22nd Century Group, Inc. 10-K

Item 9A. Controls and Procedures. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Annual Report on Form 10-K to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework (2013) , our management concluded that our internal control over financial reporting was effective as of December 31, 2021. Freed Maxick, CPAs. P.C., an independent registered public accounting firm, has audited the consolidated financial statements included in this Annual Report on Form 10-K and, as part of their audit, has issued a report, included herein, on the effectiveness of our internal control over financial reporting. Our system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Changes in Internal Controls over Financial Reporting There was no change in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the quarter ended December 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information. None. ​ Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection ​ Not applicable. ​ ​ 47 Table of Contents PART III Item 10. Directors, Executive Officers and Corporate Governance. Information concerning our executive officers, directors and corporate governance is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders. Set forth below is information regarding our directors, executive officers, and key personnel as of March 1, 2022: ​ ​ ​ ​ ​ ​ Name Age Position ​ James A. Mish ​ 57 ​ Chief Executive Officer and Director ​ Michael Zercher ​ 51 ​ President and Chief Operating Officer ​ Richard F. Fitzgerald ​ 58 ​ Chief Financial Officer ​ John Franzino 65 Chief Administrative Officer ​ Dr. Michael Koganov 71 Director (1) Richard M. Sanders 68 Director (2) Nora B. Sullivan 63 Director (3) Clifford B. Fleet 51 Director (4) Roger D. O’Brien 73 Director (5) Anthony Johnson ​ 46 ​ Director (6) (1) Since 2019, Dr. Koganov has served as President and Co-Founder of Intellebio LLC, a consulting and testing firm focused on the development of novel technologies, advanced test methods, and breakthrough products in the life science field. (2) Since August 2009, Mr. Sanders has served as a General Partner of Phase One Ventures, LLC, a venture capital firm which focuses on nanotechnology and biotechnology start-up opportunities in New Mexico and surrounding states. Mr. Sanders is also an active Angel and private placement investor. (3) Since May 18, 2015, Ms. Sullivan is President of Sullivan Capital Partners, LLC, a financial services company providing investment banking and consulting services to businesses seeking growth through acquisitions or strategic partnerships. Ms. Sullivan focuses on due diligence, deal structure, strategic planning and governance matters. (4) Since January 2020, Mr. Fleet has served as President and CEO of the Colonial Williamsburg Foundation. Prior to that, Mr. Fleet previously served as the President and Chief Executive Officer of the Company from August 3, 2019 until December 13, 2019 and served as a strategic advisor consultant to the Company from December 2018 to August 3, 2019. Prior to that, Mr. Fleet served as President and CEO of Philip Morris USA. (5) Since 2000, Mr. O’Brien has been the President of O’Brien Associates, LLC, a general management consulting firm providing advisory and implementation services to companies in a variety of competitive industries, with special focus on general management, technology commercialization, organizational development and strategy. Mr. O’Brien has also served as an officer of several publicly held companies, including Sun Microsystems and Ultralife Batteries, Inc. (6) Mr. Johnson is co-founder, President, and CEO of Kodikaz Therapeutic Solutions, a next-generation, non-viral gene therapy company, and a founding partner of Buffalo Biosciences, a life science strategic business management firm that supports the evaluation and commercialization of bioscience technologies from concept to market. Code of Ethics We adopted a Code of Ethics that applies to all our employees. A copy of our Code of Ethics is available on our website at http://www.xxiicentury.com and will be provided to any person requesting same without charge. To request a copy of our Code of Ethics, please make a written request to our General Counsel, c/o 22nd Century Group, Inc., 500 48 Table of Contents Seneca Street, Suite 507, Buffalo, New York 14204. Future material amendments or waivers relating to the Code of Ethics will be disclosed on our website within four business days following the date of such amendment or waiver. ​ Item 11. Executive Compensation. Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders. ​ Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders. ​ Item 13. Certain Relationships and Related Transactions, and Director Independence. Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders. ​ Item 14. Principal Accounting Fees and Services. Information is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to its 2022 Annual Meeting of Stockholders. ​ ​ 49 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules. (a) Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID 0 317 ) F-2 Consolidated Financial Statements: Consolidated Balance Sheets F-5 Consolidated Statements of Operations and Comprehensive Loss F-6 Consolidated Statements of Changes in Shareholders’ Equity F-7 Consolidated Statements of Cash Flows F-8 Notes to Consolidated Financial Statements F-9 –F-31 ​ (b) Financial Statement Schedules (c) Exhibits ​ ​ ​ Item 16. Form 10-K Summary. None. ​ ​ ​ F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of 22nd Century Group, Inc. ​ Opinions on the Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated balance sheets of 22nd Century Group, Inc. and Subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and schedules to the consolidated financial statements (collectively, the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Controls Over Financial Reporting”. Our responsibility is to express an opinion on the Company's financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of F-2 Table of Contents unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. ​ Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. ​ Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Valuation of Intangible Assets – impairment analysis Critical Audit Matter Description As discussed in Note 1 to the consolidated financial statements, intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patents from third parties (2) license fees paid for third-party intellectual property (3) costs to become a signatory under the tobacco Master Settlement Agreement and (4) license fees paid to acquire a predicate cigarette brand. The Company reviews the carrying value of its amortizing long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be recoverable. On at least an annual basis, the Company assesses whether events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indicators are present, the Company will test for recoverability. Intangible assets subject to amortization are reviewed for strategic importance and commercialization opportunity prior to expiration. If it is determined that the asset no longer supports the Company’s strategic objectives and/or will not be commercially viable prior to expiration, the asset is impaired. In addition, the Company will assess the expected future undiscounted cash flows for its intellectual property based on consideration of future market and economic conditions, competition, federal and state regulations, and licensing opportunities. If the carrying value of such assets are not recoverable, the carrying value will be reduced to fair value. Indefinite-lived intangible asset carrying values are reviewed at least annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an impairment exists. The Company first performs a qualitative assessment and considers its current strategic objectives, future market and economic conditions, competition, and federal and state regulations to determine if an impairment is more likely than not. Because the Company has not fully commercialized its core intellectual property and the markets for those products are not yet developed, the Company assesses recoverability by reviewing the strategic importance and commercialization opportunities and making assumptions related to future market and economic conditions, competition, federal and state regulations, and licensing opportunities. Due to the magnitude of intangible assets and subjectivity of these assumptions, we identified the impairment analysis of intangible assets as a critical audit matter, which required a high degree of auditor judgment. Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: obtaining an understanding of the process and assumptions used by management to perform the impairment test; testing the completeness and accuracy of the gross and net capitalized costs by asset group used in the analysis; evaluating the reasonableness and consistency of the methodology and assumptions applied by management, and obtaining an understanding and testing the operating effectiveness of management’s controls related to the impairment test. Panacea Life Sciences – restructuring agreement Critical Audit Matter Description As discussed in Note 6 to the consolidated financial statements, a conversion of the Panacea Life Sciences, Inc. (Panacea) investment occurred on June 30, 2021. As part of this transaction, Exactus, Inc. (Exactus) fully acquired Panacea and (i) F-3 Table of Contents the Series B Preferred Stock of Panacea owned by the Company was converted into shares of Exactus, and (ii) the convertible note receivable and all accrued interest from Panacea was converted into 1) Panacea owned farm related land and equipment 2) additional shares of Panacea’s Series B Preferred Stock, which was subsequently converted to Exactus common stock and 3) a new non-interest bearing promissory note due June 30, 2026 (the Promissory Note). All other rights and obligations of the Company were terminated, including the warrant rights and obligation for further investment. This transaction was accounted for as a non-monetary exchange, resulting in all assets received being recorded at fair value and a gain reflected in the Consolidated Statements of Operations and Comprehensive Loss. The Promissory Note was recorded net of a discount representing the present value of the payments and is included in Other assets on the balance sheet. The Company intends to hold the Promissory note to maturity and the associated discount will be amortized into interest income over the term if the note. The farmland and equipment is included Property, plant and equipment on the balance sheet. The Company concluded that the common shares in Exactus are considered equity securities with a readily determinable fair value, which are included in Investments on the balance sheet. Changes in fair value each period are reflected as gains or losses included in net loss in the Statement of Operations and Comprehensive loss. Due to the magnitude of the assets involved, the complexity of the terms of the agreements, the multiple accounting conclusions required, and the need to determine the fair value of the assets acquired, we identified this transaction as a critical audit matter. Addressing the matter involved performing subjective procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The primary procedures we performed include: inquiring of management and examining the terms of various agreements to gain an understanding of the transaction; evaluating accounting conclusions reached; evaluating assumptions and methodologies used to estimate the fair value of assets acquired; agreeing pre and post transaction balances to underlying support ensuring such information was complete and accurate in all material respect; and obtaining and understanding and testing the operating effectiveness of management’s controls related to the transaction. ​ ​ /s/ Freed Maxick, CPAs, P.C. ​ ​ ​ We have served as the Company’s auditor since 2011. ​ ​ ​ Buffalo, New York ​ March 1, 2022 ​ ​ ​ ​ F-4 Table of Contents ​ ​ ​ 22nd CENTURY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ($ in thousands, except per-share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 ASSETS ​ ​ Current assets: ​ ​ Cash and cash equivalents ​ $ 1,336 ​ $ 1,029 Short-term investment securities ​ 47,400 ​ 21,313 Accounts receivable, net ​ 585 ​ 2,159 Inventory, net ​ 2,881 ​ 2,034 Prepaid expenses and other assets ​ 2,183 ​ 1,806 Total current assets ​ 54,385 ​ 28,341 Property, plant and equipment, net ​ 5,841 ​ 2,483 Operating leases right-of-use assets, net ​ 1,723 ​ 247 Intangible assets, net ​ 7,919 ​ 8,211 Investments ​ 2,345 ​ 6,536 Other assets ​ ​ 3,741 ​ ​ 5,876 Total assets ​ $ 75,954 ​ $ 51,694 ​ ​ ​ LIABILITIES AND SHAREHOLDERS' EQUITY ​ ​ Current liabilities: ​ ​ Notes payable ​ $ 596 ​ $ 539 Operating lease obligations ​ 308 ​ 247 Accounts payable ​ 2,173 ​ 1,116 Accrued expenses ​ 1,489 ​ 931 Accrued payroll ​ 2,255 ​ 2,208 Accrued excise taxes and fees ​ 1,270 ​ 1,691 Accrued severance ​ 217 ​ 339 Deferred income ​ 119 ​ 272 Total current liabilities ​ 8,427 ​ 7,343 Long-term liabilities: ​ ​ Operating lease obligations ​ 1,432 ​ — Severance obligations ​ ​ 21 ​ ​ 241 Total liabilities ​ ​ 9,880 ​ ​ 7,584 Commitments and contingencies (Note 12) ​ ​ ​ ​ Shareholders' equity ​ ​ Preferred stock, $ .00001 par value, 10,000,000 shares authorized ​ ​ Common stock, $ .00001 par value, 300,000,000 shares authorized ​ ​ Capital stock issued and outstanding : ​ ​ 162,872,875 common shares ( 139,061,690 at December 31, 2020) ​ ​ ​ ​ Common stock, par value ​ ​ 2 ​ ​ 1 Capital in excess of par value ​ 244,247 ​ 189,439 Accumulated other comprehensive (loss) income ​ ( 162 ) ​ 74 Accumulated deficit ​ ( 178,013 ) ​ ( 145,404 ) Total shareholders' equity ​ 66,074 ​ 44,110 Total liabilities and shareholders’ equity ​ $ 75,954 ​ $ 51,694 ​ See accompanying notes to consolidated financial statements. ​ F-5 Table of Contents ​ ​ ​ 22nd CENTURY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS ($ in thousands, except per-share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ December 31, ​ 2021 2020 2019 Revenue: ​ ​ ​ ​ Sale of products, net $ 30,948 ​ $ 28,111 ​ $ 25,833 Cost of goods sold (exclusive of depreciation shown separately below): ​ ​ Products 28,879 ​ 26,673 ​ 25,818 Gross profit (loss) 2,069 ​ 1,438 ​ 15 Operating expenses: ​ ​ Research and development 3,256 ​ 4,090 ​ 6,381 Research and development - MRTP ​ 18 ​ ​ 38 ​ ​ 1,679 Sales, general and administrative 25,881 ​ 14,971 ​ 12,954 Impairment of intangible assets ​ 78 ​ ​ 176 ​ ​ 1,142 Depreciation 633 ​ 688 ​ 589 Amortization 615 ​ 658 ​ 836 Total operating expenses 30,481 ​ 20,621 ​ 23,581 Operating loss ( 28,412 ) ​ ( 19,183 ) ​ ( 23,566 ) Other income (expense): ​ ​ Unrealized gain (loss) on investments ( 6,994 ) ​ ( 434 ) ​ ( 2,419 ) Impairment of Panacea investment ​ — ​ ​ ( 1,741 ) ​ ​ — Gain on Panacea investment conversion ​ 2,548 ​ ​ — ​ ​ — Realized gain (loss) on short-term investment securities — ​ 5 ​ 221 Litigation settlement ​ — ​ ​ — ​ ​ ( 1,891 ) Gain on the sale of property, plant and equipment — ​ 1 ​ 87 Interest income, net 321 ​ 1,751 ​ 1,066 Interest expense ( 58 ) ​ ( 72 ) ​ ( 56 ) Total other income (expense) ( 4,183 ) ​ ( 490 ) ​ ( 2,992 ) Loss before income taxes ( 32,595 ) ​ ( 19,673 ) ​ ​ ( 26,558 ) Income taxes 14 ​ 38 ​ ​ — Net loss $ ( 32,609 ) ​ $ ( 19,711 ) ​ $ ( 26,558 ) Other comprehensive income (loss): ​ ​ Unrealized gain (loss) on short-term investment securities ( 236 ) ​ 72 ​ 207 Reclassification of (gain) loss to net loss — ​ ( 5 ) ​ ( 221 ) Other comprehensive income (loss) ​ ( 236 ) ​ ​ 67 ​ ​ ( 14 ) Comprehensive loss $ ( 32,845 ) ​ $ ( 19,644 ) ​ $ ( 26,572 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss per common share - basic and diluted $ ( 0.21 ) ​ $ ( 0.14 ) ​ $ ( 0.21 ) Weighted average common shares outstanding - basic and diluted (in thousands) 156,208 ​ 138,813 ​ 125,883 ​ See accompanying notes to consolidated financial statements. ​ F-6 Table of Contents ​ ​ ​ 22nd CENTURY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, 2021, 2020, and 2019 ​ ​ Common ​ Par Value ​ Capital in ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Shares ​ of Common ​ Excess of ​ Comprehensive ​ Accumulated ​ Shareholders' ​ Outstanding Shares Par Value Income (Loss) Deficit Equity Balance at December 31, 2018 124,642,593 ​ $ 1 ​ $ 170,391 ​ $ 21 ​ $ ( 99,135 ) ​ $ 71,278 ​ ​ ​ ​ ​ ​ Stock issued in connection with warrant exercises 11,293,211 ​ — ​ 10,616 ​ — ​ — ​ 10,616 ​ ​ ​ ​ ​ ​ Stock issued in connection with option exercises 39,988 ​ — ​ — ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ Stock issued in connection with RSU vesting 100,000 ​ — ​ — ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ Equity-based compensation — ​ — ​ 3,540 ​ — ​ — ​ 3,540 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock issued in connection with litigation expense ​ 990,000 ​ ​ — ​ ​ 1,891 ​ ​ — ​ ​ — ​ ​ 1,891 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock issued in connection with Panacea investment ​ 1,297,017 ​ ​ — ​ ​ 1,297 ​ ​ — ​ ​ — ​ ​ 1,297 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on short-term investment securities ​ — ​ ​ — ​ ​ — ​ ​ 207 ​ ​ — ​ ​ 207 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reclassification of losses (gains) to net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 221 ) ​ ​ — ​ ​ ( 221 ) ​ ​ ​ ​ ​ ​ Net loss — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 26,558 ) ​ ​ ( 26,558 ) ​ ​ ​ ​ ​ ​ Balance at December 31, 2019 138,362,809 ​ 1 ​ 187,735 ​ 7 ​ ( 125,693 ) ​ 62,050 ​ ​ ​ ​ ​ ​ Stock issued in connection with option exercises 146,081 ​ — ​ 50 ​ — ​ — ​ 50 ​ ​ ​ ​ ​ ​ ​ Stock issued in connection with RSU vesting ​ 552,800 ​ ​ — ​ ​ — ​ ​ — ​ — ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity-based compensation — ​ — ​ 1,654 ​ — ​ — ​ 1,654 ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on short-term investment securities — ​ — ​ — ​ 72 ​ — ​ 72 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reclassification of losses (gains) to net loss ​ — ​ ​ — ​ ​ — ​ ​ ( 5 ) ​ — ​ ( 5 ) ​ ​ ​ ​ ​ ​ Net loss — ​ — ​ — ​ — ​ ( 19,711 ) ​ ( 19,711 ) ​ ​ ​ ​ ​ ​ Balance at December 31, 2020 139,061,690 ​ 1 ​ 189,439 ​ 74 ​ ( 145,404 ) ​ 44,110 ​ ​ ​ ​ ​ ​ Stock issued in connection with warrant exercises 11,293,211 ​ 1 ​ 11,781 ​ ​ — ​ — ​ 11,782 ​ ​ ​ ​ ​ ​ Stock issued in connection with option exercises ​ 983,613 ​ — ​ 1,307 ​ ​ — ​ — ​ 1,307 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock issued in connection with RSU vesting, net of shares withheld for taxes ​ 1,534,361 ​ — ​ ( 469 ) ​ ​ — ​ — ​ ( 469 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock issued in connection with capital raise ​ 10,000,000 ​ ​ — ​ 38,206 ​ ​ — ​ — ​ 38,206 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity-based compensation ​ — ​ — ​ 3,983 ​ ​ — ​ — ​ 3,983 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain (loss) on short-term investment securities — ​ — ​ — ​ ​ ( 236 ) ​ — ​ ( 236 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net loss — ​ — ​ — ​ ​ — ​ ( 32,609 ) ​ ( 32,609 ) ​ ​ ​ ​ ​ ​ Balance at December 31, 2021 162,872,875 ​ 2 ​ 244,247 ​ ​ ( 162 ) ​ ( 178,013 ) ​ 66,074 ​ See accompanying notes to consolidated financial statements. ​ F-7 Table of Contents ​ ​ ​ 22nd CENTURY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ​ ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 2019 Cash flows from operating activities: ​ ​ ​ ​ ​ Net loss ​ $ ( 32,609 ) ​ $ ( 19,711 ) ​ $ ( 26,558 ) Adjustments to reconcile net loss to cash used in operating activities: ​ ​ ​ Impairment of intangible assets ​ ​ 78 ​ ​ 176 ​ ​ 1,142 Impairment of Panacea investment ​ ​ — ​ ​ 1,741 ​ ​ — Amortization and depreciation ​ 999 ​ 1,094 ​ 1,186 Amortization of license fees ​ 249 ​ 251 ​ 239 Amortization of ROU Asset ​ 288 ​ 182 ​ 212 Unrealized (gain) loss on investment ​ 6,994 ​ 434 ​ 2,419 Realized (gain) loss on short-term investment securities ​ ​ — ​ ​ ( 5 ) ​ ​ ( 221 ) Litigation settlement ​ — ​ — ​ 1,891 Gain on the sale of machinery and equipment ​ — ​ ( 1 ) ​ ( 87 ) Gain on Panacea investment conversion ​ ( 2,548 ) ​ — ​ — Accretion of non-cash interest expense (income) ​ ​ 143 ​ ( 326 ) ​ 26 Equity-based employee compensation expense ​ 3,983 ​ 1,654 ​ 3,540 Inventory write-off ​ ​ 317 ​ ​ 521 ​ ​ 985 (Increase) decrease in assets: ​ ​ ​ ​ Accounts receivable ​ 1,574 ​ ( 1,292 ) ​ 4 Inventory ​ ( 1,164 ) ​ ( 289 ) ​ ( 207 ) Prepaid expenses and other assets ​ ( 547 ) ​ ( 787 ) ​ 280 Increase (decrease) in liabilities: ​ ​ ​ ​ ​ Operating lease obligations ​ ( 272 ) ​ ( 552 ) ​ ( 212 ) Accounts payable ​ 11 ​ ( 936 ) ​ ( 732 ) Accrued expenses ​ 533 ​ 499 ​ 243 Accrued payroll ​ 47 ​ 1,121 ​ 498 Accrued excise taxes and fees ​ ( 421 ) ​ 563 ​ 51 Accrued severance ​ ​ ( 341 ) ​ ​ ( 225 ) ​ ​ 792 Deferred income ​ ( 153 ) ​ 267 ​ ( 78 ) Net cash provided by (used in) operating activities ​ ( 22,839 ) ​ ( 15,621 ) ​ ( 14,588 ) Cash flows from investing activities: ​ ​ ​ ​ Acquisition of patents, trademarks, and licenses ​ ( 326 ) ​ ( 468 ) ​ ( 565 ) Acquisition of property, plant and equipment ​ ( 745 ) ​ ( 54 ) ​ ( 527 ) Proceeds from the sale of machinery and equipment ​ — ​ 6 ​ 166 Investment in Panacea ​ ​ — ​ ​ — ​ ​ ( 12,000 ) Sales and maturities of short-term investment securities ​ 63,749 ​ 39,728 ​ 19,320 Purchase of short-term investment securities ​ ( 90,407 ) ​ ( 22,743 ) ​ ( 1,842 ) Net cash provided by (used in) investing activities ​ ( 27,729 ) ​ 16,469 ​ 4,552 Cash flows from financing activities: ​ ​ ​ ​ Payment on note payable ​ ​ ( 2,604 ) ​ ​ ( 2,549 ) ​ ​ ( 700 ) Proceeds from note payable issuance ​ ​ 2,653 ​ ​ 2,195 ​ ​ — Net proceeds from option exercise ​ ​ 1,307 ​ ​ 50 ​ ​ — Net proceeds from warrant exercise ​ ​ 11,782 ​ ​ — ​ ​ 10,616 Net proceeds from issuance of common stock ​ ​ 38,206 ​ ​ — ​ ​ — Taxes paid related to net share settlement of RSUs ​ ​ ( 469 ) ​ ​ — ​ ​ — Proceeds from SBA loan ​ ​ — ​ ​ 1,183 ​ ​ — Repayment of SBA loan ​ ​ — ​ ​ ( 1,183 ) ​ ​ — Net cash provided by (used in) financing activities ​ 50,875 ​ ( 304 ) ​ 9,916 Net increase (decrease) in cash and cash equivalents ​ 307 ​ 544 ​ ( 120 ) Cash and cash equivalents - beginning of period ​ 1,029 ​ 485 ​ 605 Cash and cash equivalents - end of period ​ $ 1,336 ​ $ 1,029 ​ $ 485 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Supplemental disclosures of cash flow information: ​ ​ ​ Net cash paid for: ​ ​ ​ Cash paid during the period for interest ​ $ 37 ​ $ 29 ​ $ 3 Non-cash transactions: ​ ​ ​ Patent and trademark additions included in accounts payable ​ $ 51 ​ $ 55 ​ $ 155 Property, plant and equipment additions included in accounts payable ​ $ 998 ​ $ 2 ​ $ — Right-of-use assets and corresponding operating lease obligations ​ $ 1,816 ​ $ 198 ​ $ 814 Patent and trademark additions included in accrued expenses ​ $ 25 ​ $ 28 ​ $ — Stock issued in connection with investment ​ $ — ​ $ — ​ $ 1,297 Panacea investment conversion ​ $ 12,485 ​ $ — ​ $ — ​ See accompanying notes to consolidated financial statements. ​ F-8 Table of Contents 22nd CENTURY GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2021 Amounts in thousands, except for share and per share data ​ NOTE 1. – NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation – The accompanying consolidated financial statements include the accounts of (i) 22nd Century Group, Inc. (“22nd Century Group”); (ii) its four wholly-owned subsidiaries, 22nd Century Limited, LLC (“22nd Century Ltd”), NASCO Products, LLC (“NASCO”), Botanical Genetics, LLC (“Botanical Genetics”), and 22nd Century Canada, Inc. (“22nd Century Group Canada”); (iii) two wholly-owned subsidiaries of 22nd Century Ltd, Goodrich Tobacco Company, LLC (“Goodrich Tobacco”) and Heracles Pharmaceuticals, LLC (“Heracles Pharma”); and (iv) one wholly-owned subsidiary of Botanical Genetics, 22nd Century Holdings, LLC (“22nd Century Holdings”). This group of subsidiaries is referred to as collectively with 22nd Century Group as the “Company”. All intercompany accounts and transactions have been eliminated. Nature of Business – 22nd Century Group is a leading agricultural biotechnology and intellectual property company focused on tobacco harm reduction, reduced nicotine tobacco and improving health and wellness through plant science. 22nd Century Ltd performs research and development related to the level of nicotine and other nicotinic alkaloids in tobacco plants and Botanical Genetics performs research and development related to hemp/cannabis plants. Goodrich Tobacco and Heracles Pharma are business units for the Company’s potential modified exposure tobacco products. NASCO is a federally licensed tobacco products manufacturer, a subsequent participating member under the tobacco Master Settlement Agreement (“MSA”) between the tobacco industry and the settling states under the MSA and operates the Company’s tobacco products manufacturing business in North Carolina. 22nd Century Holdings and 22nd Century Group Canada are two newly formed subsidiaries where 22nd Century Holdings own and operate the newly acquired Needle Rock Farm assets and 22nd Century Group Canada will allow for future international business opportunities in Canada. COVID-19 Pandemic – 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 had a minimal impact on the Company’s operations in 2020 and 2021, but 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. Preferred stock authorized – The Company is authorized to issue “blank check” preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock. Foreign currency translation– The functional currency of our foreign subsidiaries is generally the respective local currency. The translation from the applicable foreign currencies to U.S. dollars is performed for balance sheet accounts using period-end rates of exchange and for revenue and expense accounts using an average rate of exchange during the period. The resulting translation adjustments are recognized as a component of AOCI. Gains or losses resulting from foreign currency denominated transactions are included in selling, general, and administrative expenses. Concentration of Credit Risk – Financial instruments that potentially subject the Company to concentration of credit risk consist of cash accounts in financial institutions. Although the cash accounts exceed the federally insured deposit amount, management does not anticipate nonperformance by the financial institutions. Management reviews the financial viability of these institutions on a periodic basis. Cash and cash equivalents – The Company considers all highly liquid investments with maturities of three months or less at the date of acquisition to be cash equivalents. However, the Company has elected to classify money market mutual funds related to its short-term investment portfolio as short-term investment securities. There are no restrictions on the Company’s cash and cash equivalents. Short-term investment securities – The Company’s short-term investment securities are classified as available-for-sale securities and consist of money market funds, corporate bonds, U.S. government agency bonds, U.S. treasury F-9 Table of Contents securities, and commercial paper with maturities greater than three months at the time of acquisition. The Company’s short-term investment securities are carried at fair value within current assets on the Company’s Consolidated Balance Sheets. The Company views its available-for-sale securities as available for use in current operations regardless of the stated maturity date of the security. The Company’s investment policy states that all investment securities must have a maximum maturity of twenty-four (24) months or less and the maximum weighted maturity of the investment securities must not exceed twelve (12) months. All the Company’s short-term investment securities are fixed-income debt instruments, and accordingly, all unrealized gains and losses incurred on the short-term investment securities (the adjustment to fair value) are recorded in other comprehensive income or loss on the Company’s Consolidated Statements of Operations and Comprehensive Loss. Realized gains and losses on short-term investment securities are recorded in the other income (expense) portion of the Company’s Consolidated Statements of Operations and Comprehensive Loss. Interest income is recorded on the accrual basis and presented net of investment related fees. Accounts receivable – The Company extends credit to customers in the normal course of business. Trade accounts receivable are recorded at their invoiced amounts, net of allowance for doubtful accounts. The Company periodically reviews aged account balances for collectability. The Company concluded that an allowance for doubtful accounts was not required at both December 31, 2021 and December 31, 2020. Inventory – Inventories are valued at the lower of historical cost or net realizable value. Cost is determined using (i) an average cost method for tobacco leaf inventory and raw materials inventory, and (ii) a standard cost method, approximating average costs, for finished goods inventory. Inventories are evaluated to determine whether any amounts are not recoverable based on slow moving or obsolete condition and are written off or reserved as appropriate. Property, plant and equipment – Plant and equipment are recorded at their acquisition cost and depreciated on a straight-line basis over their estimated useful lives. Leasehold improvements are depreciated on a straight-line basis over the term of the lease or the estimate useful life of the asset, whichever is shorter. Depreciation commences when the asset is placed in service. Intangible Assets – Intangible assets are recorded at cost and consist primarily of (1) expenditures incurred with third-parties related to the processing of patent claims and trademarks with government authorities, as well as costs to acquire patent rights from third-parties, (2) license fees paid for third-party intellectual property, (3) costs to become a signatory under the tobacco MSA, and (4) license fees paid to acquire a predicate cigarette brand. The amounts capitalized relate to intellectual property that the Company owns or to which it has rights to use. The Company’s capitalized intellectual property costs are amortized using the straight-line method over the remaining statutory life of the patent assets in each of the Company’s patent families, which have estimated expiration dates ranging from 2026 to 2042. Periodic maintenance or renewal fees are expensed as incurred. Annual minimum license fees are charged to expense. License fees paid for third-party intellectual property are amortized on a straight-line basis over the last to expire patents, which have expected expiration dates from 2028 through 2036. The Company believes that costs associated with becoming a signatory to the MSA, costs related to the acquisition of a predicate cigarette brand and trademarks have indefinite lives. As such, no amortization is taken. At each reporting period, the Company evaluates whether events and circumstances continue to support the indefinite-lived classification. Impairment of Long-Lived Assets – The Company reviews the carrying value of its amortizing long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be recoverable. On at least an annual basis, the Company assesses whether events or changes in circumstances indicate that the carrying amount may not be recoverable. If any such indicators are present, the Company will test for recoverability in accordance with ASC 360- Property, plant, and equipment or ASC 350- Intangibles, Goodwill, and Other . Intangible assets subject to amortization are reviewed for strategic importance and commercialization opportunity prior to expiration. If it is determined that the asset no longer supports the Company’s strategic objectives and/or will not be commercially viable prior to expiration, the asset is impaired. In addition, the Company will assess the expected future undiscounted cash flows for its intellectual property based on consideration of future market and economic conditions, competition, federal and state regulations, and licensing opportunities. If the carrying value of such assets are not recoverable, the carrying value will be reduced to fair value and record the difference as an impairment. F-10 Table of Contents Indefinite-lived intangible asset carrying values are reviewed at least annually or more frequently if events or changes in circumstances indicate that it is more likely than not that an impairment exists. The Company first performs a qualitative assessment and considers its current strategic objectives, future market and economic conditions, competition, and federal and state regulations to determine if an impairment is more likely than not. If it is determined that an impairment is more likely than not, a quantitative assessment is performed to compare the asset carrying value to fair value. Right-of-use (“ROU”) assets and Lease Obligations – The Company reviews any lease arrangements in accordance with 2016-02, Subtopic ASC 842, Leases. Any lease having a lease term greater than twelve months will be recognized on the Consolidated Balance Sheets as an ROU asset with an associated lease obligation—all other leases are considered short-term in nature and will be expensed on a month-to-month basis. The ROU assets and lease obligations are recognized as of the commencement date at the net present value of the fixed minimum lease payments for the lease term. The lease term is determined based on the contractual conditions, including whether renewal options are reasonably certain to be exercised. The discount rate used is the interest rate implicit in the lease, if available, or the Company’s incremental borrowing rate which is determined using a base line rate plus an applicable spread. Refer to Note 4 for additional information regarding our ROU assets and liabilities. Income Taxes – The Company recognizes deferred tax assets and liabilities for any basis differences in its assets and liabilities between tax and U.S. GAAP reporting, and for operating loss and credit carry-forwards. As a result of the Company’s history of cumulative net operating losses and the uncertainty of their future utilization, the Company has established a valuation allowance to fully offset its net deferred tax assets as of December 31, 2021 and December 31, 2020. Additionally, the Company has elected to present other comprehensive income items relating to net unrealized gains on short-term investment securities gross and not net of taxes. The Company’s federal and state tax returns for the years ended December 31, 2018 through December 31, 2020 are currently open to audit under the statutes of limitations. There are no pending audits as of December 31, 2021. Stock Based Compensation – The Company’s Omnibus Incentive Plan allows for various types of equity-based incentive awards. Stock based compensation expense is based on awards that are expected to vest over the requisite service periods and are based on the fair value of the award measured on the grant date. Vesting requirements vary for directors, officers, and employees. In general, time-based awards fully vest after one year for directors and vest in equal annual installments over a three-year period for officers and employees. Performance-based awards vest upon achievement of certain milestones. Forfeitures are accounted for when they occur. Revenue Recognition – The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. For additional discussion on revenue recognition, refer to Note 16. Derivatives –The Company evaluates all our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. Derivative financial instruments, if applicable, are initially recorded at fair market value and then are revalued at each reporting date, with changes in fair value reported in the Consolidated Statements of Operations and Comprehensive Loss. The classification of derivative instruments is evaluated at the end of each reporting period. Derivative instruments are classified on the balance sheet as current or non-current based on if the net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date. During 2020 and 2021, the Company did not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. Research and Development – Research and development costs are expensed as incurred. Loss Per Common Share – Basic loss per common share is computed using the weighted-average number of common shares outstanding. Diluted loss per share is computed assuming conversion of all potentially dilutive securities. Potential common shares outstanding are excluded from the computation if their effect is anti-dilutive. Refer to Note 13 for additional information. F-11 Table of Contents Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments – The Company’s financial instruments include cash and cash equivalents, short-term investment securities, accounts receivable, investments, a promissory note receivable, accounts payable, accrued expenses, and notes payable. The carrying values of these financial instruments approximate fair value. The Company carries cash equivalents, short-term investment securities, investments, and other assets at fair value which is described further in Note 7. Investments –The Company’s equity securities are recorded at fair value with changes in fair value included within the statement of operations. Equity securities without a readily determinable market value are carried at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. The Company considers certain debt instruments as available-for-sale securities, and accordingly, all unrealized gains and losses incurred on the short-term investment securities (the adjustment to fair value) are recorded in other comprehensive income or loss on the Company’s Consolidated Statements of Operations and Comprehensive Loss. Loss Contingencies – The Company establishes an accrued liability for litigation and regulatory matters when those matters present loss contingencies that are both probable and estimable. In such cases, there may be an exposure to loss in excess of any amounts accrued. When a loss contingency is not both probable and estimable, the Company does not establish an accrued liability. As a litigation or regulatory matter develops, the Company, in conjunction with any outside counsel handling the matter, evaluates on an ongoing basis whether such matter presents a loss contingency that is probable and estimable. If, at the time of evaluation, the loss contingency related to a litigation or regulatory matter is not both probable and estimable, the matter will continue to be monitored for further developments that would make such loss contingency both probable and estimable. When a loss contingency related to a litigation or regulatory matter is deemed to be both probable and estimable, the Company will establish an accrued liability with respect to such loss contingency and record a corresponding amount of related expenses. The Company will then continue to monitor the matter for further developments that could affect the amount of any such accrued liability. Our current legal matters are discussed further in Note 12. Recent Accounting Pronouncement(s) – In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses on Financial Instruments.” The standard replaces the incurred loss model with the current expected credit loss (CECL) model to estimate credit losses for financial assets measured at amortized cost and certain off-balance sheet credit exposures. The CECL model requires companies to estimate credit losses expected over the life of the financial assets based on historical experience, current conditions and reasonable and supportable forecasts. The provisions of the ASU are effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years—excluding small reporting companies (SRCs), based on a determination date as of November 15, 2019, which have an effective date beginning after December 15, 2022 and interim periods within those fiscal years. The Company is evaluating the expected impacts of the ASU. We consider the applicability and impact of all ASUs. If the ASU is not listed above, it was determined that the ASU was either not applicable or would have an immaterial impact on our financial statements and related disclosures. . ​ NOTE 2. – INVENTORY Inventories at December 31, 2021 and December 31, 2020 consisted of the following: ​ F-12 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ December 31, December 31, ​ 2021 2020 Inventory - tobacco leaf ​ $ 1,352 ​ $ 821 Inventory - hemp/cannabis ​ ​ 10 ​ ​ — Inventory - finished goods ​ ​ ​ ​ ​ Cigarettes and filtered cigars ​ 256 ​ 171 Inventory - raw materials ​ ​ ​ ​ Cigarette and filtered cigar components ​ ​ 1,363 ​ ​ 1,142 ​ ​ ​ ​ ​ ​ ​ Less: inventory reserve ​ ( 100 ) ​ ( 100 ) ​ ​ $ 2,881 ​ $ 2,034 ​ During the year ended December 31, 2021, the Company wrote off inventory totaling $ 317 which is included within costs of goods sold on the Company’s Consolidated Statement of Operations and Comprehensive Loss. During the year ended December 31, 2020, the Company wrote off inventory totaling $ 521 on the Company’s Consolidated Statement of Operations and Comprehensive Loss ( $ 361 included within research and development expenses and $ 161 included within cost of goods sold.) ​ NOTE 3. – PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net at December 31, 2021 and December 31, 2020 consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ Useful Life 2021 2020 Land ​ ​ ​ $ 1,665 ​ $ — Building and leasehold improvements ​ 7 to 40 years ​ ​ 309 ​ ​ 123 Manufacturing equipment ​ 3 to 10 years ​ ​ 5,541 ​ ​ 4,893 Office furniture, fixtures and equipment ​ 3 to 5 years ​ 139 ​ 20 Laboratory equipment ​ 5 years ​ 198 ​ 117 Construction in progress ​ ​ ​ ​ 1,289 ​ ​ — ​ ​ ​ ​ ​ ​ ​ Less: accumulated depreciation ​ ​ ( 3,300 ) ​ ( 2,670 ) Property, plant and equipment, net ​ ​ $ 5,841 ​ $ 2,483 ​ Depreciation expense was $ 633 , $ 688 , and $ 589 for the years ended December 31, 2021, 2020 and 2019, respectively. ​ NOTE 4. – RIGHT-OF-USE ASSETS, LEASE OBLIGATIONS, AND OTHER LEASES The Company leases a manufacturing facility and warehouse in North Carolina, a corporate headquarters in Buffalo, New York, and a laboratory space in Rockville, Maryland. During the fourth quarter of 2020, the Company made the decision to not renew its corporate headquarters lease in Williamsville, NY which had an initial term expiring on January 1, 2021. Upon adoption of ASC 842-Leases, the Company assumed all three optional one-year renewal options which created a lease term expiration inclusive of all initial renewal options within the lease agreement—which assumed a lease term expiration in 2023. With the non-renewal decision, the Company’s lease operated on a month-to-month basis beginning on January 1, 2021. As such, the ROU asset and lease obligation was removed from the Consolidated Balance Sheets as of December 31, 2020. On January 15, 2021, the Company signed a lease agreement to relocate its corporate headquarters to the Larkinville District in downtown Buffalo, New York. The Company moved into the new office location in April 2021 and signed an amended lease agreement which revised the original lease commencement date to April 1, 2021. The lease has a monthly base rent of $ 6 , which escalates 2.5 % annually after the first year, and an initial term of 36 months —with two twenty-four-month optional renewal options at the Company’s discretion. F-13 Table of Contents On July 28, 2021, the Company signed a lease agreement for a new research and development (“R&D”) laboratory in Rockville, MD. The new laboratory space has over four thousand square feet and will support the Company’s continued growth and R&D partnerships. The lease has an initial monthly base rent of $ 12 (escalating 2.5 % annually after the first year), a term of 51 months , and commenced on December 1, 2021. The lease also calls for abatement of 100% of the base rent for the first five months following the lease commencement date. On October 18, 2021, the Company signed a lease extension for its manufacturing facility and warehouse in North Carolina. The lease commenced upon expiration of the previous lease term, which was November 1, 2021. The lease has a monthly base rent of $ 17 and an initial term of twenty-four months —with one twenty-four month renewal option at the Company’s discretion. The following table summarized the Company’s discount rate and remaining lease terms as of December 31, 2021: ​ ​ ​ ​ ​ ​ Weighted average remaining lease term in years ​ ​ 4.6 ​ Weighted average discount rate ​ 3.4 % ​ Future minimum lease payments as of December 31, 2021 are as follows: ​ ​ ​ ​ ​ 2022 ​ 373 2023 ​ ​ 429 2024 ​ 448 2025 ​ ​ 418 2026 ​ ​ 111 Thereafter ​ ​ 108 Total lease payments ​ 1,887 Less: imputed interest ​ ( 147 ) Total ​ $ 1,740 ​ The Company also leases warehouse space in North Carolina and a small office space in Paoli, PA which do not fall under ASC 842 and are not included within our Consolidated Balance Sheets. Operating lease costs for the years ended December 31, 2021, 2020 and 2019, were $ 301 , $ 335 and $ 250 respectively. NOTE 5. – INTANGIBLE ASSETS Our intangible assets at December 31, 2021 and December 31, 2020 consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Intangible assets, net ​ ​ Patent and trademark costs ​ $ 5,991 ​ $ 5,667 Less: accumulated amortization ​ ( 3,303 ) ​ ( 2,936 ) Patent and trademark costs, net ​ 2,688 ​ 2,731 ​ ​ ​ ​ ​ ​ ​ License fees ​ 3,876 ​ 3,876 Less: accumulated amortization ​ ( 1,197 ) ​ ( 948 ) License fees, net ​ 2,679 ​ 2,928 ​ ​ ​ ​ ​ ​ ​ MSA signatory costs ​ 2,202 ​ 2,202 ​ ​ ​ ​ ​ ​ License fee for predicate cigarette brand ​ 350 ​ 350 ​ ​ $ 7,919 ​ $ 8,211 ​ F-14 Table of Contents Amortization expense relating to the above intangible assets for the years ended December 31, 2021, 2020 and 2019 amounted to $ 615 , $ 658 , and $ 836 , respectively. During the year ended December 31, 2021, the Company incurred a charge of $ 78 related to a write-down of our trademarks. During the years ended December 31, 2020 and 2019, the Company incurred an impairment related to patent intellectual property that either would be expired prior to expected commercialization or did not align to the Company’s strategic objectives. Impairment expense for the year ended December 31, 2020 and 2019, amounted to $ 176 (cost of approximately $ 448 less accumulated amortization of approximately $ 302 ) and $ 1,142 (cost of $ 2,092 less accumulated amortization of approximately $ 950 ), respectively. The impairment charges are included as a separate line item in operating expenses on the Company’s Consolidated Statements of Operations and Comprehensive Loss. The estimated annual average amortization expense for the next five years is approximately $ 387 for patent costs and $ 249 for license fees . ​ NOTE 6. – INVESTMENTS & OTHER ASSETS Investment in Panacea Life Sciences, Inc. Initial Investment: On December 3, 2019, the Company entered into a securities purchase agreement with Panacea Life Sciences, Inc. (“Panacea”) for consideration valued at $ 13,297 ( $ 12,000 cash and $ 1,297 of the Company’s shares of common stock valued at $ 1 per share) in exchange for a 15.8 % ownership interest. The Company’s investment consisted of three instruments: shares of Series B preferred stock (“preferred stock”); a convertible note receivable with a $ 7,000 face value; and a warrant (“stock warrant”) to purchase additional shares of Series B preferred stock, to obtain 51 % ownership of Panacea, at an exercise price of $ 2.344 per share. The convertible note receivable had a term of five years , interest of 10 % per annum, and could be converted to shares of Series B preferred stock at the Company’s discretion. The embedded conversion option was not considered a derivative instrument for accounting purposes. The preferred stock carried an annual 10 % cumulative dividend, compounded annually, and had an implicit put option after the fifth anniversary date so long that the stock warrants had not been exercised. The put option was not considered a derivative instrument for accounting purposes. The stock warrant was exercisable at any time after the fifth anniversary date and would be accelerated if Panacea achieved certain sales targets for two consecutive years. The Series B preferred stock also included first priority equity preferences in the event of a liquidation, sale, or transfer of Panacea assets. These rights entitled the Company to the original Series B issuance price of $ 7,000 plus any unpaid accrued dividends. To allocate the cost of the stock warrant, the Company calculated a fair value based on the following assumptions: volatility of 70 %, discount of 25 % for lack of marketability, and a risk-free rate of 2 %. The value of the stock warrant was allocated to the preferred stock and the convertible note receivable, equally, at a discount to the acquisition price. The discount on the preferred stock was determined to be for lack of control and the discount on the convertible note receivable was determined to be for issuing the note at a below market interest rate for similar instruments. The convertible note receivable and the preferred stock investment were considered available for sale debt securities with a private company that was not traded in active markets. Since observable price quotations were not available at acquisition, fair value was estimated based on cost less an appropriate discount upon acquisition. The discount of each instrument is accreted into interest income over the respective term as shown within the Company’s Consolidated Statements of Operations and Comprehensive Loss. See Note 7 for additional information on these fair value measurements. The stock warrant was recorded at its cost basis in accordance with the practicability exception under ASU 2016-01. F-15 Table of Contents Impairment of Panacea Investment: As a result of increased competition and other macroeconomic factors, the Company recognized an impairment of $ 1,062 on the Panacea stock warrant during the second quarter of 2020. The impairment is recorded within the Consolidated Statements of Operations and Comprehensive Loss as “Impairment of Panacea Investment.” During the fourth quarter of 2020, the Company entered into a non-binding agreement with Panacea to potentially restructure the investment and business relationship—including the transfer of an agricultural facility and other assets. As of December 31, 2020, the Company adjusted certain assets to represent the fair value outlined in the non-binding agreement. The Company’s non-binding agreement with Panacea to restructure the investment and business relationship generally provided for (i) the transfer of $ 7,170 in operational assets, including an agricultural facility and various extraction and distillation equipment, from Panacea to the Company in exchange for the cancellation of the $7,000 convertible note receivable plus accrued interest; (ii) an amendment of transaction documents to remove any future investment rights and obligations of the Company in Panacea, (iii) cancellation of the stock warrant to purchase additional Series B preferred stock; and (iv) various other amendments to Panacea’s charter to amend various investors rights therein. As a result of the expected outcome of this non-binding agreement, the Company determined that the carrying value of the stock warrant and the convertible note receivable plus accrued interest exceeded the fair value outlined in the non-binding agreement. As such, the Company recorded an impairment of $ 679 , which reduced the stock warrant carrying value, so that the carrying value of the stock warrant, and convertible note receivable plus accrued interest amounted to a value of $ 7,170 as of December 31, 2020. The impairment is recorded within the Consolidated Statements of Operations and Comprehensive Loss as “Impairment of Panacea Investment.” In accordance with ASC 326- Financial Instruments-Credit Losses , the Company reviewed the fair value of its preferred stock investment and considered the following: (i) increased competition in the cannabinoid industry; (ii) the Company’s preferred stock priority equity preferences; and (iii) other macroeconomic factors. Based on the assessment performed, it was determined that no credit loss existed for the preferred stock available-for-sale debt security. Conversion of Panacea Investment: On June 30, 2021, the Company entered into a Promissory Note Exchange Agreement with Panacea and a Securities Exchange Agreement with Panacea, Exactus, Inc. (“Exactus”) (OTCQB:EXDI) and certain other Panacea shareholders. Pursuant to the Securities Exchange Agreement, Exactus fully acquired Panacea. These transactions effected the (i) conversion of all of the Company’s Series B Preferred Stock in Panacea into 91,016,026 shares of common stock in Exactus valued at $ 9,102 as of June 30, 2021 and (ii) the conversion of the Company’s existing debt in Panacea by converting the outstanding $ 7,000 principal balance convertible note receivable and all accrued but unpaid interest thereon for fee simple ownership of Needle Rock Farms ( 224 acres in Delta County, Colorado) and equipment valued at $ 2,248 , $ 500 in Panacea’s Series B Preferred Stock (which was subsequently converted to Exactus common stock under the Securities Exchange Agreement; this balance is reflected in final shares as stated above), and a new $ 4,300 promissory note (the “Promissory note receivable”) with a maturity date of June 30, 2026 and a 0 % interest rate. The Promissory note receivable is with a related party of Panacea and is fully secured by a first priority lien on Panacea’s headquarters located in Golden, Colorado. All other rights and obligations of the Company in Panacea and Panacea’s affiliate, Quintel-MC Incorporated, were terminated by this transaction—including all warrant rights and obligations for future investment. The conversion was recorded as a non-monetary transaction, based on the fair value of the assets received, and resulted in a gain of $ 2,548 which is included within the Consolidated Statements of Operations and Comprehensive Loss as “Gain on Panacea investment conversion.” The Promissory note receivable was valued at $ 3,684 ($ 4,300 face value less $ 616 discount) and is included within the Consolidated Balance Sheets as “Other Assets.” The Company intends to hold the Promissory note receivable to maturity and the associated discount will be amortized into interest income over the term of the note. The ownership of Needle Rock Farms and related equipment is included within “Property, plant, and equipment, net” on the Consolidated Balance Sheets. The common shares of Exactus, Inc. are considered equity securities in accordance with ASC 321 and are recorded at fair value—changes in fair value will be included within the statement of operations. See Note 7 for additional information on the fair value measurements. F-16 Table of Contents On October 25, 2021, Exactus announced the completion of a 1 for 28 reverse stock split as well as an entity name change to Panacea Life Sciences Holdings, Inc (OTCQB: PLSH). Panacea Life Sciences Holdings, Inc. was assigned a temporary stock symbol of “EXDID” which formally changed to “PLSH” after twenty business days. As a result of the reverse stock split, our 91,016,026 shares were adjusted to 3,250,573 shares. As of December 31, 2021, the total carrying value of the Company’s investment in Panacea is outlined below, net of 2020 impairment expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2021 ​ 2020 Panacea preferred stock $ — $ 5,173 Panacea stock warrant ​ ​ — ​ ​ 1,124 Accrued interest on convertible note receivable (included within prepaid expenses and other assets) ​ ​ — ​ ​ 170 Convertible note receivable ​ ​ — ​ ​ 5,876 Promissory note receivable ​ ​ 3,741 ​ ​ — Panacea Holdings common stock ​ ​ 2,340 ​ ​ — Total ​ $ 6,082 ​ $ 12,343 ​ Investment in Aurora Cannabis, Inc. In 2018, in connection with the sale of its investment in a Canadian plant biotechnology company, the Company acquired stock warrants to purchase 973,971 common stock of Aurora Cannabis, Inc. (“Aurora”), a Canadian company (NYSE: ACB and TSX: ACB). The stock warrants have a five-year contractual term ending August 8, 2023 and had an exercise price of $ 9.37 Canadian Dollars (CAD) per share. During the second quarter of 2020, Aurora announced a 12 -to-1 reverse stock split which adjusted our total warrant to purchase 81,164 shares of Aurora common stock (from 973,971 ) at an exercise price of $ 112.44 CAD per share (from $ 9.37 CAD per share). The warrants are considered equity securities in accordance with ASC 321 – Investments – Equity Securities and a derivative instrument under ASC 815 – Derivatives and Hedging. The stock warrants are not designated as a hedging instrument, and in accordance with ASC 815, the Company’s investment in stock warrants are recorded at fair value with changes in fair value recorded to unrealized gain/loss as shown within the Company’s Consolidated Statements of Operations and Comprehensive Loss. See Note 7 for additional information on the fair value measurements. The carrying value of the Company’s investments at December 31, 2021 and December 31, 2020 consisted of the following: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2021 ​ 2020 Aurora stock warrants $ 5 $ 239 Panacea preferred stock ​ ​ — ​ ​ 5,173 Panacea stock warrant ​ ​ — ​ ​ 1,124 Panacea Holdings common stock ​ ​ 2,340 ​ ​ — Total Investments ​ $ 2,345 ​ $ 6,536 Convertible note receivable ​ $ — ​ $ 5,876 Promissory note receivable ​ $ 3,741 ​ $ — ​ ​ NOTE 7. – FAIR VALUE MEASUREMENTS AND SHORT-TERM INVESTMENTS FASB ASC 820 - “Fair Value Measurements and Disclosures” establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows: ● Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; F-17 Table of Contents ● Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument; and ● Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset’s or a financial liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The following table presents information about our assets and liabilities measured at fair value at December 31, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ ​ December 31, 2021 ​ Level 1 Level 2 Level 3 Total Assets ​ ​ ​ ​ Short-term investment securities: ​ ​ ​ ​ Money market funds ​ $ 8,919 ​ $ — ​ $ — ​ $ 8,919 Corporate bonds ​ — ​ 38,481 ​ — ​ 38,481 Total short-term investment securities ​ $ 8,919 ​ $ 38,481 ​ $ — ​ $ 47,400 Investment - Aurora stock warrants ​ $ — ​ $ — ​ $ 5 ​ $ 5 Investment - Panacea Holdings common shares ​ $ 2,340 ​ $ — ​ $ — ​ $ 2,340 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value ​ ​ December 31, 2020 ​ Level 1 Level 2 Level 3 Total Assets ​ ​ ​ ​ Short-term investment securities: ​ ​ ​ ​ Money market funds ​ $ 8,636 ​ $ — ​ $ — ​ $ 8,636 Corporate bonds ​ — ​ 12,677 ​ — ​ 12,677 Total short-term investment securities ​ $ 8,636 ​ $ 12,677 ​ $ — ​ $ 21,313 Investment - Aurora stock warrants ​ $ — ​ $ — ​ $ 239 ​ $ 239 Investment - Panacea preferred stock ​ $ — ​ $ — ​ $ 5,173 ​ $ 5,173 Convertible note receivable ​ $ — ​ $ — ​ $ 5,876 ​ $ 5,876 ​ Money market mutual funds are valued at their daily closing price as reported by the fund. Money market mutual funds held by the Company are open-end mutual funds that are registered with the SEC that generally transact at a stable $ 1.00 Net Asset Value (“NAV”) representing its estimated fair value. On a daily basis the fund’s NAV is determined by the fund based on the amortized cost of the funds underlying investments. Corporate bonds are valued using pricing models maximizing the use of observable inputs for similar securities. The investment in the Aurora stock warrants is measured at fair value using the Black-Scholes pricing model and is classified within Level 3 of the valuation hierarchy. The unobservable input is an estimated volatility factor of 92 % and 137 % as of December 31, 2021 and December 31, 2020, respectively. Therefore, changes in market volatility will impact the fair value measurement of our Aurora investment. A 20 % increase or decrease in the volatility factor used as of December 31, 2021 would have the impact of increasing or decreasing the fair value measurement of the stock warrants by an average of approximately $ 6 . A 20 % increase or decrease in the volatility factor used at December 31, 2020 would have the impact of increasing or decreasing the fair value measurement of the stock warrants by an average of approximately $ 115 . F-18 Table of Contents The investment in Panacea Holdings common shares is considered an equity security with a readily determinable fair value. The fair value is determined using the quotable market price as of the last trading day of the fiscal quarter. The Panacea convertible note receivable and the preferred stock investment are considered available-for-sale debt securities with a private company that is not traded in active markets. Since observable price quotations were not available, fair value was estimated based on cost less an appropriate discount upon acquisition. See Note 6 for further information regarding the Company’s investment in Panacea. The following table sets forth a summary of the changes in fair value of the Company’s Level 3 investments for the year ended December 31, 2021. ​ ​ ​ ​ ​ Fair Value at December 31, 2019 $ 11,127 Unrealized loss as a result of change in fair value ​ ( 434 ) Accretion of interest on Panacea investment ​ ​ 595 Fair Value at December 31, 2020 ​ $ 11,288 Unrealized loss on Aurora stock warrants ​ ​ ( 233 ) Accretion of interest on Panacea preferred stock ​ ​ 142 Panacea investment conversion ​ ​ ( 11,192 ) Fair Value at December 31, 2021 ​ $ 5 ​ The following tables set forth a summary of the Company’s available-for-sale debt securities from amortized cost basis to fair value as of December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale Debt Securities ​ ​ December 31, 2021 ​ ​ Amortized ​ Gross ​ Gross ​ ​ ​ ​ ​ Cost ​ Unrealized ​ Unrealized ​ Fair ​ Basis Gains Losses Value Corporate bonds ​ $ 38,643 ​ $ 1 ​ $ ( 163 ) ​ $ 38,481 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale Debt Securities ​ ​ December 31, 2020 ​ ​ Amortized ​ Gross ​ Gross ​ ​ ​ ​ ​ Cost ​ Unrealized ​ Unrealized ​ Fair ​ Basis Gains Losses Value Corporate bonds ​ $ 12,603 ​ $ 74 ​ $ — ​ $ 12,677 Convertible note receivable ​ 5,876 ​ — ​ — ​ 5,876 Investment - Panacea preferred stock ​ 5,173 ​ — ​ — ​ 5,173 ​ ​ $ 23,652 ​ $ 74 ​ $ — ​ $ 23,726 ​ The following table sets forth a summary of the Company’s available-for-sale debt securities from amortized cost basis and fair value by contractual maturity as of December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for Sale Debt Securities ​ ​ December 31, 2021 ​ December 31, 2020 ​ ​ Amortized ​ ​ ​ ​ Amortized ​ ​ ​ ​ Cost Basis Fair Value Cost Basis Fair Value Due in one year or less ​ $ 8,286 ​ $ 8,280 ​ $ 11,692 ​ $ 11,753 Due after one year through five years ​ 30,357 ​ 30,201 ​ 11,960 ​ 11,973 ​ ​ $ 38,643 ​ $ 38,481 ​ $ 23,652 ​ $ 23,726 ​ ​ F-19 Table of Contents NOTE 8. – NOTES PAYABLE License Fees On June 22, 2018, the Company entered into the Second Amendment to the License Agreement (the “Second Amendment”) with North Carolina State University (“NCSU”) that amended an original License Agreement between the Company and NCSU, dated December 8, 2015, and the First Amendment, dated February 14, 2018, to the original License Agreement. Under the terms of the Second Amendment, the Company was obligated to pay NCSU milestone payments totaling $ 1,200 , which originally amounted to a present value of $ 1,175 . As of June 30, 2020, the Company paid the final milestone payment of $ 300 . The cost of the of acquired license amounted to $ 1,175 and is included in Intangible assets, net on the Company’s Consolidated Balance Sheets, and is amortized on a straight-line basis over the last-to-expire patent, which is expected to be in 2036. On October 22, 2018, the Company entered into a License Agreement with the University of Kentucky. Under the terms of the License Agreement, the Company is obligated to pay the University of Kentucky milestone payments totaling $ 1,200 , of which $ 300 was payable upon execution, and $ 300 will be payable annually over three years on the anniversary of the execution of the License Agreement. The Company has recorded the present value of the obligations under the License Agreement as a note payable that originally amounted to $ 1,151 . As of November 30, 2021, the Company paid the final milestone payment of $ 300 . The cost of the of acquired licenses amounted to $ 1,151 and is included in Intangible assets, net on the Company’s Consolidated Balance Sheets and will be amortized on a straight-line basis over the last-to-expire patent, which is expected to be in 2033. CARES Act Paycheck Protection Program Loan On May 1, 2020, the Company received a U.S. Small Business Administration Loan (“SBA Loan”) from Bank of America, N.A. related to the COVID-19 crisis in the amount of $ 1,200 . On May 12, 2020, the Company repaid the SBA loan in full. D&O Insurance During the second quarter of 2021, the Company renewed its Director and Officer (“D&O”) insurance for a one-year policy premium totaling $ 3,315 . The Company paid $ 662 as a premium down payment and financed the remaining $ 2,653 of policy premiums over nine months at a 3.49 % annual percentage rate. During the second quarter of 2020, the Company renewed its D&O insurance for a one-year policy premium totaling $ 2,744 . The Company paid $ 549 as a premium down payment and financed the remaining $ 2,195 of policy premiums over nine months at a 3.19 % annual percentage rate. The financed amount is recorded within current notes payable on the Company’s Consolidated Balance Sheets. The table below outlines our notes payable balances as of December 31, 2021 and December 31, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 License Fees ​ $ — ​ $ 293 D&O Insurance ​ 596 ​ 246 Total current notes payable ​ $ 596 ​ $ 539 ​ Accretion of non-cash interest expense amounted to $ 7 , $ 20 , and $ 36 for the years ended December 31, 2021, 2020 and 2019, respectively. ​ NOTE 9. – SEVERANCE LIABILITY During the second quarter of 2020, the Company recorded an accrual for severance benefits for $ 306 in accordance with FASB ASC 712 - “Compensation – Nonretirement Postemployment Benefits.” Consistent with F-20 Table of Contents certain contractual obligations related to a resignation, the Company will provide these severance benefits over a twelve-month period. During 2019, the Company recorded an accrual for severance benefits for $ 881 in accordance with FASB ASC 712 - “Compensation – Nonretirement Postemployment Benefits.” Consistent with certain contractual obligations, $ 771 of the related accrual will be paid via a monthly consulting fee for a period of forty-two months . The current and long-term accrued severance balance remaining as of December 31, 2021 was $ 217 and $ 21 , respectively. The current and long-term accrued severance balance remaining as of December 31, 2020 was $ 339 and $ 241 , respectively. ​ NOTE 10. – CAPITAL RAISE AND WARRANTS FOR COMMON STOCK On June 7, 2021, the Company entered into a placement agent agreement (the “Placement Agent Agreement”) with Cowen and Company, LLC (the “Placement Agent”) relating to the Company’s registered direct offering (the “Offering”) to a select investor (the “Investor”). In addition, on June 7, 2021, the Company and the Investor entered into a securities purchase agreement relating to the issuance and sale of shares of common stock pursuant to which the Investor purchased 10,000,000 shares of common stock at $ 4.00 per share. The net proceeds to the Company from the Offering, after deducting Placement Agent fees and offering expenses, was $ 38,206 . On November 25, 2019, the Company entered into Warrant Exercise Agreements (the "2019 Exercise Agreements") with all of the holders (the "Holders") of its outstanding warrants to purchase up to 11,293,211 shares of common stock of the Company with an exercise price of $ 2.15 per share (the "Warrants") whereby the Holders and the Company agreed that the Holders would immediately exercise for cash 7,350,000 of the Warrants at a reduced exercise price of $ 1.00 per share, generating proceeds to the Company before expenses of approximately $ 7,400 . In addition, the Holders agreed to exercise the remaining 3,943,211 Warrants for cash on or prior to January 27, 2020 provided that the Holders are in compliance with the beneficial ownership limitation provisions contained in the Warrants. The Holders exercised all of the Warrants for cash during December 2019 and the Company received net proceeds of approximately $ 10,600 from the exercise of all of the Warrants, after deducting expenses associated with the transaction. In consideration for the Holders exercising their Warrants for cash, the Company issued to each Holder a new warrant (each, a "2019 Warrant") to purchase shares of common stock equal to the number of shares of common stock underlying the Warrants that shall be exercisable to the extent such Holder exercises for cash such Holder's Warrants pursuant to the 2019 Exercise Agreements. The terms of the 2019 warrants are (i) exercisable from first issuance of the 2019 Warrants for a period of five years and (ii) had an initial exercise price equal to $ 1.25 per share. On December 22, 2019, the Company entered in to a Warrant Amendment Agreement with the holders of the 2019 Warrants (the "Amendment") whereby the Company agreed to amend the Warrants to (i) reduce the exercise price of the Warrants to $ 1.11 and (ii) to add a call provision whereby the Company may call the Warrants with prior notice to the holders for $ 0.001 per Warrant (during which time the holders may exercise the Warrants) provided that the Company's volume weighted average stock price exceeds $ 3.00 per share for ten consecutive trading days and certain other conditions are satisfied. F-21 Table of Contents During the first quarter of 2021, the Company’s warrant holders exercised all 11,293,211 outstanding warrants for cash in exchange for common stock. In connection with these exercises, the Company received net proceeds of $ 11,782 . No warrants remain outstanding as of December 31, 2021. The following table summarizes the Company’s warrant activity since December 31, 2018: ​ ​ ​ ​ ​ ​ Number of ​ ​ Warrants Warrants outstanding at December 31, 2018 11,293,211 Exercised ​ ( 11,293,211 ) Issued ​ 11,293,211 Warrants outstanding at December 31, 2019 ​ 11,293,211 Exercised ​ — Issued ​ — Warrants outstanding at December 31, 2020 ​ 11,293,211 Exercised ​ ( 11,293,211 ) Issued ​ — Warrants outstanding at December 31, 2021 — ​ ​ ​ ​ NOTE 11. – RETIREMENT PLAN The Company sponsors a defined contribution plan under IRC Section 401(k). The plan covers all employees who meet the minimum eligibility requirements. Under the 401(k) plan eligible employees are allowed to make voluntary deferred salary contribution to the plan, subject to statutory limits. The Company has elected to make Safe Harbor Non-Elective Contributions to the plan for eligible employees in the amount of three percent ( 3 %) of the employee’s compensation. Total employer contributions to the plan for the years ended December 31, 2021, 2020 and 2019 amounted to $ 171 , $ 150 and $ 157 , respectively. ​ NOTE 12. – COMMITMENTS AND CONTINGENCIES License agreements and sponsored research – The Company has entered into various license, sponsored research, collaboration, and other agreements (the “Agreements”) with various counter parties in connection with the Company’s plant biotechnology business relating to tobacco and hemp/cannabis. The schedule below summarizes the Company’s commitments, both financial and other, associated with each Agreement. Costs incurred under the Agreements are generally recorded as research and development expenses on the Company’s Consolidated Statements of Operations and Comprehensive Loss. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Future Commitments ​ Commitment Counter Party Product Relationship Commitment Type 2022 2023 2024 2025 ​ 2026 & After ​ Total Research Agreement ​ KeyGene ​ Hemp / Cannabis ​ Contract fee ​ $ 1,150 ​ $ 1,200 ​ $ 1,227 ​ $ 1,264 ​ $ 1,630 ​ $ 6,471 (1) License Agreement ​ NCSU ​ Tobacco ​ Annual royalty fee ​ ​ 225 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 225 (2), (3) License Agreement ​ NCSU ​ Tobacco ​ Minimum annual royalty ​ ​ 50 ​ ​ 50 ​ ​ 50 ​ ​ 50 ​ ​ 550 ​ ​ 750 (2) License Agreement ​ NCSU ​ Tobacco ​ Minimum annual royalty ​ ​ 50 ​ ​ 50 ​ ​ 50 ​ ​ 50 ​ ​ 450 ​ ​ 650 (2) Sublicense Agreement ​ Anandia Laboratories, Inc. ​ Hemp / Cannabis ​ Annual license fee ​ ​ 10 ​ ​ 10 ​ ​ 10 ​ ​ 10 ​ ​ 100 ​ ​ 140 (3) Growing Agreements ​ Various ​ Various ​ Contract fee ​ ​ 38 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 38 (4) Consulting Agreements ​ Various ​ Various ​ Contract fee ​ ​ 1,370 ​ ​ 808 ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,178 (5) ​ ​ ​ ​ ​ ​ ​ ​ $ 2,893 ​ $ 2,118 ​ $ 1,337 ​ $ 1,374 ​ $ 2,730 ​ $ 10,452 ​ ​ (1) Exclusive agreement with the Company with respect to the Cannabis Sativa L. plant (the "Field"). The initial term of the agreement was five years with an option for an additional two years . On April 30, 2021, the Company and KeyGene entered into a First Amended and Restated Framework Collaborative Research Agreement which extended the agreement term, from first-quarter 2024 to first-quarter 2027, and preserves the Company’s option for an additional 2-year extension, now through first quarter of 2029. F-22 Table of Contents The Company will exclusively own all results and all intellectual property relating to the results of the collaboration with KeyGene (the "Results”). The Company will pay royalties in varying amounts to KeyGene relating to the Company's commercialization in the Field of certain Results. The Company has granted KeyGene a license to commercialize the Results outside of the Field and KeyGene will pay royalties in varying amounts to the Company relating to KeyGene's commercialization outside of the Field of the Results. (2) The Company is also responsible for reimbursing NCSU for actual third-party patent costs incurred, including capitalized patent costs and patent maintenance costs. These costs vary from year to year and the Company has certain rights to direct the activities that result in these costs. (3) The Company is also responsible for the payment of certain costs, including, capitalized patent costs and patent maintenance costs, a running royalty on future net sales of products made from the sublicensed intellectual property, and a sharing of future sublicensing consideration received from sublicensing to third parties in all countries except for Canada. Anandia retains all patent rights, and is responsible for all patent maintenance, in Canada. (4) Various R&D growing agreements for hemp / cannabis and tobacco. (5) General corporate consulting agreements. Litigation - Crede Settlement On June 19, 2019, the Company, Crede CG III, LTD. (“Crede”) and Terren Peizer (“Peizer”) participated in a settlement conference meeting as required by the United States District Court for the Southern District of New York (the “SDNY Court”) entitled Crede CG III, LTD. v. 22nd Century Group, Inc . Subsequently, the Company, Crede and Peizer entered into a settlement agreement that settled this case, with the effective date of the settlement agreement being on July 22, 2019. Under the terms of the settlement agreement: (i) the Company issued to Crede on July 25, 2019 an aggregate of Nine Hundred Ninety Thousand ( 990,000 ) shares of common stock of the Company in full satisfaction of the cashless exchange of the Tranche 1A warrant and in settlement of all disputes between Crede, Peizer and the Company; (ii) Crede granted a proxy to the Company for a period of five ( 5 ) years for the Company to vote all of the shares of common stock of the Company owned by Crede in favor of the recommendations by the Company’s Board of Directors (excluding any extraordinary transactions); (iii) Crede agreed to not purchase, borrow or short any securities of the Company; and (iv) the Company, Crede and Peizer agreed to mutual releases of all claims between the parties and the dismissal of all the litigation claims and counterclaims with prejudice. The Company accrued an expense related to the settlement of this case during the second quarter of 2019 in the amount of $ 1,891 , which is equal to the fair value of the 990,000 shares of Company common stock on July 22, 2019. The accrual was reclassified to capital upon the issuance of the common stock during the third quarter of 2019. ​ Class Action On January 21, 2019, Matthew Jackson Bull, a resident of Denver, Colorado, filed a Complaint against the Company, the Company’s then Chief Executive Officer, Henry Sicignano III, and the Company’s then Chief Financial Officer, John T. Brodfuehrer, in the United States District Court for the Eastern District of New York entitled: Matthew Bull, Individually and on behalf of all others similarly situated, v. 22nd Century Group, Inc., Henry Sicignano III, and John T. Brodfuehrer , Case No. 1:19-cv-00409 . On January 29, 2019, Ian M. Fitch, a resident of Essex County Massachusetts, filed a Complaint against the Company, the Company’s then Chief Executive Officer, Henry Sicignano III, and the Company’s then Chief Financial Officer, John T. Brodfuehrer, in the United States District Court for the Eastern District of New York entitled: Ian Fitch, Individually and on behalf of all others similarly situated, v. 22nd Century Group, Inc., Henry Sicignano III, and John T. Brodfuehrer , Case No. 2:19-cv-00553 . F-23 Table of Contents On May 28, 2019, the plaintiff in the Fitch case voluntarily dismissed that action. On August 1, 2019, the Court in the Bull case issued an order designating Joseph Noto, Garden State Tire Corp, and Stephens Johnson as lead plaintiffs. On September 16, 2019, pursuant to a joint motion by the parties, the Court in the Bull case transferred the class action to federal district court in the Western District of New York, where it remains pending as Case No. 1:19-cv-01285. Plaintiffs in the Bull case filed an Amended Complaint on November 19, 2019 that alleges three counts: Count I sues the Company and Messrs. Sicignano and Brodfuehrer and alleges that the Company's quarterly and annual reports, SEC filings, press releases and other public statements and documents contained false statements in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5; Count II sues Messrs. Sicignano and Brodfuehrer pursuant to Section 10(b) of the Securities Exchange Act and Rule 10b5(a) and (c); and Count III sues Messrs. Sicignano and Brodfuehrer for the allegedly false statements pursuant to Section 20(a) of the Securities Exchange Act. The Amended Complaint seeks to certify a class, and unspecified compensatory and punitive damages, and attorney's fees and costs. On January 29, 2020, the Company and Messrs. Sicignano and Brodfuehrer filed a Motion to Dismiss the Amended Complaint. On July 31, 2020, the Court heard oral arguments on the motion to dismiss. On January 14, 2021, the Court granted motion, dismissing all claims with prejudice. The Plaintiffs filed a notice of appeal on February 12, 2021 to the Second Circuit Court of Appeals. The Second Circuit has granted an expedited briefing schedule and Plaintiff’s/Appellant’s was filed on April 12, 2021 and the Company’s was filed on May 17, 2021. The Second Circuit heard oral arguments on September 2, 2021 and the matter remains pending with the Second Circuit. We believe that the claims are frivolous, meritless and that the Company and Messrs. Sicignano and Brodfuehrer have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and Messrs. Sicignano and Brodfuehrer against such claims. Shareholder Derivative Cases On February 6, 2019, Melvyn Klein, a resident of Nassau County New York, filed a shareholder derivative claim against the Company, the Company’s then Chief Executive Officer, Henry Sicignano III, the Company’s Chief Financial Officer, John T. Brodfuehrer, and each member of the Company’s Board of Directors in the United States District Court for the Eastern District of New York entitled: Melvyn Klein, derivatively on behalf of 22nd Century Group v. Henry Sicignano, III, Richard M. Sanders, Joseph Alexander Dunn, Nora B. Sullivan, James W. Cornell, John T. Brodfuehrer and 22nd Century Group, Inc ., Case No. 1:19-cv-00748 . Mr. Klein brings this action derivatively alleging that (i) the director defendants supposedly breached their fiduciary duties for allegedly allowing the Company to make false statements; (ii) the director defendants supposedly wasted corporate assets to defend this lawsuit and the other related lawsuits; (iii) the defendants allegedly violated Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder for allegedly approving or allowing false statements regarding the Company to be made; and (iv) the director defendants allegedly violated Section 14(a) of the Securities Exchange Act and Rule 14a-9 promulgated thereunder for allegedly approving or allowing false statements regarding the Company to be made in the Company’s proxy statement. On February 11, 2019, Stephen Mathew filed a shareholder derivative claim against the Company, the Company’s then Chief Executive Officer, Henry Sicignano III, the Company’s Chief Financial Officer, John T. Brodfuehrer, and each member of the Company’s Board of Directors in the Supreme Court of the State of New York, County of Erie, entitled: Stephen Mathew, derivatively on behalf of 22nd Century Group, Inc. v. Henry Sicignano, III, John T. Brodfuehrer, Richard M. Sanders, Joseph Alexander Dunn, James W. Cornell, Nora B. Sullivan and 22nd Century Group, Inc., Index No. 801786/2019 . Mr. Mathew brings this action derivatively generally alleging the same allegations as in the Klein case. The Complaint seeks declaratory relief, unspecified monetary damages, corrective corporate governance actions, and attorney’s fees and costs. On August 15, 2019, the Court consolidated the Mathew and Klein actions pursuant to a stipulation by the parties (Western District of New York, Case No. 1-19-cv-0513). We believe that the claims are frivolous, meritless and that the Company and the individual defendants have substantial legal F-24 Table of Contents and factual defenses to the claims. We intend to vigorously defend the Company and the individual defendants against such claims. On June 10, 2019, Judy Rowley filed a shareholder derivative claim against the Company, the Company’s then Chief Executive Officer, Henry Sicignano III, the Company’s Chief Financial Officer, John T. Brodfuehrer, and each member of the Company’s Board of Directors in the Supreme Court of the State of New York, County of Erie, entitled: Judy Rowley, derivatively on behalf of 22nd Century Group, Inc. v. Henry Sicignano, III, Richard M. Sanders, Joseph Alexander Dunn, Nora B. Sullivan, James W. Cornell, John T. Brodfuehrer, and 22nd Century Group, Inc. , Index No. 807214/2019 . Ms. Rowley brings this action derivatively alleging that the director defendants supposedly breached their fiduciary duties by allegedly allowing the Company to make false statements. The Complaint seeks declaratory relief, unspecified monetary damages, corrective corporate governance actions, and attorney’s fees and costs. We believe that the claims are frivolous, meritless and that the Company and the individual defendants have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and the individual defendants against such claims. On September 13, 2019, the Court ordered the litigation stayed pursuant to a joint stipulation by the parties. On January 15, 2020, Kevin Broccuto filed a shareholder derivative claim against the Company, the Company's then Chief Executive Officer, Henry Sicignano III, the Company's Chief Financial Officer, John T. Brodfuehrer, and certain members of the Company's prior Board of Directors in the District Court of the State of Nevada, County of Clark, entitled: Kevin Broccuto, derivatively on behalf of 22nd Century Group, Inc. v. James W. Cornell, Richard M. Sanders, Nora B. Sullivan, Henry Sicignano, III, and John T. Brodfuehrer, Case No. A-20-808599. Mr. Broccuto brings this action derivatively alleging three counts: Count I alleges that the defendants breached their fiduciary duties; Count II alleges they committed corporate waste; and Count III that they were unjustly enriched, by allegedly allowing the Company to make false statements. On February 11, 2020, Jerry Wayne filed a shareholder derivative claim against the Company, the Company's then Chief Executive Officer, Henry Sicignano III, the Company's Chief Financial Officer, John T. Brodfuehrer, and certain members of the Company's prior Board of Directors in the District Court of the State of Nevada, County of Clark, entitled: Jerry Wayne, derivatively on behalf of 22nd Century Group, Inc. v. James W. Cornell, Richard M. Sanders, Nora B. Sullivan, Henry Sicignano, III, and John T. Brodfuehrer, Case No. A-20-808599. Mr. Wayne brings this action derivatively alleging generally the same allegations as the Brocutto case. The Complaint seeks unspecified monetary damages, corrective corporate governance actions, disgorgement of alleged profits and imposition of constructive trusts, and attorney's fees and costs. The Complaint also seeks to declare as unenforceable the Company's Bylaw requiring derivative lawsuits to be filed in Erie County, New York, where the Company is headquartered. On March 25, 2020, the Court ordered the Brocutto and Wayne cases consolidated and stayed pursuant to a joint stipulation from the parties. We believe that the claims are frivolous, meritless and that the Company and the individual defendants have substantial legal and factual defenses to the claims. We intend to vigorously defend the Company and the individual defendants against such claims. ​ F-25 Table of Contents NOTE 13. – LOSS PER COMMON SHARE The following table sets forth the computation of basic and diluted loss per common share for the years ended December 31, 2021, 2020 and 2019, respectively. Outstanding warrants, options, and restricted stock units were excluded from the calculation of diluted EPS as the effect was antidilutive. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 ​ 2019 ​ ​ (in thousands, except for per-share data) Net loss ​ $ ( 32,609 ) ​ $ ( 19,711 ) ​ $ ( 26,558 ) Weighted average common shares outstanding - basic and diluted ​ ​ 156,208 ​ ​ 138,813 ​ ​ 125,883 Net loss per common share - basic and diluted ​ $ ( 0.21 ) ​ $ ( 0.14 ) ​ $ ( 0.21 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Anti-dilutive shares are as follows as of December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ Warrants ​ ​ — ​ ​ 11,293 ​ ​ 11,293 Options ​ ​ 5,171 ​ ​ 6,581 ​ ​ 7,837 Restricted stock units ​ ​ 3,165 ​ ​ 2,938 ​ ​ 951 ​ ​ ​ 8,336 ​ ​ 20,812 ​ ​ 20,081 ​ ​ NOTE 14. – EQUITY BASED COMPENSATION On May 20, 2021, the stockholders of 22nd Century Group, Inc. (the “Company”) approved the 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (the “2021 Plan”). The 2021 Plan allows for the granting of equity awards to eligible individuals over the life of the 2021 Plan, including the issuance of up to 5,000,000 shares of the Company’s common stock, in addition to any remaining shares under the Company’s 2014 Omnibus Incentive Plan pursuant to awards under the 2021 Plan. The 2021 Plan has a term of ten years and is administered by the Compensation Committee of the Company’s Board of Directors to determine the various types of incentive awards that may be granted to recipients under the 2021 Plan and the number of shares of common stock to underlie each such award under the 2021 Plan. As of December 31, 2021, the Company had available 7,526,630 shares remaining for future awards under the 2021 Plan. F-26 Table of Contents Restricted Stock Units (“RSUs”) . We typically grant RSUs to employees and non-employee directors. The following table summarizes the changes in unvested RSUs from December 31, 2018 through December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ Unvested RSUs ​ ​ ​ ​ Weighted ​ ​ ​ ​ Average ​ ​ Number of ​ Grant-date ​ Shares Fair Value ​ ​ in thousands ​ $ per share Unvested at December 31, 2018 ​ — ​ $ — Granted ​ 1,301 ​ $ 2.21 Vested ​ ( 100 ) ​ $ 2.02 Forfeited ​ ( 250 ) ​ $ 2.02 Unvested at December 31, 2019 951 ​ $ 2.15 Granted 2,885 ​ $ 0.71 Vested ​ ( 325 ) ​ $ 1.07 Forfeited ​ ( 573 ) ​ $ 1.90 Unvested at December 31, 2020 ​ 2,938 ​ $ 0.85 Granted ​ 2,200 ​ $ 3.25 Vested ​ ( 1,660 ) ​ $ 0.85 Forfeited ​ ( 313 ) ​ $ 1.04 Unvested at December 31, 2021 ​ 3,165 ​ $ 2.50 ​ The fair value of RSUs that vested during the years ended December 31, 2021 and 2020 was approximately $ 5,262 and $ 601 , respectively, based on the stock price at the time of vesting. F-27 Table of Contents Stock Options. Our outstanding stock options were valued using the Black-Scholes option-pricing model on the date of the award. A summary of all stock option activity since December 31, 2018 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ ​ ​ ​ ​ ​ Weighted ​ Average ​ ​ ​ ​ ​ ​ ​ Average ​ Remaining ​ Aggregate ​ ​ Number of ​ Exercise ​ Contractual ​ Intrinsic ​ Options Price Term Value ​ ​ in thousands ​ $ per share ​ ​ ​ ​ ​ ​ Outstanding at December 31, 2018 ​ 8,672 ​ $ 1.54 ​ ​ ​ ​ ​ ​ Granted ​ 600 ​ $ 2.07 ​ ​ ​ ​ ​ ​ Exercised ​ ( 75 ) ​ $ 0.93 ​ ​ ​ ​ ​ ​ Forfeited ​ ( 1,360 ) ​ $ 2.09 ​ ​ ​ ​ ​ ​ Outstanding at December 31, 2019 7,837 ​ $ 1.49 ​ Exercised ( 399 ) ​ $ 1.04 ​ Forfeited ( 169 ) ​ $ 1.83 ​ Expired ​ ( 688 ) ​ $ 1.51 ​ ​ ​ ​ ​ ​ Outstanding at December 31, 2020 6,581 ​ $ 1.50 ​ Granted 235 ​ $ 3.10 ​ Exercised ​ ( 984 ) ​ $ 1.37 ​ ​ ​ ​ ​ ​ Forfeited ​ ( 600 ) ​ $ 1.00 ​ ​ ​ ​ ​ ​ Expired ​ ( 61 ) ​ $ 2.64 ​ ​ ​ ​ ​ ​ Outstanding at December 31, 2021 ​ 5,171 ​ $ 1.65 ​ 3.6 years ​ $ 7,431 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercisable at December 31, 2021 ​ 4,836 ​ $ 1.56 ​ 3.4 years ​ $ 7,375 ​ The intrinsic value of a stock option is the amount by which the current market value or the market value upon exercise of the underlying stock exceeds the exercise price of the option. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model. No option awards were granted in 2020. The following assumptions were used for the years ended December 31, 2021 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ 2021 2019 Risk-free interest rate (1) 0.54 % 1.54 % Expected dividend yield (2) — % — % Expected volatility (3) 87.92 % 70 % Expected term of stock options (4) 4.09 years 5.15 years ​ (1) The risk-free interest rate is based on the period matching the expected term of the stock options based on the U.S. Treasury yield curve in effect on the grant date. (2) The expected dividend yield is assumed as zero. The Company has never paid cash dividends nor does it anticipate paying dividends in the foreseeable future. (3) The expected volatility is based on historical volatility of the Company’s stock. (4) The expected term represents the period of time that options granted are expected to be outstanding based on vesting date and contractual term. F-28 Table of Contents Compensation Expense . The Company recognized the following compensation costs, net of actual forfeitures, related to RSUs and stock options: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 2019 Sales, general, and administrative ​ $ 3,821 ​ $ 1,526 ​ $ 3,166 Research and Development ​ 162 ​ 128 ​ 374 Total RSUs and stock option compensation ​ $ 3,983 ​ $ 1,654 ​ $ 3,540 ​ As of December 31, 2021, unrecognized compensation expense amounted to $ 4,685 which is expected to be recognized over a weighted average period of approximately 0.8 years. In addition, there is approximately $ 517 of unrecognized compensation expense that requires the achievement of certain milestones which are not yet probable. ​ NOTE 15. – INCOME TAXES The following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31, 2021, 2020 and 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Current: ​ ​ ​ Federal ​ $ — ​ $ — ​ $ — State ​ — ​ — ​ — Total current ​ $ — ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Deferred: ​ ​ ​ Federal ​ ​ ( 7,566 ) ​ ( 3,932 ) ​ ( 5,607 ) State ​ ( 1 ) ​ ( 200 ) ​ 55 Total deferred ​ ( 7,567 ) ​ ( 4,132 ) ​ ( 5,552 ) Change in valuation allowance ​ 7,581 ​ 4,170 ​ 5,552 Total income taxes ​ $ 14 ​ $ 38 ​ $ — ​ The provision (benefit) for income tax varies from that which would be expected based on applying the statutory federal rate to pre-tax accounting loss, including the effect of the change in the U.S. corporate income tax rates, as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Statutory federal rate ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % Other items 0.5 ( 0.3 ) ( 0.1 ) ​ Litigation Settlement — — 1.5 ​ Derivative liability — — — ​ Stock based compensation ( 2.7 ) 0.7 1.8 ​ Research and development credit carryforward ( 0.1 ) 0.2 ( 3.3 ) ​ State tax provision, net of federal benefit — ( 0.8 ) 0.2 ​ Equity investment — — — ​ Federal tax rate change — — — ​ Valuation allowance 23.3 21.4 20.9 ​ ​ ​ ​ ​ ​ ​ ​ ​ Effective tax rate (benefit) provision — % 0.2 % — % ​ F-29 Table of Contents Individual components of deferred taxes consist of the following as of December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2021 2020 2019 Deferred tax assets: ​ ​ ​ Net operating loss carry-forward ​ $ 24,859 ​ $ 18,498 ​ $ 14,996 Inventory ​ 104 ​ 115 ​ 52 Stock-based compensation ​ 1,326 ​ 1,099 ​ 1,049 Start-up expenditures ​ 177 ​ 199 ​ 221 Research and development credit carryforward ​ 1,192 ​ 1,171 ​ 1,209 Accrued bonus ​ 411 ​ 423 ​ 200 Severance liability ​ 50 ​ 122 ​ 134 Unrealized loss on investments ​ 1,366 ​ 371 ​ 40 Operating lease obligations ​ 365 ​ 52 ​ 127 Capital loss on investment ​ ​ 107 ​ ​ — ​ — Other ​ 18 ​ 18 ​ 22 ​ ​ $ 29,975 ​ $ 22,068 ​ $ 18,050 Deferred tax liabilities: ​ ​ ​ Machinery and equipment ​ ( 254 ) ​ ( 237 ) ​ ( 239 ) Patents and trademarks ​ ( 373 ) ​ ( 358 ) ​ ( 351 ) Gain on investment ​ — ​ ( 13 ) ​ ( 104 ) Accrued expense ​ — ​ ( 24 ) ​ ( 51 ) Operating lease right-of-use assets ​ ( 362 ) ​ ( 52 ) ​ ( 126 ) Other intangible assets ​ ( 259 ) ​ ( 224 ) ​ ( 189 ) ​ ​ ( 1,248 ) ​ ( 908 ) ​ ( 1,060 ) Valuation allowance ​ ( 28,779 ) ​ ( 21,198 ) ​ ( 16,990 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net deferred taxes ​ $ ( 52 ) ​ $ ( 38 ) ​ $ — ​ The Company has net operating loss (“NOL”) carryforwards of approximately $ 70,658 as of December 31, 2021, that do not expire. The Company had accumulated an NOL carryforward of approximately $ 46,920 through December 31, 2017 and this NOL carryforward begins to expire in 2031. As of December 31, 2021, the Company has a research and development credit carryforward of approximately $ 1,192 that begins to expire in 2031. The Company has a capital loss carryover of approximately $ 510 as of December 31, 2021, which expires in 2026. Utilization of these NOL carryforwards may be subject to an annual limitation in the case of equity ownership changes, as defined by law. Due to the uncertainty of the Company’s ability to generate sufficient taxable income in the future, the Company has recorded a valuation allowance to reduce the net deferred tax asset to zero. These carryforwards are included in the net deferred tax asset that has been fully offset by the valuation allowance. ASC 740 provides guidance on the financial statement recognition and measurement for uncertain income tax positions that are taken or expected to be taken in a company’s income tax return. The Company has evaluated its tax positions and believes there are no uncertain tax positions as of December 31, 2021. ​ NOTE 16. – REVENUE RECOGNITION The Company recognizes revenue when it satisfies a performance obligation by transferring control of the product to a customer. The Company’s customer contracts consist of obligations to manufacture the customer’s branded filtered cigars and cigarettes. For certain contracts, the performance obligation is satisfied over time as the Company determines, due to contract restrictions, it does not have an alternative use of the product, and it has an enforceable right to payment as the product is manufactured. The Company recognizes revenue under those contracts at the unit price stated in the contract based on the units manufactured. Revenue from the sale of the Company’s products, which includes excise taxes and shipping and handling charges billed to customers, is recognized net of cash discounts, sales returns and allowances. There was no allowance for discounts or returns and allowances at December 31, 2021 and F-30 Table of Contents December 31, 2020. Excise taxes recorded in Cost of Goods Sold on the Consolidated Statement of Operations and Comprehensive Loss for 2021, 2020, and 2019 were $ 10,135 , $ 9,859 , and $ 9,187 , respectively. Contract Assets and Liabilities Unbilled receivables (contract assets) represent revenues recognized for performance obligations that have been satisfied but have not been billed. These receivables are included as Accounts receivable, net on the Consolidated Balance Sheets. Customer payment terms vary depending on the terms of each customer contract, but payment is generally due prior to product shipment or within extended credit terms up to twenty-one ( 21 ) days after shipment. Deferred revenue (contract liabilities) relates to down payments received from customers in advance of satisfying a performance obligation. This deferred revenue is included as Deferred income on the Consolidated Balance Sheets. Total contract assets and contract liabilities are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ 2021 2020 Unbilled receivables $ 178 $ 349 Deferred revenue ​ ​ ( 119 ) ​ ​ ( 272 ) Net contract assets ​ $ 59 ​ $ 77 ​ Disaggregation of Revenue The Company’s net sales revenue is derived from customers located primarily in the United States of America and is disaggregated by the timing of revenue recognition—net sales transferred over time and net sales transferred at a point in time. Revenue is primarily related to contract manufacturing. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2021 2020 2019 Net sales-over time ​ $ 21,061 ​ $ 16,326 ​ $ 16,466 Net sales-point in time ​ 9,887 ​ 11,785 ​ 9,367 Total Revenue ​ $ 30,948 ​ $ 28,111 ​ $ 25,833 ​ The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue. For the year ended December 31, 2021, three customers accounted for approximately 84 % of total revenue. For the year ended December 31, 2020, two customers accounted for approximately 91 % of total revenue. For the year ended December 31, 2019, three customers accounted for approximately 93 % of total revenue. ​ NOTE 17. – SUBSEQUENT EVENT ​ Investment in Change Agronomy ​ On December 10, 2021, we entered into a subscription agreement to invest £ 500 (pounds sterling, in thousands), in exchange for 592,888 ordinary shares of Change Agronomy Ltd. (“CAL”), a private company existing under the laws of England, at a price per share of £ 0.84333 . CAL is a vertically integrated sustainable industrial hemp business that combines world-class genetics with leading agronomic techniques and infrastructure to provide full-service industrial hemp products to multiple global end markets. CAL presently has operations in Manitoba, Canada, and Italy. This equity investment was part of an Offer for Subscription by CAL for a minimum total of £ 3,000 at the same price per ordinary share. Approximately U.S. $ 682 in funds were wired to CAL on January 26, 2022, and our investment of £ 500 equates to approximately 1.8 % of CAL’s total equity. ​ ​ ​ F-31 Table of Contents Item 15(b). Financial Statement Schedules ​ ​ 22nd CENTURY GROUP, INC. AND SUBSIDIARIES SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS ($ in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Column A Column B Column C Column D Column E ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period Charged to costs and expenses Charged to other accounts Deductions Balance at end of period Valuation allowance on net deferred tax assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ $ 21,198 ​ $ 7,581 ​ $ — ​ $ — ​ $ 28,779 Year Ended December 31, 2020 ​ $ 16,990 ​ $ 4,208 ​ $ — ​ $ — ​ $ 21,198 Year Ended December 31, 2019 ​ $ 11,438 ​ $ 5,552 ​ $ — ​ $ — ​ $ 16,990 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for slow moving or obsolete inventory: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended December 31, 2021 ​ $ 100 ​ $ 317 ​ $ — ​ $ ( 317 ) ​ $ 100 Year Ended December 31, 2020 ​ $ 100 ​ $ 521 ​ $ — ​ $ ( 521 ) ​ $ 100 Year Ended December 31, 2019 ​ $ 100 ​ $ 985 ​ $ — ​ $ ( 985 ) ​ $ 100 ​ ​ ​ ​ Item 15(c). Exhibits In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and: · should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; · have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; · may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and · were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company’s other public files, which are available without charge through the SEC’s website at http://www.sec.gov . 52 Table of Contents Exhibit No. Description 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed with the Commission on December 1, 2010). 3.1.1 Amendment to Certificate of Incorporation of the Company (incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement filed with the Commission on March 4, 2014). 3.2 Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the Commission on January 30, 2014). 3.2.1 Amendment No. 1 to Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the Commission on April 28, 2015). 4.1* Description of Securities Registered Pursuant to Section 12 10.1† 2010 Equity Incentive Plan (incorporated herein by reference to Exhibit 4.3 to the Company’s Form S-8 filed with the Commission on March 30, 2011). 10.2† Employment Agreement between the Company and Michael J. Zercher (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on September 13, 2019) 10.3†† License Agreement dated March 6, 2009 between North Carolina State University and 22nd Century Limited, LLC (incorporated by reference to Exhibit 10.21 to the Company’s Form S-1 registration statement filed with the Commission on August 26, 2011). 10.3.1 Amendment dated August 9, 2012 to License Agreement dated March 6, 2009 between North Carolina State University and 22nd Century Limited, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 20, 2012). 10.4 Letter Agreement between the Company and North Carolina State University dated November 22, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Commission on November 23, 2011). 10.5† Form of Restricted Stock Award Agreement (incorporated by reference to Form 10-Q filed on May 10, 2013). 10.6† Form of Stock Option Award Agreement (incorporated by reference to Form 10-Q filed on May 10, 2013). 10.7† Form of Restricted Stock Award Agreement under 22nd Century Group, Inc. 2014 Omnibus Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Commission on April 14, 2014). 10.8† Form of Stock Option Award Agreement under 22nd Century Group, Inc. 2014 Omnibus Incentive Plan, as amended and restated (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Commission on April 14, 2014). 10.9† 22nd Century Group, Inc. 2014 Omnibus Incentive Plan, as amended and restated (incorporated by reference from Appendix A to the Company’s definitive proxy statement filed on March 22, 2019). 53 Table of Contents 10.10† Form of Executive Restricted Stock Unit Award under 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.15 of the Company’s Annual Report on Form 10-K filed with the Commission on March 6, 2019). 10.11† Form of Director Restricted Stock Unit Award under 2014 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.16 of the Company’s Annual Report on Form 10-K filed with the Commission on March 6, 2019). 10.12††† Framework Collaborative Research Agreement, dated as of April 3, 2019, between KeyGene N.V. and 22nd Century Group, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 7, 2019). ​ ​ ​ 10.13† ​ Employment Agreement between the Company and James Mish (incorporated by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2020). ​ ​ ​ 10.14† ​ Employment Agreement between the Company and John Franzino (incorporated by reference to exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on June 3, 2020). ​ ​ ​ 10.15† ​ 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference from Appendix A to the Company’s definitive proxy statement filed April 5, 2021) ​ ​ ​ 10.16† ​ Form of Option Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.2 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021). ​ ​ ​ 10.17† ​ Form of Executive RSU Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.3 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021). ​ ​ ​ 10.18† ​ Form of Director RSU Award Agreement under 22nd Century Group, Inc. 2021 Omnibus Incentive Plan (incorporated by reference to exhibit 10.4 of the Company’s Current Report on Form 8-K filed with the Commission on May 21, 2021). ​ ​ ​ 10.19††† ​ First Amended and Restated Framework Collaborative Research Agreement between 22nd Century Group, Inc. and Keygene N.V. dated April 16, 2021 (incorporated by reference to exhibit 10.1 of the Company’s Form 10-Q filed with the Commission on August 5, 2021). ​ ​ ​ 10.20 ​ Promissory Note Exchange Agreement between 22nd Century Group, Inc. and Panacea dated June 30, 2021 (incorporated by reference to exhibit 10.2 of the Company’s Form 10-Q filed with the Commission on August 5, 2021). ​ ​ ​ 10.21 ​ Securities Exchange Agreement between 22nd Century Group, Inc. and PLS, Exactus, Inc. dated June 30, 2021 (incorporated by reference to exhibit 10.3 of the Company’s Form 10-Q filed with the Commission on August 5, 2021). ​ ​ ​ 10.22† Employment Agreement between the Company and Richard Fitzgerald (incorporated by reference to exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on November 19, 2021). ​ ​ ​ 23.1* Consent of Freed Maxick CPAs, P.C. 31.1* Section 302 Certification. 54 Table of Contents 31.2* Section 302 Certification. 32.1* Written Statement of Principal Executive Officer and Chief Financial Officer pursuant to 18.U.S.C §1350. 101* Interactive data files formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Cash Flows, and (iv) the Notes to the Consolidated Financial Statements. 101.INS XBRL Instance Document* 101.SCH XBRL Taxonomy Extension Schema Document* 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document* 101.DEF XBRL Taxonomy Extension Definition Linkbase Document* 101.LAB XBRL Taxonomy Extension Label Linkbase Document* 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document* ​ ​ ​ Exhibit 104 ​ Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document* ​ * Filed herewith. † Management contract or compensatory plan, contract or arrangement. †† Certain portions of the exhibit have been omitted pursuant to a confidential treatment order. An unredacted copy of the exhibit has been filed separately with the United States Securities and Exchange Commission pursuant to the request for confidential treatment. †††Certain portions of the exhibit have been omitted pursuant Regulation S-K Item 601(b) because it is both (i) not material to investors and (ii) likely to cause competitive harm to the Company is publicly disclosed. ​ ​ ​ 55 Table of Contents ​ ​ SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 22nd CENTURY GROUP, INC. Date: March 1, 2022 By: /s/ James A. Mish James A. Mish Chief Executive Officer and Director (Principal Executive Officer) Date: March 1, 2022 By: /s/ Richard F. Fitzgerald Richard F. Fitzgerald Chief Financial Officer (Principal Accounting and Financial Officer) ​ Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 1, 2022 By: /s/ Nora B. Sullivan Nora B. Sullivan Director Date: March 1, 2022 By: /s/ Richard M. Sanders Richard M. Sanders Director Date: March 1, 2022 By: /s/ Clifford B. Fleet Clifford B. Fleet Director Date: March 1, 2022 By: /s/ Roger D. O’Brien Roger D. O’Brien Director ​ ​ ​ ​ Date: March 1, 2022 By: /s/ Dr. Michael Koganov Dr. Michael Koganov Director ​ ​ ​ ​ nthony Date: March 1, 2022 By: /s/ Anthony Johnson Anthony Johnson Director ​ ​ ​ ​ ​ ​ ​ ​ ​ 56