property, our issued patents may be subject to challenge and potential invalidation by third parties.

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 obtain patent rights to similar products or technology, this may have an adverse effect on our business.

Should third parties develop alternative methods of regulating nicotine in tobacco or obtain patent rights to similar products or technology without infringing on our intellectual property rights, this may have an adverse effect on our business.

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.

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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 VLNC tobacco.

If 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 note however, that even if achieved, competitors would still be required to pursue FDA regulatory pathways, such as PMTA and MRTP, which in themselves are lengthy, complicated, and costly activities.

We also rely on trade secrets to protect our technology, products, and potential products, especially where we do not believe patent protection is appropriate or obtainable.

If independent researchers or our competitors are able to successfully reduce nicotine levels in tobacco plants without violating our patent protections, our ability to license our technology would be negatively impacted and we would likely face increased competition.

We also rely on license agreements and trade secrets to protect our technology, products, and potential products, especially where we do not believe patent protection is appropriate or obtainable.

Trade secrets, however, are difficult to protect.

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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.

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.

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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.

Our licensors may not successfully prosecute the patent applications to which we are licensed and may in some instances retain rights to the intellectual property that allows them to compete with us.

Even if patents are issued with respect to these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we could.

Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.

Our worldwide exclusive licenses relating to tobacco from NCSU involve multiple patent families.

Our worldwide exclusive licenses relating to tobacco from NCSU involve multiple patent families and trade secrets.

The exclusive rights under the NCSU agreements expire on the date on which the last patent or registered plant variety covered by the subject license expires in the country or countries where such patents or registered plant varieties are in effect.

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The Anandia sublicense continues through the life of the last-to-expire patent, which is expected to be in 2035.

If any of our license agreements or other intellectual property agreements are not effective at preventing others from competing with us and/or using our intellectual property, our business could be adversely affected.

Risks Related to Ownership of Our Common Stock

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In the absence of an active trading market for our common stock, shares of common stock may not be able to be resold at or above the purchase price of such shares.

Although there can be no assurances, we expect that our common stock will continue to be quoted on the New York Stock Exchange American market (“NYSE American”).

However, even if our common stock continues to be quoted on the NYSE American, there is no assurance that an active market for our common stock will continue in the foreseeable future.

There also can be no assurance that we can maintain such listing on the NYSE American.

If we are ever no longer listed on the NYSE American 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.

Although there can be no assurances, we expect that our common stock will continue to be listed on the NASDAQ Capital market (“NASDAQ”).

However, even if our common stock continues to be listed on the NASDAQ, there is no assurance that an active market for our common stock will continue in the foreseeable future.

There also can be no assurance that we can maintain such listing on the NASDAQ.

If we are ever no longer listed on the NASDAQ or other national stock exchange in the future, then it would be more difficult to dispose of shares or to obtain accurate quotations

as to the market value of our common stock compared to securities of companies whose shares are traded on national stock exchanges.

Our stock price may be highly volatile and could decline in value.

Our common stock is currently traded on the NYSE American and the market price for our common stock has been volatile.

Our common stock is currently traded on the NASDAQ and the market price for our common stock has been volatile.

Further, the market prices for securities in general have been highly volatile and may continue to be highly volatile in the future.

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● pending or future shareholder litigation;

● future developments with respect to our investment in Panacea;

● sales of our common stock by our executive officers, directors, or significant stockholders;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors